Hidden Partnerships With ‘Preferred’ Insurers Draws AG Suit

HARTFORD — Attorney General Richard Blumenthal sued one of the nation’s largest insurance brokerage firms, Acordia, Inc, for allegedly steering consumers to selected insurers in return for millions of dollars in secret payments.

Mr Blumenthal’s action this week seeks restitution, penalties and a change in the way Acordia does its business. Connecticut filed its suit simultaneously with suits filed by the attorneys general of New York and Illinois.

Acordia, based in Chicago, allegedly signed secret “Millennium Partnership” and “Strategic Share Shift Plan” agreements in which certain insurers paid Acordia undisclosed commissions in exchange for Acordia steering customers to those “preferred” insurers.

Acordia never disclosed these hidden partnerships to its customers — violating its fiduciary duty of loyalty to its clients. The suit alleges Acordia’s practices harmed consumers, as well as many insurers in Connecticut and elsewhere who were not part of Acordia’s preferred stable of carriers.

“Our legal action shows that Acordia masked a scheme of kickbacks and contract steering with the illusion of customer loyalty — giving real loyalty to any insurer willing to pay for it,” Mr Blumenthal said. “This lawsuit brings us closer to ending the insurance industry’s hidden pay-to-play game. For years, insurers secretly paid Acordia millions of dollars in return for Acordia steering clients to those selected insurers. Now they will have to answer in court where we will vigorously pursue money back to consumers, penalties, and business reforms.

“Consumers expected Acordia to provide independent advice on the best insurance deal for the consumer. Instead, Acordia’s recommendations had less to do with the consumer’s best interest than concealed contingent commissions from insurers. We worked hard to reach an adequate remedy for consumers through negotiations, but reached an impasse,” the Attorney General said.

Mr Blumenthal’s lawsuit, filed in cooperation with Department of Consumer Protection Commissioner Edwin R. Rodriguez, says Acordia promised its customers that “We maintain the highest standards with our customers and believe in taking the steps to follow these values: Do what’s right for the customer; Talk and act with the customer in mind; exceed the expectations of customers.” They also promised a policy of “full disclosure” to the consumer.

Despite these claims to consumers, before 2005, Acordia did not disclose a series of select and secret, back-door agreements it had with insurance companies that paid Acordia millions of dollars annually for the insurance Acordia recommended to its clients.

In many cases, these hidden commissions — negotiated only with a small number of insurers — were in addition to the normal sales commission and other standard sales incentives that Acordia received for each policy it sold.

As one carrier put it, Acordia had a “very lucrative plan!”

Contingent commissions and other concealed incentives were a significant source of income for Acordia. From 2000 through 2005, the company made approximately $200 million in undisclosed contingent commissions.

In January 1999, Acordia initiated the “Millennium Agency System Partnership” in order to obtain financial support over a three-year period to offset the costs associated with launching “AMS Segetta,” a new agency management system that would directly link its offices through the Internet with a few “partner” insurers, providing an “inside track” for future business with Acordia.

Under the partnership, certain insurers were offered various ways to help Acordia meet its financial objectives, including grants and other incentives over and above standard contingent sales bonuses.

By August of 1999, insurers Atlantic Mutual, Chubb, The Hartford, Travelers, and Royal & SunAlliance had all agreed to participate in the plan, and secretly paid millions to Acordia.

For those insurers not interested in participating, Acordia made the consequences clear. One former senior vice president and chief marketing officer wrote this to Kemper Insurance after the company declined to participate: “Please let me know if we can find a solution before our marketing plans for the next 18 months exclude you from growth potential.”

In 2003, Acordia entered into another agreement with The Hartford known as the “Share Shift Opportunity.” Under this agreement, The Hartford paid significant incentives to Acordia with the objective of doubling its business through Acordia in three years by transferring customers from “nonpartner” insurers.

Under another agreement, Acordia steered its clients to customer service centers run by The Hartford and Travelers. Many consumers believed that these service centers provided independent advice. Instead, their policies were serviced by an employee of The Hartford or Travelers.

These arrangements reduced Acordia’s internal costs and freed up their sales staff, while allowing The Hartford and Travelers to directly influence consumers’ purchasing decisions.