By Bill Rusteberg
Health insurance companies rely on independent insurance agents, brokers and consultants for market distribution. They compete for broker business by contractually capturing their loyalty through bribery and Contracts of Adhesion.
Bribery comes in the form of undisclosed bonus arrangements based on new business and retention. Contractual loyalty is memorialized in Agent Contracts. These contracts incorporate a 30 day termination notice with or without cause which means residual commissions built up over time can disappear overnight leaving the broker wondering how he is going to pay for his country club membership.
We have experienced carrier bribery on several occasions over the span of our career as a fee-based consultant. Most notable examples include BUCA “A” and “B”, both of which approached me during an active Request for Proposals process.
The BUCA “A” episode occurred during an RFP process we were managing for a university. “Bill, if we are successful in landing this case there’s a bonus override waiting for you!”
The BUCA “B” episode occurred minutes before I was to make my recommendation to Commissioners Court at a Texas county. “Bill, agent Jones represents our proposal and he has agreed to give up his bonus so we can pay you should we get the nod today.”
I once asked a friend of ours if he had a conflict of interest. He worked for a large national brokerage and was hired by a Texas school district on a fee basis to manage their RFP for group medical insurance. When I asked him if there was an inherent conflict of interest his answer was just about as diplomatic as they come.
“I hope not” he said. He couldn’t say “Yes” and he couldn’t say “No.” He couldn’t be honest thus sustaining the truth. Dishonesty runs deep in the brokerage community, even among friends.
A former BUCA rep. once confided that he personally delivered bonus checks to his biggest brokers. “Do you know ABC Brokerage in San Antonio? I used to deliver checks in excess of $250,000!”
Bribery is so pervasive everyone is suspect. It’s assumed everyone is in on the scheme because it’s so common within our industry. The antidote is to expose bribes in real time, publicly without redaction. This has worked for me as the market generally recognizes Kryptonite when they see it.
There have been numerous articles published over the years exposing these dirty little secrets with little effect on market behavior. Plan sponsors either don’t care, don’t know or don’t believe these practices exist. They continue to misplace their trust to their disadvantage.
Insurance agents message they are “independent” and work for their client. That’s simply not true.
Loyalty is owed to the one with the checkbook………not to the one who funds it……
