Marsh CEO Resigns Amid Lawsuit and Investigations

Strategic Insights -

Eliot Spitzer, the New York attorney general, filed a lawsuit two weeks ago accusing Marsh & McLennan Companies, the world's largest insurance broker, of rigging the market. The company's chief executive and chairman, Jeffrey W. Greenberg, has resigned, paving the way for a settlement of the lawsuit. Spitzer has announced that he will not bring criminal charges against Marsh, but will instead focus on criminal prosecutions against individuals. Five Marsh executives have been suspended, including the head of the company's global brokerage unit, and no employees have been charged with crimes.

Key Takeaways:

  • The lawsuit, filed by Spitzer on October 14, accused Marsh of conducting a charade of sham bidding, arranging insurance coverage based on fees paid to it by insurers.
  • Marsh took in $843 million in fees from insurers last year, about 12% of its brokerage revenue of $6.9 billion.
  • The company has announced that it will stop collecting the fees from insurance companies and will instead collect commissions only from its corporate clients.
  • Spitzer has made it clear that the payments will be permanently stopped, and Marsh will only collect fees from corporations for arranging coverage without bias.
  • The investigations, led by Spitzer and other state attorneys general, have widened to include Aon, the second-largest insurance broker, and other companies in the industry.
  • A.I.G., led by Maurice Greenberg, a key figure in the scandal, is also under investigation by the Securities and Exchange Commission and the Justice Department.

Statistics:

  • $843 million: The amount of fees collected by Marsh from insurers last year
  • 12%: The percentage of Marsh's brokerage revenue that came from fees from insurers
  • $6.9 billion: Marsh's total brokerage revenue last year
  • $10 million: The fine paid by A.I.G. earlier this year to settle an S.E.C. investigation
  • $80 million to $160 million: The estimated annual revenue that Willis will lose from stopping the payments
  • 21st century: The time frame in which Jeffrey Greenberg positioned Marsh for expansion

Sources:

  • "Jeffrey W. Greenberg, Chief of Marsh, Resigns Amid Inquiry," by Charles Gasparino, NYT, October 24, 2004
  • "The New York Attorney General's Office," by Gregory Fleming, NYT, October 24, 2004
  • "Marsh's Gross Commission Income," by Bob Van Susteren, NYT, October 24, 2004
  • "The Suit Against Aon," by Andrew Ross Sorkin, NYT, October 24, 2004
  • "A.I.G. Discloses Investigation by S.E.C. and Justice Department," by Charles Gasparino, NYT, October 24, 2004