insurance assurance

Lawsuits and fraud investigations targeting the soon-to-be embattled insurance industry have retailers reconsidering the coverage they pay for and from whom they buy it.

Until it became the subject of billion-dollar fraud investigations,the mere mention of “insurance” would cause many retailers’ eyes to glaze overwith disinterest. But today, with criminal charges pending and millions of dollarsin restitution floating around, insurance is anything but a dry subject.

“If you just trust your broker wholeheartedly, good luck,” says Mapco Express Vice President Tony McLarty. “The dollar bill says ‘In God We Trust,’ and that’s where mine ends.”

McLarty, who handles insurance matters for the 332-store chain operating in eight states, says Franklin, TN-based Mapco got into the fray as soon as New York Attorney General Elliott Spitzer announced his investigation of insurance practices last year.

“The second we saw the news articles on it, we jumped on it quickly,” McLarty says. “By that afternoon, I had our broker in our office and we went over every policy we have—every plan we have—and discussed everything at length.”

Two years earlier, Mapco had switched from broker Marsh & McLennan, the initial target of Spitzer’s investigations, for unrelated reasons.

The problem operators are facing, as Spitzer explained in testimony beforethe New York State Assembly, is that “the ordinary purchaser of insurance hasno idea that the broker selected may be receiving hidden payments from insurancecompanies, that the advice received may be compromised, or that the market bidspresented by the broker may be illusory.” Among other things, brokers were reportedlyrigging bids to steer business to certain favored insurers in return for whatare termed “contingent commissions” over and above the normal compensation theyreceived for selling the policies.

Spitzer’s investigations resulted in criminal charges and civil suits against Marsh & McLennan, Aon Corp., and several others. The initial charges spurred investigations by attorneys general in several other states, including Connecticut, Illinois, North Carolina and Florida.

The infection runs deep
Nearly every type of insurance coverage has becomesuspect, according to Spitzer, from employee benefits and medical malpractice,to property insurance and executive risk.

Because the illegal-practices may eventually lead to a distortion of the insurance market, even companies that deal directly with one insurer through an agent (instead of a broker soliciting bids from several companies) may be indirectly affected by higher premiums.

“The whole thing has gotten to be something of a nightmare in the last few years,” says Mac Davis Jr., vice president of Purvis Bros. Inc. (Mars, PA), which operates four Planet Mart Convenience Stores north of Pittsburgh. “The costs have gone up dramatically.”

Spitzer’s testimony found that a small group of brokers and insurance companieshave created “a network of interlocking connections and secret payments” thatensure that the bulk of business goes to certain insurers and that profits remainhigh. And, as a result, consumers and businesses pay more for coverage.

Nearly every type of coverage
has become suspect, from employee benefits
and medical malpractice, to property insurance and executive risk.

“The real frustration of the whole thing is that our loss experiencereally hasn’t changed, but suddenly we’re paying much, much more for the samecoverage,” Davis says. “In three years’ time, our property and casualty insurancehas gone up about 90%—and that’s actually for lower coverages. We’ve hadto increase deductibles and self-insurance. We’re compelled to shop as muchas we can and are much more aggressive about finding competitive quotes.”

Mapco’s McLarty agrees. He goes several steps further, however, and demands complete transparency from his broker.

“The wise consumer is double-checking everything,” he says. “I’ve never letthe broker be the only voice for me with the insurance carrier. I always insiston meeting with the insurance carrier and building a relationship with themas well. I let them know I’m not marriedto the broker.

“I want to know what the commission structure is,” he continues. “I want to know how much money they’re making because it helps me gauge how hard I lean on that broker for additional services.”

Such diligence can lead directly to lower premiums. Depending on the type of insurance, sometimes a reduced commission can be negotiated and the carrier will lower the overall premiums.

With other states’ attorneys generals and insurance commissioners getting involved and Congress likely to start hearings on the issue this year, insurers could be in for a rough time. For retailers and others who pay the premiums, it will be time to follow Tony McLarty’s example.

“I didn’t just take the broker’s word and run with it,” he says. “I was bornat night—but it wasn’t lastnight.”
Dave Donelson, Contributing Editor




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