Major Insurance Brokerage Fights Cost-Plus Concept

Does not take long for word to spread within the insurance industry it seems. A major national insurance brokerage is questioning the concept  of cost-plus provider reimbursement and is warning their clients and prospective clients against employing the strategy.  One would wonder why?

Could it be that undisclosed revenue streams to the brokerage, known to be paid by some insurance companies, and never disclosed to the client, could be jeopardized?  Could confidential bonus arrangements with brokers that are applied to each broker’s total book of business be affected?

For the reader’s information, a bonus arrangement on a broker’s total book of business is one way to hide compensation. So, when you ask the carrier if Agent Brown is receiving any kind of bonus on your group, they can honestly answer “no” since the bonus is pooled amongst all the broker’s groups and is not directly tied to your account.

There are other methods to “milk” the client too. For example, we have an email from a major insurance company to a broker outlining undisclosed compensation payable through the carrier’s pharmacy benefit manager. Here was the math outlined in the email:  254 employees X $9.34 Rx Rebate Amount)  X 12 months = $28,468 in undisclosed compensation above and beyond the $15,240 disclosed compensation ($5 pepm fee) and the 15% of stop loss commission.  Look for more information on this in a future posting.

Under a cost-plus arrangement, all monies are totally accounted for and fully transparent. That is a good thing.


If your agent recommends ABC Insurance Company, ask for a complete copy of his brokerage/agent agreement with ABC.