Subject category:
Strategy and General Management
Published by:
IBS Case Development Center
Length: 11 pages
Data source: Published sources
Topics:
Marsh and McLennan Companies; Insurance brokerage firm; New York Attorney General Eliott Spitzer; Michael Cherkasky and Jeffrey Greenberg; American insurance regulatory system; Insurance bid rigging; Price manipulating and fixing; US SMART (State Modernisation and Regulatory Transparency) Act; Insurance scandal and probe; Corporate transparency; Conflict of interests and investor confidence; Fraud and anti-competitive activities; Secretive culture; Corporate governance; American insurance industry
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Abstract
Marsh & McLennan (Marsh), the world''s largest insurance brokerage company was mired in an insurance scandal in 2004. It was alleged by New York Attorney General Eliot Spitzer, that it had been involved in unethical and illegal practices to benefit its favourite clients through rigging of insurance bids in their favour, manipulating prices of their insurance products and that it received extra commissions for those favours. These allegations and the consequent investigation by the attorney general had a profound impact on the company. It witnessed the erosion of its market capitalisation by nearly 50%, a decrease in earnings, downgrading by international rating agencies and resignation of the Chief Executive Officer (CEO). The entire US insurance industry came under the scrutiny of investigators and law enforcers. To protect the company from its falling reputation, the company appointed a new CEO Michael Cherkasky, who took up the task of reformation by an $850 million settlement of the scandal, a change of business model, elimination of unlawful practices, and measures to maintain transparency and better compliance. But the company still faces several other tougher challenges for the future. The case study highlights the inherent flaws in the US insurance industry, the insurance scandal at Marsh, and its impact on the entire industry. It enumerates the impact of the investigations on Marsh, the measures taken by the company and the challenges ahead of it to revive itself. It also highlights the need to have a single national regulatory system to ensure compliance with law and protection of consumers against fraud.
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Abstract
Marsh & McLennan (Marsh), the world''s largest insurance brokerage company was mired in an insurance scandal in 2004. It was alleged by New York Attorney General Eliot Spitzer, that it had been involved in unethical and illegal practices to benefit its favourite clients through rigging of insurance bids in their favour, manipulating prices of their insurance products and that it received extra commissions for those favours. These allegations and the consequent investigation by the attorney general had a profound impact on the company. It witnessed the erosion of its market capitalisation by nearly 50%, a decrease in earnings, downgrading by international rating agencies and resignation of the Chief Executive Officer (CEO). The entire US insurance industry came under the scrutiny of investigators and law enforcers. To protect the company from its falling reputation, the company appointed a new CEO Michael Cherkasky, who took up the task of reformation by an $850 million settlement of the scandal, a change of business model, elimination of unlawful practices, and measures to maintain transparency and better compliance. But the company still faces several other tougher challenges for the future. The case study highlights the inherent flaws in the US insurance industry, the insurance scandal at Marsh, and its impact on the entire industry. It enumerates the impact of the investigations on Marsh, the measures taken by the company and the challenges ahead of it to revive itself. It also highlights the need to have a single national regulatory system to ensure compliance with law and protection of consumers against fraud.