Thursday, January 8, 2009

Pay No Attention To That Man Behind The Curtain II

Last year I wrote about my own personal encounters with anti-competitive behavior that was being exhibited by brokers who placed business with carriers purely based on their compensation, which was frequently not disclosed on an ERISA 5500 schedule A. Such payments whether referred to as overrides or contingency commissions had a common characteristic--the customer who hired the broker usually did not know. It simply was not disclosed.

An old friend who worked at an alphabet house called me up and advised my blog post had made the morning read at his firm and people were quite upset and surely I had exaggerated. i assured him I had not written 10% of what I personally witnessed. So lets compare what I said then with this weeks news Marsh has settled charges with 9 states.

I wrote;

1. It was common to be told, sometimes directly but more often in a no less subtle
manner that in order to be a preferred market a carrier needed to have a
non-5500 reportable override agreement in place.

2 .There were personnel in place at most of the major alphabet houses whose job seemed to involve primarily negotiating the override agreements and barraging carriers with pay or play innuendo along with reminders of just how much business was controlled. In short there was the A list and the B list. Guess who earned most of the business?

3. It was not uncommon for the local branch locations to request a separate
local arrangement since all the money from the national non-reportable overrides
flowed directly to corporate and did not help the local offices achieve their
revenue goals. "Can you help us, so we can help you with your goals?"

Marsh was involved with a "pay-to-play" arrangement centered on its receipt
of contingent commissions, in addition to standard commissions and fees, from
certain insurance companies. Contingent commissions, also known as profit
sharing commissions, are incentive-based compensation programs offered to
brokers by insurance companies. These arrangements were often undisclosed to
consumers, and provided an incentive for brokers to steer business to the
insurer that offered the most lucrative contingent commissions, often in
violation of their clients' interests, according to the officials.

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