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Managing in Troubled Times Case Study

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Case Title:

Marsh & McLennan: The Troubled Insurance Broker

Publication Year : 2005

Authors: Blessy Keerthi, Srinath Manda

Industry: Banking, Insurance and Financial Services

Region:USA

Case Code: TRT0022

Teaching Note: Not Available

Structured Assignment: Not Available

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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.

Pedagogical Objectives:

  • To highlight the flaws in the US insurance industry, which led to a major scandal, and its impact on the insurance indutry.

Keywords : 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; Managing in Troubled Times Case Study; Insurance scandal and probe; Corporate transparency; Conflict of interests and investor confidence; Fraud and anti-competitive activities; Secretive culture; Corporate governance; American insurance industry

Contents:

  • Background of Marsh & McLennan
  • The Scandal
  • The Impact of the Probe
  • The Road Ahead

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