Important News Update
As you may have heard, the Attorney General of New York, Eliot Spitzer, has been conducting an investigation into allegations of bid rigging by several large brokerage agencies. The initial allegations have centered in the property and casualty area of Marsh & McLennan. The lawsuit by Spitzer against Marsh describes circumstances where false "high" bids were obtained through competing insurers in a collaborative scheme to insure placement with a preferred carrier. The carriers who were awarded the business are alleged to have provided Marsh with a special compensation agreement in addition to regular commissions.
As you well know, many health insurance and ancillary line carriers also provide bonus compensation for brokers who place larger volumes of business with them. Often these large blocks of business can help a broker get a better rate for a client, at least outside the small group market. The situation described in the Spitzer lawsuit is not common practice and at best is the exception rather than the rule. NAHU is monitoring closely Mr. Spitzers issuance of subpoenas to health insurance carriers, such as Aetna, CIGNA and Met Life, and will keep you apprised of any further developments in these areas.
Whether true or not, these accusations against agents and brokers are now public and your clients may ask questions about the way you do business. In addition, some state regulators may be taking action on special compensation arrangements and other compensation agreements to regulate them in a new way; these actions may extend across all lines of insurance.
NAHU has recently released a press statement to address our position on this case, given the media attention it is getting at the current time. The text of the statement is as follows:
"Broker compensation agreements between insurance carriers and brokers are a longstanding and standard practice within the insurance industry," stated NAHU Executive Vice President Kevin Corcoran. "NAHU supports disclosing all factors that will help clients make the best possible insurance purchasing decision.
"NAHU members adhere to a strict code of ethics, which includes the following provisions:
· To hold the selling, service and administration of health insurance and related products and services as a professional and public trust and do all in our power to maintain its prestige;
· To keep paramount the needs of those whom we serve;
· To respect our clients trust in us, and to never do anything that would betray that trust or confidence;
· To present policies factually and accurately, providing all information necessary for the issuance of sound insurance coverage to the public whom we serve;
· To be fair and just to our competitors, and to engage in no practices that may reflect unfavorably on myself or my industry;
· To extend honest and professional conduct to our clients, associates, fellow agents and brokers, and the company or companies whose products we represent.
"Circumventing competition in the marketplace violates our basic free-market principles. NAHU urges insurance carriers and our members to fully cooperate with ongoing investigations and to support regulations that promote ethical conduct within our industry" said Corcoran.
In the event that you are asked by reporters or others about this case, we suggest that you make the following points:
Most brokers work very hard to provide their clients with the best possible service and price for their insurance products.
This type of activity, if done on a regular basis, would work against a brokers normal economic incentives. Brokers are hired by their employer and individual clients to help them find appropriate coverage of high-quality and at the right price.
If a broker consistently recommended coverage that was overpriced, they would soon be replaced by another broker. A brokers incentive is to provide excellent service so as to maintain a sizable block of business.
Where special compensation or preferred broker arrangements exist, they are normally used to negotiate better benefits and cost, just as volume discounts are used in other goods and services.
NAHU members adhere to a strict code of ethics that requires them to always make recommendations with their customers best interests in mind.
For more information about this story, please see attached articles printed in the Wall Street Journal on the day the story broke.
We hope this information is helpful to you. Please watch for more information from NAHU on this subject as developments warrant. If you have any questions or comments, please contact NAHU at info@nahu.org.
Kevin P. Corcoran, CAE
Executive Vice President
National Association of Health Underwriters
703-276-3800 * 703-841-7797 - fax
kcorcoran@nahu.org
www.nahu.org
