Secretary of State Matt Brown is pressing the Department of Business Regulation to acknowledge that it has directly approved broker incentive fees in Rhode Island, and disclose how widespread their use is, but DBR officials won’t respond to his demands.
Brown angered DBR Director Marilyn Shannon McConaghy when he first issued a press release calling on her department to investigate insurance practices and crack down on any abuses such as those allegedly uncovered by New York Attorney General Elliot Spitzer at Marsh & McLennan and other brokerages.
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The DBR was already working on the matter, following the lead of the National Association of Insurance Commissioners. Shannon McConaghy said she would have told Brown that if he’d bothered to contact the DBR directly, but he hadn’t.
Both Shannon McConaghy and Joseph L. Torti III, head of the DBR’s insurance division, said initially that they did not know if incentive fees were used by Rhode Island-based insurers or local agents and brokers, and finding out was a key part of their probe.
The Independent Insurance Agents of Rhode Island, for its part, made it clear in an interview with PBN that incentives of various kinds are, in fact, in use here, and that it’s the agents’ position that they’re appropriate – what is not is rigging bids and otherwise breaking the law, as Marsh & McLennan allegedly did, to earn the incentives.
Then Brown found out that in 1999, the DBR had approved a broker incentive system for Blue Cross & Blue Shield of Rhode Island, and that someone had filed a complaint about it with the DBR last year, arguing that it was unethical.
Documents provided by Brown show that the plan, effective July 1999, provided for a 4-percent broker commission for the first $100,000 in Blue Cross premiums written, for example, and a 2-percent agent commission for the first $175,000 in premiums. Commissions for larger volumes were lower, so brokers writing over $1.75 million in premiums would get 0.25 percent.
On Nov. 8, Brown sent a letter to Shannon McConaghy asking what had happened to the complaint. He also issued a news release saying the DBR “needs to immediately provide the public with all the documents it has regarding the use of ‘incentive fees’ in Rhode Island, and tell us what action, if any, it has taken on the year-old complaint regarding ‘incentive fees.’”
When first asked about Brown’s questions on Nov. 12, Torti said he wasn’t aware of them, but on Wednesday, he said the DBR had investigated the matter and hand-delivered a package to Brown that day.
Torti said he couldn’t comment on the 2003 complaint, because “it’s still the subject of an open investigation here,” and he wouldn’t identify the complainant, other than to say it was another “regulated entity” that had complained once before, in 2002.
But Torti did say Blue Cross had been paying broker incentives since well before 1999 – “the records go back 14 years or 15 years.” He wasn’t insurance chief at the time, but he said his understanding is that Blue Cross asked for approval to pay incentives because “other carriers were using these types of arrangements, so Blue Cross felt they would be at a disadvantage if they couldn’t do it.”
Delta Dental also has a DBR-approved broker incentive system, Torti said (a Delta Dental spokesperson said the system is inactive). Only those two companies are required, by their state charters, to get DBR approval, he added, so the department would have no record of any others. The DBR recently sent out a survey to all Rhode Island-based insurers to get that information, Torti said.
“We want to make sure there’s nothing in any way harming consumers,” he said. Asked whether the DBR might seek to ban broker incentives, he replied: “That will be a consideration, depending on the information we get back. Obviously we’re very concerned about this.”
Brown has said he will push for legislation next year to ban broker incentives. He has also advocated for the creation of an independent insurance commissioner post, as many other states have. Legislators considered such a post this year, but ultimately approved only the creation of a health insurance commissioner post within the DBR.
