N.Y., Conn., Ill. AGs Bring Another Suit, This Time Against Acordia

December 19, 2006

The attorneys general of Connecticut, Illinois and New York continued their campaign against undisclosed compensation and account steering by simultaneously bringing suit today against one of the nation’s largest insurance brokers.

The suits were bought against Acordia, Inc. and its parent company, Wells Fargo Bank, N.A., for allegedly steering their customers to insurance companies that paid for the business with undisclosed payments.

(Acordia said it would defend itself and its compensation practices. See separate story at https://www.insurancejournal.com/news/national/2006/12/19/75224.htm)

According to the lawsuits, the practice of steering business represents a “significant conflict of interest” that places Acordia’s own financial interests ahead of the well-being of its clients.

The lawsuit offers what it says are details about how Acordia allegedly conspired with several insurance companies, known as Acordia’s “Millennium Partners,” to steer customers to them in exchange for secret payments. Acordia’s top management, including its then-CEO, Robert Nevins, is alleged to have actively participated in the Millennium Partners scheme.

When insurance companies refused to make the improper payments, according to the lawsuit, Acordia’s management punished them by steering customers away from them and towards insurers who did pay kickbacks.

The documents cite Acordia’s then-chief marketing officer, Charles Ruoff, as telling Acordia staff in 1999: “At this time we are concentrating on the plans and initiatives put forward by our ‘priority’ [insurance companies] to the exclusivity [sic] of all other [insurance companies].”

The suits further allege that Wells Fargo participated directly in Acordia’s fraud. In one alleged scheme, Wells Fargo agreed to “funnel” its own retail banking clients to Acordia for advice about insurance coverage, the documents claim. Wells Fargo did so with the understanding that Acordia, in turn, would steer this additional business to The Hartford, an insurance company that paid Acordia for such steering, the allegations continue.

The suits contend that contingent commissions and other so-called “concealed incentives” were a significant source of income for Acordia. From 2000 through 2005, the company made approximately $200 million in undisclosed contingent commissions.

The lawsuits seek restitution for the companies’ customers, disgorgement of illegal profits, and penalties.

“Our legal action shows that Acordia masked a scheme of kickbacks and contract steering with the illusion of customer loyalty – giving real loyalty to any insurer willing to pay for it,” Connecticut Attorney General Richard Blumenthal said. “This lawsuit brings us closer to ending the insurance industry’s hidden pay-to-play game. 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.

“It is of great concern that one of the country’s largest insurance brokerage companies, which hold itself out as an unbiased customer representative, would demand payments to steer its clients to specific insurance companies in the ways we have alleged in this lawsuit,” Illinois Attorney General Lisa Madigan said.

Blumenthal’s lawsuit was filed in cooperation with Department of Consumer Protection (DCP) Commissioner Edwin R. Rodriguez.

In January 1999, according to Blumenthal, Acordia initiated the “Millennium Agency System Partnership” in order to obtain financial support over a three-year period to offset the costs associated with launching “AMS Segetta,” a new agency management system that would directly link its offices through the Internet with a few “partner” insurers, providing an “inside track” for future business with Acordia.

Under the partnership, certain insurers were offered various ways to help Acordia meet its financial objectives, including grants and other incentives over and above standard contingent sales bonuses, Connecticut officials allege.

By August or 1999, insurers Atlantic Mutual, Chubb, The Hartford, Travelers, and Royal SunAlliance had all agreed to participate in the plan, and secretly paid millions to Acordia, Blumenthal charges.

For those insurers not interested in participating, Acordia apparently made the consequences clear. According to the documents, one former senior vice president and chief marketing officer wrote this to Kemper Insurance after the company declined to participate:

“Please let me know if we can find a solution before our marketing plans for the next 18 months exclude you from growth potential.”

In 2003, Acordia is said to have entered into another agreement with The Hartford known as the “Share Shift Opportunity.” Under this agreement, The Hartford paid significant incentives to Acordia with the objective of doubling its business through Acordia in three years by transferring customers from “non-partner” insurers.

Under still another agreement, offcials say Acordia steered its clients to customer service centers run by The Hartford and Travelers. Many consumers believed that these service centers provided independent advice. Instead, their policies were serviced by an employee of The Hartford or Travelers.

These arrangements reduced Acordia’s internal costs and freed up their sales staff, while allowing The Hartford and Travelers to directly influence consumers’ purchasing decisions, Blumenthal added.

Sources: Attorneys General of New York, Connecticut and Illinois

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