Marsh says climate change becoming a crucial issue in its industry

by Robert Powell
for Virginia Business
December 2006

The mild hurricane season this year has not stopped the world's largest insurance broker from talking about the weather.

Brian Storms, chairman and CEO of New York-based Marsh Inc., says that climate change has become one of the most-discussed issues he has encountered in meetings with clients around the globe. He talked with Virginia Business during a recent stop in Richmond between trips to London and Beijing.

Storms says companies now have to plan for the damage that severe storms can inflict on their facilities, suppliers and customers. "Nobody thought this way five years ago," he says.

Marsh has accepted global warming as a fact without getting into the debate about who is to blame and how pollution should be regulated.

Insurance companies, in fact, have begun to respond to concerns about climate change. Ceres, a national coalition of investors and environmental groups, recently identified 190 new insurance products in 16 countries dealing with the issue. The report cited Firemen's Fund Insurance, for example, for providing rate credits and other incentives to clients who rebuild damaged properties using LEED-certified (Leadership in Energy and Environmental Design) building practices.

Marsh sees the growing concern with climate change as a business opportunity. "Marsh's business is migrating rapidly from being the world's largest broker to world's largest strategic risk adviser," says Storms.

This change in the company's approach began in 2004 when New York Attorney General Eliot Spitzer sued Marsh, accusing it of steering clients to certain insurers so that brokers could collect hefty contingency fees. These fees are paid by insurance companies to brokers who produce a high volume of business for the insurer.

As part of a settlement with Spitzer, the company agreed to give up contingency fees, which had contributed $845 million in revenue in 2003. Storms, who became head of Marsh a year ago, says that the settlement forced the company to rethink its business and its relationship with clients. But Storms says Marsh is not just trying to replace lost revenue. "This has nothing to do with Spitzer," he says "This has everything to do with the marketplace and how this company in this market dynamic builds a value proposition that clients want."

Storms believes that the risks associated with climate change increasingly will become the concerns of shareholders and corporate directors. At the annual meeting of the Clinton Global Initiative in September in New York, Marsh, Ceres and Yale University announced plans to educate independent directors about the liabilities and opportunities posed by climate change. The program, called the Sustainable Governance Forum, will begin this winter and continue through September 2008.

"For many companies it comes down to a simple discussion of business continuity, which is about managing and mitigating risk before you have an event," Storms says.

Editor's note: Media General, the parent company of Virginia Business, is a Marsh Inc. client.