External Events: The Risk of Loss from Eliot

What other risk will the financial services industry find to be more of a threat? With the latest litigation filed by the now famous Eliot Spitzer the insurance industry is in for the same treatment as Wall Street. Clean up your act.

The New York AG's suit against insurance broker Marsh & McLennan and other heavyweights may change the way the industry does business

America's biggest insurers have found themselves in the midst of a scandal that could change the very nature of the business. On Thursday, Oct. 14, New York Attorney General Eliot Spitzer charged Marsh & McLennan (MMC ), the huge financial-services firm and world's largest insurance broker, with fraud. In a civil complaint filed in New York State Supreme Court, Spitzer alleges that the firm engaged in bid-rigging, price-fixing, and accepted payoffs from insurers. Marsh's stock has plummeted -- it opened on Oct.14 at $46.01 but is trading on Oct. 15 at around $28.20, a drop of roughly 38%.

The scrutiny of the sales process at every insurer in the country has now begun. If you have a P & C policy on your building with Marsh, it might be worth getting a competitive bid now. This is going to be another lesson in Management 101.