A class action lawsuit filed in August 2005 makes for fascinating reading. The suit purports that insurance agents and brokers receive significant undisclosed compensation.
Some excerpts within the pleading include: “The broker defendents put their interests above their clients by refusing to place their business with insurance carriers that do not pay overrides even if the carrier provides the most cost effective insurance or superior service.”………………”Aetna’s refusal to pay undisclosed Contigent Commissions has had a direct result on its business with brokers”…………………………”But he gives business to Blue Cross because of commissions”…………………….”He told us to load our rates 5-10% (give him half) and we get all his business”.
The pleading purports that insurance companies pay brokers and agents fees above and beyond commissions. Profit sharing agreements include fees for (1). Volume of business – Volume Contingency Fee, (2). Renewals – Persistance Contigency Fees, (3). Profitability – Profitability Contingency Fees.
Specifically, the pleadings state that AIG’s 2003 Broker Agreement provides Marsh a 1% renewal bonus (fee) if renewal premium renews at 85%, 2% bonus if renewal renewas at rate of 90%, and 3% fee if renewal rates renew at 95% or more. AON’s Broker Agreement is purported to include a Performance Enhancement Fund Fee of 17% for new business, 10% fee for renewals, and when total book of broker’s business hits $10,000,000, an additional 1.5% fee is paid.
In addition to these fees/Agreements, the suit offers that some insurance companies pay (1) Communication Fees, (2). Enrollment Fees, (3). Finders Fees and (4). Administration Fees.
To review the entire pleading, click here: Class Action – Undisclosed Compensation
Editor’s Note: We can show how a broker can make +$200,000 on a 150 life case without the employer knowing about it. The cavaet is that the employer must be fairly stupid and non-inquisitive by nature.
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