Marsh, the world's biggest insurance broker, yesterday announced it would suspend accepting special commissions from favoured insurers as it attempted to calm investors over charges of corruption.
The announcement appeared to deal a severe blow to the insurance broking business model, since it is likely to have a big short-term impact on brokers' revenues.
On Thursday, New York attorney-general Mr Eliot Spitzer filed a lawsuit against Marsh and accused the insurance industry of widespread corruption and anti-competitive practices. The suit, which sent stocks in the insurance sector tumbling, claimed Marsh and others duped "unsuspecting clients" by rigging bids, falsifying contracts and steering customers towards insurers that paid higher commissions.
Shares in Marsh & McLennan, Marsh's parent, have lost more than one-third of their value since Mr Spitzer first pressed charges against it. They fell 17.07 per cent to $28.90 in afternoon trading in New York yesterday, having recovered some ground following a steeper drop in the stock earlier in the day.
American International Group (AIG), the biggest US insurance company and another company named in the suit, said its top executives were not involved in the fraud alleged by Mr Spitzer.
AIG chief executive Mr Maurice "Hank" Greenberg said an internal probe found problems only in the property and casualty insurance business of AIG subsidiary American Home Assurance.
Two American Home executives had pleaded guilty to fraud charges related to Mr Spitzer's probe, he said.
The lawsuit accuses other major US insurers - including Hartford Financial Services Group, Chubb, Bermuda-based ACE, and a unit of the German company Munich Re - of knowingly participating in the schemes.
Analysts expect more investigations to be set up by other states. - (Financial Times Service/Reuters)
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