UnumProvident Corp. disability insurance company has ended what New York Attorney General Eliot Spitzer called deceptive practices and secret payments to brokers, according to a $15.5 million settlement announced this week.
UnumProvident, based in Chattanooga, Tenn., agreed to pay restitution to policy holders and a civil penalty of $1.9 million. Many of the reforms in the settlement, which Spitzer said should serve as a model for the industry, were suggested by Unum, Spitzer said.
Spitzer had accused the company of improperly compensating brokers who pitched several insurance companies’ policies to prospective customers. Spitzer said the company will be the first life and disability insurer to prohibit “contingent commissions” on group insurance policies and to disclose all compensation of brokers.
“This settlement eliminates incentives for brokers to act against their clients’ interest and ensures full disclosure of Unum’s compensation arrangements,” Spitzer said. “These reforms, many of which were conceived by Unum itself, will help restore the integrity of the market and promote competition.”
The practices prohibited under the settlement were done throughout the industry, said Jim Sabourin, spokesman for Unum which is the largest disability insurer in the nation.
He said he expects the settlement will within weeks lead to new ways to compensate brokers and will be a model for the rest of the industry.
“We’ve worked cooperatively with the New York attorney general since questions were first raised about the industry’s compensation practices,” he said.
Spitzer said Unum’s previous practices included paying brokers based on their ability to get customers to renew policies despite rate increases. The company also made loans to brokers that could be paid off in exchange for the broker bringing Unum business.
The case flows from Spitzer’s investigation of bid rigging in the insurance industry.
The probe began in 2004 and more than 20 insurance companies have agreed to pay more than $3 billion so far.
Shares of UnumProvident rose 33 cents, or 1.67 percent, to $20.11 on the New York Stock Exchange in afternoon trading.
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