Marsh & McLennan Companies (MMC) founded in 1871, is a global insurance brokerage firm providing advice and solutions in the areas of risk, strategy and human capital. It has clients in more than 100 countries and a workforce of more than 60,000 employees as indicated in MMC 1st quarter results report on April 21 2004.
On October 14 2004, New York Attorney - General Eliot Spitzer filed civil charges against MMC for alleged misbehaviour in property-casualty insurance coverage, which included fake bids, collusion, improper steering of business to favour insurers, payments by insurers to avoid solicitation of competing quotes, outright threats against those resisting participation in the fraudulent schemes (CFO.com reading 3).
Key Ethical Issues
Bid rigging process
MMC worked with major insurers to rig the bidding process for property-casualty insurance coverage. MMC brokers decided which insurers would get their clients’ business and at a certain price. MMC’s business plan was to increase revenue by steering business to those insurers willing to pay higher commissions. (FT reading 8)
Conflict of interest
Clients of MMC were misled into thinking that they were getting the most competitive deal, but in actual fact they paid a much higher premium. MMC did not act in the best interest for their clients because MMC received fees from clients and commissions from the insurers (Berenson, 2004)
Price-fixing
MMC engaged in price-fixing scams to manipulate the price market in the insurance industry. In order to assist one insurer to renew a policy, it maintained an agreement with other insurer companies to set higher prices so that the former could retain its business.
Acceptance of kickbacks
Insurers offered incentives to MMC in the form of controversial contingent commissions on top of the basic standard commission for achieving a certain quota of business. The contingent commissions formed half of MMC’s net income in 2003.