NEW YORK (AFP) - Marsh and McLennan Companies, Inc. the world's biggest insurance broker, announced a radical overhaul of its business practices after learning it would not face criminal charges for allegedly deceiving its customers.
The reform of its business practices comes one day after chief executive officer Jeffrey Greenberg resigned under pressure to be replaced by new CEO Michael Cherkasky, a former prosecutor.
The New York-based insurance broker had come under fire from New York Attorney General Eliot Spitzer, who accused the company of steering clients to insurers with whom it had lucrative payoff agreements.
Alleging bid-rigging, Spitzer filed a lawsuit against Marsh and McLennan on October 14 saying he would not negotiate with its then-management.
A day after Greenberg's resignation, Marsh said Tuesday it would no longer accept "contingent compensation" from insurers. Such compensation arrangements had been at the center of Spitzer's case against Marsh.
The company said in a statement that each of its clients would receive "a full accounting of all revenue earned by Marsh, including fees," and that it was forming a new global compliance unit.
Marsh said it is also carrying out a wholesale review of its practices, and that it would be setting up an internal compliance and ethics hotline to handle calls from concerned staff.
"These reforms are the next critical step to ensure the integrity and quality of our relationships with clients and to resolve our legal and regulatory issues," Cherkasky said.
"In introducing these significant industry-leading changes, we are demonstrating our commitment to our clients and the markets and taking a leadership position in industry reform," the new CEO said.
The news that Spitzer's office will not be filing criminal charges against Marsh saw its stock soar, after it had fallen sharply amid the investigation.
Spitzer's October lawsuit alleged Marsh solicited fake bids in order to deceive clients into thinking a competitive process had been followed with regard to their insurance policies.
Spitzer said immediate victims were mainly large corporations seeking property and casualty coverage as well as municipal governments and some school districts.
Greenberg's father is Maurice Greenberg, chairman and chief executive officer of insurance giant American International Group, Inc., which has been cited by Spitzer for its relationship with Marsh.
Marsh was trading up 2.28 dollars, or 8.3 percent, at 26.60 dollars in late afternoon trading.
Marsh said its reforms will be implemented by January 1, 2005.
10/26/2004 - 19:58 GMT - AFP