By Trey Shields
Aon rained all over Macy’s parade, allegedly. Snagging $13.2M in commissions out of just $36.1M in premiums?
Holy, voluntary benefits, Batman.
An ERISA class action filed October 3 in a New York federal court alleges the retail giant, Macys let its insurance broker, Aon, walk away with $13.2 million in commissions out of just $36.1 million in employee-paid voluntary benefits premiums over six years.
Some quick math:
That works out to roughly 37 cents of every dollar workers paid going straight to Aon. And some years were worse than others. In 2019, broker compensation ate up over half of total premiums, 50.8%, including a jaw-dropping 65.1% commission on the critical illness plan alone. For that one coverage, almost two out of every three dollars employees paid never touched the actual insurance.
Heres where it gets even juicier:
The complaint alleges a practice called “churning”. The broker allegedly used heaped commission structures, big payouts in year one that shrink over time, then switched carriers right as the good years were ending, resetting the clock for a fresh windfall.
One commission rate cited in the filing jumped from 22.8% to 62.8% in a single switch. Nearly triple.
The suit wants $9.6 million back, the gap between what Aon allegedly collected and what a 10% rate, which the filing says is consistent with market benchmarks, would have looked like.
And people say insurance is boring? “Popcorn, get your popcorn, here.”
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“Fiduciaries of employee welfare benefit plans—including employer-sponsored health and welfare plans that offer voluntary benefits such as accident, critical illness, and hospital indemnity insurance—are required to act solely in the interest of plan participants and beneficiaries, for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan, and with the care, skill, prudence, and diligence that a prudent person acting in a like capacity would use. These fiduciary standards apply with equal force to welfare benefit plans as they do to 401(k) and other retirement plans.” – Quarles & Brady LLP