Insurance Settlement Over Hidden Commissions Benefits Newtown

By John Voket

As far as Connecticut Attorney General Richard Blumenthal is concerned, no gain is too small to escape his office’s scrutiny when it represents ill-gotten gain. And no amount of restitution is too small when it comes to reconnecting money to taxpayers when he believes those taxpayers have been cheated.

A recent announcement that Newtown was among 16 Connecticut municipalities involved in a settlement with Aon, a national risk management, outsourcing, insurance, and reinsurance brokerage, was not going to matter significantly when it was first announced earlier this year. According to town finance director Benjamin Spragg, the initial settlement was only adding up to a couple thousand dollars.

“That kind of money is insignificant in our multimillion-dollar operating budget,” Mr Spragg said.

But thanks to the diligent oversight of the attorney general and his staff, Mr Blumenthal announced earlier this week that Newtown would now be receiving a total of $15,708, more than $12,360 more than originally planned.

“Now that amount gets our attention,” Mr Spragg said from his office Tuesday morning as he reviewed paperwork to be filed acknowledging the increased local windfall.

On Monday, Mr Blumenthal told The Bee that more than 20 Connecticut municipalities, corporations, and individuals are due to receive more money than anticipated from the Aon Corporation settlement after his office discovered miscalculations by the company.

The attorney general said Aon acknowledged it inadvertently miscalculated the settlement shares owed to certain policyholders and has agreed to extend the deadline for consumers to file notice of whether they accept their share of the settlement. The company is notifying towns and other policyholders affected by the error of the corrected amount.

Eligible policyholders had until November 30 to officially request their share of the settlement, which will be distributed in three installments — on December 31, 2005, September 30, 2006, and September 30, 2007.

“My office uncovered steep miscalculations in Aon’s planned payments to policyholders,” Mr Blumenthal said. “We will ensure that every eligible policyholder is paid every penny of restitution — $4.6 million to be distributed among almost 6,000 Connecticut towns and cities, taxpayers, nonprofits, and corporations. Aon rightfully took immediate steps to resolve these miscalculations when brought to their attention by my office and has continued to cooperate with our ongoing investigation into insurance industry abuses. We will completely and forcefully end the insurance industry’s ‘pay to play’ mentality.”

According to Mr Blumenthal, Chicago-based Aon earned millions of dollars in secret, illegal commissions stemming from its lucrative business with Connecticut municipalities and other consumers. In March, Mr Blumenthal announced a $190 million nationwide settlement with the company.

Aon also agreed to cease its illegal practices and cooperate with Mr Blumenthal’s ongoing investigation into industry abuses.

In the original complaint, filed March 4 in Hartford Superior Court, Mr Blumenthal alleged that for years, Connecticut consumers, including numerous municipalities and educational institutions, have paid hundreds of thousands of dollars to Aon Consulting to obtain the best professional advice so that they could get the best insurance coverage for the best price. Aon, in violation of its fiduciary duties to its clients, and insurers including Aetna, Inc and Anthem Blue Cross Blue Shield, entered into undisclosed, secret, backdoor agreements to receive “bonus” commissions, also called overrides or contingent commissions, which were in essence kickbacks, to steer or retain business.

“Aon fought hard for these ‘pay-to-play’ bonuses and Aon and Aetna and Anthem worked hard to make sure the Connecticut consumers did not know — or fully understand — the true nature of these agreements,” the complaint stated. “Even in cases where brokers had contracts with their clients obligating disclosure or were required to disclose these excess commissions on IRS forms, Aon did not inform its clients of these payments even when clients asked, a silence and deception that Aetna and Anthem were at least complicit in.”

The costs of these hidden payments to brokers — payments generally much higher than the fees paid by the clients to the brokers — were folded into the overall premiums paid. This generated higher costs for all consumers, including municipalities and educational institutions, a fact that was fully recognized by both the brokers and the insurers. Ultimately, consumers and municipal taxpayers were harmed, and the free and open market for insurance was crippled by these deliberate and unscrupulous practices, the complaint continued.

“The bottom line is that Newtown taxpayers were overcharged for insurance services, and those taxpayers will receive back the money they rightfully deserve as the policyholders,” Mr Blumenthal said. “This restitution, irrelevant of the amount, is important because it shows we are out to protect Connecticut’s towns as well as its taxpayers when it comes to insurance company abuses,” Mr Blumenthal said.

Mr Spragg said news of the settlement was especially relevant in conjunction with the towns more recent relationship with Aon. He said he learned some years ago that Connecticut-based Anthem Blue Cross-Blue Shield was charging the town a broker fee built into its rate for the insurance policies covering all town union and contract employees.

“I got a call from Aon one day asking if we wanted them to represent us, because at the time there was no town broker handling our business with Anthem Blue Cross-Blue Shield,” Mr Spragg said. “The Aon rep said, ‘Did you know you were being charged a broker fee, and since you have no broker, Anthem is just keeping it?’”

Mr Spragg said when he checked out the allegation it was true, and soon after that the town named Aon as its broker of record on the town’s policies with Anthem.

Aon Relationship ‘Advantageous’

 First Selectman Herb Rosenthal said the relationship with Aon was advantageous.

“It didn’t cost any more to have the broker looking out for the town, because their fees were already built into Newtown’s premiums for the coverage,” he said.

Mr Spragg explained that although Anthem is stipulated to be the provider of choice on all negotiated town contract and union health plans, when the Anthem premium rates increase he seeks competitive bids through Aon and another company representing the school system.

“When those bids match the services Anthem is providing, but for a lower rate, we have been able to successfully negotiate favorable adjustments because Aon helped us obtain the competitive bids,” Mr Spragg said.

Information provided through Mr Blumenthal’s office indicated that Aon has in excess of 50,000 employees in 600 offices worldwide and, according to its 2003 financial statement, generates annual revenues of approximately $9.8 billion. Aon’s insurance brokerage and consulting business operates nationwide through several regional offices and derives revenue from, among other places, business transacted within the State of Connecticut.

In addition to its commercial clients, Aon also has acted as an insurance broker for several towns and cities in Connecticut, such as Hartford, Bristol, Bloomfield, Wilton, and Manchester. Aon’s clients also include nonprofit educational and other organizations such as Yale University.

According to the Mr Blumenthal, among those towns receiving higher than expected settlements through the recent suit against Aon are Hartford ($44,775.73, an increase of $40,905.87); the Town of Sterling’s Board of Education ($5,313.19, an increase of $4,283.82); Bristol ($22,051.70, an increase of $17,979.19); East Hampton ($21.561.95, an increase of $16,476.42); Fairfield ($135,816.27, an increase of $87,803.65); Groton ($7,524.96, an increase of $5,543.13); North Branford ($33,997.29, an increase of $25,342.66); Enfield ($79,778.36, an increase of $62,210.39); Newtown ($15,707.66, an increase of $12,360.98); Portland ($8,379.33, which represents a 100 percent increase because the town was not initially included in the calculation); and Windham Public Schools ($49,347.84, an increase of $39,837).