Are Insurance Consultants Unbiased? Or Does Money Affect Behavior?


The Untouchables

“There have been numerous stories over the years, published widely, regarding “double dipping” by fee based insurance consultants. The scheme is lucrative, with little chance of punishment…..”

By Bill Rusteberg

The previous blog posting (FBI Says School District Consultant Helped Insurance Broker Get Contracts) is an unfortunate story about a Texas insurance consultant who has plead guilty to wire fraud charges related to bribes. Unfortunately, it seems this is more the norm than the exception.

There have been numerous stories over the years, published widely, regarding “double dipping” by fee based insurance consultants. The scheme is lucrative, with little chance of punishment, or in the extreme, a wrist slap and the caution “Never do it again, or else!”

It may surprise the reader to learn the practice is widespread.

The most egregious example, and the most prevalent, pertain to secret bonus arrangements offered by insurance companies in return for new business, and the continued retention of business. These carriers maintain slush funds to pay off their consultant partners.

The scheme is well constructed. The bonus payment cannot be tracked to any particular plan sponsor and is aggregated within the carriers’s overall block of business. This enables the carrier and the consultant to answer with an emphatic “NOOOOOO!” when asked “Are you receiving any compensation from ABC Insurance Company in return for your recommendation?” and “Are you paying our consultant any compensation regarding our account?”

Consultants often times earn more in undisclosed compensation from the carriers they recommend than the client who pays them a fee. A tell tale sign is when a consultant responds to a competitive Request for Proposal for Consulting Services with a low bid.

An example is one of a consultant based in Dallas, Texas, who was awarded an annual consulting agreement with a political subdivision in deep South Texas. His low bid of $24,000 was the winning bid. It is hard to understand why the consultant was hell bent on losing money. After all, each trip from Dallas to the southern tip of Texas cost as much as $1,000 (air, rental car, hotel). The scope of services included actuarial analysis, regular monthly meetings with the district’s staff and insurance committee, quarterly report presentations to the Board of Trustees. By the time you tally expenses and the time invested in the assignment, this consultant earned less than a disabled, part time street beggar in Ethiopia.

When asked why he took the assignment at such a low fee, his response was “This is a stellar account that will get me in the door for other political subdivisions in South Texas, a loss leader if you will.”

Fortunately there are a few independent insurance consultants in the market. Industry insiders know who they are. These untouchables ply their trade in the shadows, rarely winning, or even competing for competitive bids for insurance consulting work. After all, a $65,000 vs a $24,000 bid would surely look bad on a spreadsheet. Instead, these “high bid” and truly independent consultants rely on new business through referrals. They never have to look over their shoulders.

Additional Reading:

Do Fee Based Consultants Earn Kickbacks From Carriers They Recommend?

Undercover Work Exposes Bonus Arrangement For Insurance Consultants

Are All Texas Insurance Consultants Properly Licensed?

Spies, Consultants, Sun Tzu

Texas Political Subdivisions and Insurance Consultants

Don’t Ask & We Won’t Tell

World’s Biggest Liar Contest

Is Your Service Provider Consistent?