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CHICAGOAcordia Inc. has become the latest insurance brokerage to face charges over its compensation practices, but, unlike its competitors, the Chicago-based brokerage intends to fight the lawsuits.
Attorneys general in Connecticut, Illinois and New York filed separate but simultaneous lawsuits last week against Acordiaand also against its parent, Wells Fargo Bank N.A., in the New York casecharging that the world's fifth-largest brokerage accepted nearly $200 million in undisclosed commissions from insurers between 2000 and 2005 for steering business their way.
The suits are the latest chapter in the more than two-year-old investigations of broker compensation practices first launched in 2004 by New York Attorney General Eliot Spitzer.
Since January 2005, several of the world's largest brokerages, including Marsh & McLennan Cos. Inc., Aon Corp., Willis Group Holdings Ltd., Arthur J. Gallagher & Co., Hilb Rogal & Hobbs Co. and most recently Brown & Brown Inc., have reached settlements with various state authorities in which they've agreed to pay clients millions of dollars in restitution and change their business practices. Marsh, Aon, Willis and Gallagher also agreed to no longer accept contingent commissions on retail business.
A number of insurers, including ACE Ltd., American International Group Inc., St. Paul Travelers Cos. Inc. and Zurich Financial Services Group, also have settled numerous allegations leveled by state authorities, including steering charges, and have agreed to curtail their ability to pay contingent commissions on certain lines of business. Chubb Corp. joined that group last week with a $17 million settlement of investigations by Connecticut, Illinois and New York (see related story).
As for Liberty Mutual Group Inc., the brokerlike Acordiahas opted to fight bid-rigging and steering allegations from the same attorneys general.
The Acordia suits seek restitution for clients, disgorgement of illegal profits, penalties and a change in the way Acordia does its business.
"We will vigorously defend against these allegations," a spokeswoman for San Francisco-based Wells Fargo said. "Contingent compensation agreements have been longstanding and well-known in the insurance industry and these commissions continue to be paid by insurers to hundreds of insurance agents and brokers throughout the country, including New York."
Acordia's decision to fight the allegations is consistent with its 2005 stance to fight a similar lawsuit filed by West Virginia Attorney General Darrell V. McGraw Jr., who charged that Acordia and its Acordia of West Virginia Inc. subsidiary violated state antitrust and consumer protection laws by accepting contingent commissions from insurers for steering business their way (BI, May 30, 2005).
That case is still pending, the Wells Fargo spokeswoman said.
The three suits filed last week charge that Acordia authorized and participated in several steering schemes that improperly shifted Acordia's loyalty from its clients to insurers.
The alleged schemes include Acordia's Millennium Partnership Program, initiated in 1999 to consolidate its insurance business with a handful of "preferred" insurers, the suits state. The preferred market partnersAtlantic Mutual Insurance Co., Chubb Group, Hartford Financial Services Group Inc., Royal & SunAlliance and St. Paul Travelers Cos. Inc.each agreed to pay Acordia an extra override incentive of 1% of gross written premiums that Acordia placed in addition to the standard contingent commissions the insurers already were paying the brokerage, according to the suits.
While Acordia assured that its preferred partners' business increased within Acordia, it retaliated against those insurers that rejected its invitation to become a preferred partner, the attorneys general allege.
"CNA and Fireman's Fund have declined to support our financial plan without profitability stipulations. We are therefore not inclined to support any business growth with them at the determent [sic] to our priority Millennium Partners, " Charles Ruoff, Acordia's then-senior vp and chief marketing officer, said in a September 1999 e-mail sent to staff, court papers show.
In addition to the MPP program, Acordia and Hartford also put together a wide range of initiatives called Share Shift designed to double business Acordia steered to the Hartford over a three-year period, the suits allege.
Among those Share Shift initiatives was a cross-selling opportunity with Wells Fargo in which the bank agreed to mine its customer database, highlighting its middle-market business customersthose businesses with annual revenue between $50 million and $500 millionthat fit within four industries that Hartford planned to target: business services, technology, communications/media and law firms. Wells Fargo referred those customers to Acordia ostensibly for unbiased insurance brokerage services, the suits allege. Acordia in turn, steered the customers to Hartford, regardless of whether it was the best option for the customer.
According to court papers, Hartford's management expected to provide quotes on 75% of the business Acordia presented as part of the schemea rate 2.5 times better than Hartford's usual submission-to-quote ratioand that it would win 50% of these Wells Fargo customers. Management at Hartford expected to increase middle-market business it wrote through Acordia by $20 million, the suits say.
"This lawsuit brings us closer to ending the insurance industry's hidden pay-to-play game," Connecticut Attorney General Richard Blumenthal said in a statement. "For years, insurers secretly paid Acordia millions of dollars in return for Acordia steering clients to those selected insurers. Now they will have to answer in court where we will vigorously pursue money back to consumers, penalties and business reforms."
St. Paul Travelers agreed to pay $77 million in August to end probes of improper business practices by the attorneys general in Connecticut, Illinois and New York.
A spokesperson for Chubb declined comment.
"We have and continue to offer regulators our full cooperation and are working actively with them to resolve these matters," said a spokesman for Hartford.
Spokespeople for Royal & SunAlliance and OneBeacon Insurance Co., which acquired the renewal rights to Atlantic Mutual's commercial insurance business in 2003, could not be reached for comment.