Insurance Consultants Are Biased


“The last category of independent insurance consultants are those that are never comfortable outside their insulated environment. They like the warm and fuzzy feeling of staying at home in a loving environment with Mommy.”

By Molly Mulebriar

Independent, fee based, unbiased insurance consultants simply do not exist on this planet. These nocturnal beasts have their favorites, for one reason or another. Consistent behavior over time exposes alliances with vendors they recommend, monetized or not.

Insurance consultants can be placed in one of three categories. Some can be placed in more than one and as many as all three. The later is a truly complicated and remarkable personality.

Monetized Bias

Over the years there have been many articles exposing the conflicted world of insurance consultants and their clients. A September 18, 2006 Wall Street article, “Health Care Consultants Reap Fees From Those They Evaluate” describes how the Columbus public school district hired an insurance consultant for $35,000 to help choose a health insurer for the district employee health plan. The consultant recommended a change to United HealthCare. Shortly thereafter the district learned the consultant was receiving fees and other compensation from UHC. All told UHC paid the consultant $517,138 for helping it get the district’s business. (wall-street-journal-insurance-consultants)

Unfortunately these schemes continue to this day. It is well known in the insurance industry that carriers often pay consultants undisclosed fees in return for contract awards. (See Do Fee Based Consultants Earn Kickbacks From Carriers They Recommend?) These fees are never disclosed. They can be substantial, many times more than the fees paid to consultants by their clients.

A previous blog posting illustrates how the scheme works – Undercover Work Exposes Bonus Arrangement For Insurance Consultants.

A tell tail sign of the power of undisclosed compensation becomes apparent when a consultant recommends the same carrier in assignment after assignment and fights hard to keep the carrier in place. A recent example involves a political subdivision in Texas whose consultant aggressively fought against an outside audit firm from auditing the incumbent carrier’s health care claims. The same consultant failed to inform his client of new market trends. His recommendation? “Stay where you are, reduce benefits and increase costs for your employees. There is no other solution!” Thus the status quo remains.

Under the Employee Retirement Income Security Act, ERISA, plan fiduciaries are required to act solely in the interests of plan participants and beneficiaries and pay only reasonable plan expenses which are necessary. Failure to do so places plan sponsors at risk. Plan sponsors who hire insurance consultants who receive undisclosed compensation from plan assets may ultimately be held responsible for squandering plan assets. Whereas in the past scrutiny was placed primarily on retirement plans, fiduciary liability exposure under health plans is under increasing scrutiny by regulatory authorities today.

Painted Into a Box – The Predictable Ones

A consultant’s work product and subsequent reasoning behind proposed recommendations can forever paint them in a box with no escape. This makes their future recommendations apparent before they make them.

For example, a Dallas based consultant active with political subdivisions  routinely incorporates within his Request for Proposals specifications a section regarding PPO pricing. He requires each PPO network to perform a re-pricing exercise to determine which network has the most competitive pricing. Of course, this is a flawed process that can be manipulated easily (That’s a story for another day).

In written recommendations this consultant consistantly touts the Blue Cross PPO network as the most cost effective in the market. Since 80% of plan costs are attributable to claims, he opines, PPO network discounts are of utmost importance in evaluating proposals and the driving force behind his recommendations.. He has thus painted himself into a box, unable to magically state Aetna, or UHC, or any other PPO network is better in future assignments. In every instance this consultant recommends Blue Cross.

XYZ TPA Is My Mommy And I Love Her!

The last category of independent insurance consultants are those who are never comfortable outside their insulated environment. They like the warm and fuzzy feeling of staying at home in a loving environment with Mommy. Mommy takes him on trips. Mommy buys him expensive dinners. Mommy lends him money in times of need. Mommy continuously tells him how wonderful he is, how smart he is, how together he will be happy and successful in life. Christmas is an every day event. Without Mommy, these types of consultants are nothing.

A clear indication of a Mommy’s boy is not hard to detect. One we know is active in Texas. He recommends the same TPA in assignment after assignment. He is truly predictable. A running joke is when a new client hires him, all know a change will be made to XYZ TPA upon the next renewal cycle. When asked if he was concerned about developing a reputation of recommending the same vendor all the time, his response was “I like this TPA. I have direct access to the owner (Mommy) and can reach him any time of day, seven days a week. He (Mommy) takes care of me which allows me to take good care of my clients!

Seasoned vendors have learned to ask “Who is your consultant this year?” They know the market. They know history repeats itself.  They have learned from experience it’s in their best interest to analyze their chances up front, rather than wasting time on a predetermined outcome.

Employers who hire fee based insurance consultants would be wise to interview more than one before making a selection. An iron clad disclosure of direct and indirect compensation should be a requirement along with a review of past recommendations and outcomes. But, at the end of the day employers must realize there is no such thing as an unbiased consultant.

In the alternative, Plan Sponsors should choose a consultant who shares the same bias. It’s all about compatibility. Objectivity is a distant cousin.

Related Blog Posts:

McAllen ISD Reaches Out To 1,462 Insurance Consultants

Edinburg ISD Ranks Ten Insurance Consultants

Texas Political Subdivisions and Insurance Consultants

Independent Consultants Declare Old Model Fails Customers

Do Fee Based Consultants Earn Kickbacks From Carriers They Recommend?

Does Your Insurance Consultant Have Proper E&O Cover?

Health Insurance Consultant’s Best Kept Secret

Why Consultants Should Just Say “No” To RFP’s

Health Insurance Consultants Risk Lawsuits By Plan Sponsors

Are All Texas Insurance Consultants Properly Licensed?