Commentary

Marsh sinks deeper in insurance scandal.

Corporate Conflicts of Interest at Marsh & McClennan (MMC): New York State Attorney General Eliot Spitzer filed a civil suit on October 14, 2003 accusing Marsh & McLennan, which is based in New York, of bid rigging as well as of failing to properly disclose the incentive fees. Spitzer alleged that because of these sales practices, corporate customers were not getting the best prices on property and casualty policies. Corporate clients were being cheated by the phony bids in arranging their insurance coverage. Marsh has said it collected about $1.2 billion in such fees since January 2003.

In a move that I find unbelievable are reports that Marsh is still looking to collect about $230 million in incentive fees at the heart of a bid-rigging probe as a way to help fund a possible settlement over the very fees being questioned. Even executives at other insurance companies are amazed at Marsh's announcement.

You can't make stuff like this up. At least Jeffrey Greenberg was forced to resign as CEO of Marsh during this investigation.

What I'd be more interested in hearing is how the insurance companies plan to rebuild trust and confidence with their clients.

I fully expect to see private lawsuits from companies seeking payback for overcharging on their property and casualty insurance policies. Lawsuits from shareholders for loss of value of their investments should also be forthcoming.

Updates after January 14, 2005:
In order to settle this matter, it has been reported that Marsh has offered $600 Million to resolve lawsuits filed by New York City. NYC Attorney General Eliot Spitzer is seeking a settlement closer to $750 Million along with a formal "statement of contrition". Don't expect Marsh to issue an "apology". Most companies that settle lawsuits out of court do so without "admission of guilt". "Apologies" tend to be viewed as admissions of guilt.

 
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