THE world’s biggest insurance broker, Marsh & McLennan, has hired Freshfields, the law firm, to conduct a thorough investigation into whether its London operation is guilty of “price fixing and collusion”.

Bruce Carnegie-Brown, chief executive of the British business, has given the top City law firm just 30 days to complete its report.

The appointment is in response to the lawsuit issued by Eliot Spitzer, the New York attorney-general, against the broker’s American owners.

The UK arm of Marsh hopes that Freshfields’ investigation will shore up customer confidence and prevent a mass exodus of clients. One senior Marsh source said: “If customers defect, it could become like Arthur Andersen, and be life threatening.” Carnegie-Brown could not be reached for comment.

The Financial Services Authority has been informed of the probe, even though it does not become the industry’s official regulator until January.

Marsh controls a network of 30 offices throughout Britain. These generate annual revenues of $1 billion (£550m). It also accounts for at least £2.5 billion of the annual premiums written through Lloyd’s of London.

If Marsh did collapse, there is a fear this business could be written in Bermuda, which would have a devastating impact on the London market.

Shares in Marsh, traded in America, crashed 40% in the past two weeks as the seriousness of Spitzer’s inquiry began to dawn.

Willis Group, the UK-based brokerage that is No 3 in its field in London, has already been subpoenaed by Spitzer. Another British broker, Jardine Lloyd Thompson, is reviewing its “placement service agreements”, which are at the centre of Spitzer’s probe and involve bonuses paid to brokers by insurers for selling high volumes or more profitable products.

Marsh’s problems could be compounded by a volley of claims from shareholders angered by its lack of disclosure over these payments.

Jeffrey Greenberg, chairman and chief executive of Marsh, is this weekend fighting to save his job. The company’s non-executive directors are considering their options, including who could temporarily succeed Greenberg. It follows Spitzer telling Marsh he would not negotiate with its top management and all but calling on the directors to remove Greenberg.

Non-executive directors at Marsh include Ian Lang, the former Scottish minister.

Experts say that persuading Spitzer that Marsh is willing to change radically the way it has been doing business will be crucial in heading off a criminal indictment of the company.

Some directors are thought to want Jules Kroll — the founder of Kroll, now owned by Marsh — to do the job. But by yesterday the chances of that appeared to have diminished.