January 5, 2007

SOURCE: InsuranceNewsNet, Inc.

The saga of the 2004 Spitzer-initiated probes on broker compensation dealings continues. Some of the top brokers involved have folded their tents. Others, like Acordia, won’t give up on fighting for what the company considers a traditional business model in the industry.

Unlike the long line of brokerage firms who have already settled or are on the verge of settling their respective lawsuits, Acordia Inc., owned by Wells Fargo & Co., has made it clear that it does not intend to lay back and wait for the whip to crack. 

An official from Acordia said the company plans to vigorously defend its corporate integrity and honor against any and all allegations that will be thrown their way by the attorneys' general of Illinois, Connecticut and New York.

Three lawsuits were filed by the aforementioned states against Wells Fargo Bank N.A. and its subsidiary Acordia Inc.  The charges, particularly in the case filed in New York, contend that Acordia earned commissions from insurers from 2000 to 2005 in the amount of almost $200 million in exchange for luring clients to their business.

To date, these are some of the big brokerage firms in the U.S., who have already resolved their settlements with state regulators as well as paid clients millions of dollars and reformed their business models as part of their restitution efforts:

1. Marsh & McLennan Cos. Inc
2. Aon Corp.
3. Willis Group Holdings Ltd.
4. Arthur J. Gallagher & Co.
5. Hilb Rogal & Hobbs 
6. Brown & Brown Inc.

Marsh, Aon, Willis and Gallagher likewise stated they will refrain from receiving any more retail contingency commissions.

Some insurers, on the other hand, already managed to settle various allegations like steering charges filed by the authorities, and consented to curb their practice of dishing out contingent commissions on certain revenue models.  These firms include:

1. ACE Ltd.
2. American International Group Inc.
3. St. Paul Travelers Cos. Inc. (agreed to pay $77 million in August to end investigations on corrupt business dealings by the attorneys general in Connecticut, Illinois and New York)
4. Zurich Financial Services Group
5. Chubb Corp.

In essence, the three suits filed against Acordia (i.e. charges of collusion in and authorizing of several steering schemes that egregiously refocused Acordia's loyalty to insurers when it should have been for clients) demand an overhaul of their business framework, as well as, disgorgement of illegal profits and penalties, not to mention, recompense for all affected clients.

Acordia disputes the allegations, saying the practice of contingent compensation agreements have been in place in the industry for decades now, and that these payments have been extended to hundreds of brokers and agents all over the U.S.

New York Governor Eliot Spitzer argues that Wells essentially "funneled" its bank industry clientele to its subsidiary Acordia for supposedly neutral insurance consultation in a dirty deal wherein Acordia then “funneled” this extra business to The Hartford.  To cap it off, Spitzer said, The Hartford then compensated Acordia with ‘kickbacks’ for handing it the business.

Hartford and Acordia also merged a huge array of measures (a.k.a. the Share Shift program) which were intended to double any business which Acordia directed towards Hartford for a period of three-years.

“This lawsuit brings us closer to ending the insurance industry’s hidden pay-to-play game,” Connecticut Attorney General Richard Blumenthal said in a statement.

According to Acordia and groups like The Big “I”, contingent commissions are part of the system.

Alex Soto, CPCU, ARM, president of Miami-based InSource, Inc. and a Big “I” national officer, said that contingent commissions are a legal, legitimate form of compensation to reward excellent sales performance.

Regulators disagree.

An official from the Connecticut state regulators panel said Acordia will now have to answer in court exactly how and why they were paid millions of dollars by insurers in exchange for luring clients to those ‘pet’ insurers for decades now.  The official also adds that the Connecticut Attorney Generals’ office is committed to vigorously pursue and return those kick-backed dollars to the consumers, penalties and business reforms.  And that they are hoping this lawsuit effects closure on the insurance industry’s unspoken ‘I scratch your back, you scratch mine’ approach.

Sources from Hartford though have tried to diffuse tensions by publicly stating that, rest assured, the public can rely on them cooperate and comply fully with state probers, and that the company is working keenly with them towards the settlement of these allegations.

Acordia, though, can take comfort in the fact that they are not alone in this fight.  Joining Acordia in the battle against the same attorneys-general-raised allegations of business steering and bid-rigging is the Liberty Mutual Group Inc.

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