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Prudential settles broker payment charges

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Prudential settles broker payment charges

NEWARK, N.J.—Prudential Insurance Co. of America last week settled allegations of improper business practices by two states, agreeing to pay a total of $19 million, halt contingent commissions and enhance disclosure for clients.

Under its settlement of fraud and anti-competitive practices leveled by New York Attorney General Eliot Spitzer, the unit of Newark, N.J.-based Prudential Financial Inc. agreed to cease payment of contingent commissions and back-end "overrides" to brokers on group insurance products, including disability, life and long-term care.

The group life insurer--which did not admit or deny the allegations as part of the settlement--also said it would pay restitution of $16.5 million to policyholders and civil penalties of $2.5 million (see box), and provide employers with full disclosure of any broker compensation.

The settlement ends investigations into Prudential's broker compensation practices launched by Mr. Spitzer in 2004.

Those probes found that between 1999 and 2005, the company paid almost $60 million in volume-based overrides to brokers on nearly $18 billion in insurance premiums, Mr. Spitzer's office said in a statement. Prudential additionally paid some brokers specific overrides or so-called "single case overrides" to close a deal or promote future business, at times building the cost of those overrides into premiums, the office said.

Among the companies Prudential maintained override agreements with are: Aon Corp.; Marsh & McLennan Cos. Inc.; Pacific Resources; Universal Life Resources; and USI Holdings Inc., settlement documents say.

The settlement reached with New York's attorney general further resolves allegations against Prudential in a November 2004 contingent commissions and steering lawsuit filed by Mr. Spitzer against defunct life and disability broker Universal Life Resources Inc. ULR in January paid $2 million to settle the suit.

"This settlement resolves the investigation and is in the best interest of Prudential and its policyholders," Prudential said in a statement.

The settlement "compensates nationwide employers seeking to provide group benefits for their employees" and "helps restore integrity to the insurance marketplace by mandating complete disclosure of payments to brokers," Mr. Spitzer said in the statement.

Also last week, Prudential agreed to a nonmonetary settlement over business practices with California Insurance Commissioner John Garamendi.

Prudential was one of five insurers and brokers named in a 2004 lawsuit by Mr. Garamendi, alleging the insurer and others violated state law by hiding hundreds of millions of dollars in kickbacks paid to ULR to get business.

The Prudential settlement follows settlements reached with Messrs. Spitzer and Garamendi by Chattanooga, Tenn.-based UnumProvident Corp., which last month, agreed to pay more than $17 million in policyholder restitution and fines and change the way the disability insurer compensates brokers and consultants (BI, Nov. 6).

"Prudential should be commended for following the example set by UnumProvident and agreeing to do what is right for California employers and employees," Mr. Garamendi said in the statement.

According to a statement from the California Insurance Department, Prudential, as part of its settlement, vowed to uphold certain business practices on its group life, accidental death and dismemberment, disability, health, dental and vision insurance coverages.

Under the settlement terms, Prudential must: disclose the commissions paid on employee benefits business; provide an estimate of contingent commissions paid; provide training and oversight for its employees on compliance with the settlement; cooperate with the department in other ongoing investigations; make its broker compensation practices available on its Web site; not enter into any financial relationships, including equity ownership, with brokers; and not sponsor broker production contests.