Hilb, Rogal & Hobbs said it has agreed to set up a $30 million client reimbursement fund to settle charges by Connecticut authorities that the brokerage steered insurance contracts to carriers and failed to properly disclose fee agreements.
The arrangement with the state Attorney General's Office and Insurance Department allows the Richmond, Va.-based insurance brokerage firm to keep contingent commissions on agency business but not on broker business.
HRH's settlement is different from those reached in other states by the four major insurance brokers who agreed to stop accepting such incentive fees, which regulators and investigators have said were sometimes paid by insurers as kickbacks for business.
Marsh & McLennan Companies, Aon Inc., Willis Group and Arthur J. Gallagher have agreed to eliminate all contingent commissions in settlements with the attorneys general in New York for MMC, Aon and Willis, and in Illinois for Gallagher.
Martin L. Vaughan III, HRH chairman and chief executive officer, called this a "groundbreaking" agreement, because it allows the broker to keep contingent commissions on its "traditional agency" business.
"This is the first clear recognition between fees based on brokerage business and traditional agency business paid by underwriters," he said during a company conference call.
"This sets a new industry standard on disclosure," he added.
In a statement, Connecticut Attorney General Richard Blumenthal said the agreement was "a major milestone in our fight against improper insurance practices–the first to involve personal lines of insurance and to reveal hidden payments to agents as well as brokers."
"[The agreement] is an indication of our commitment as regulators to pursue aggressively any available option in order to protect consumers and safeguard their interests," said Susan F. Cogswell, the state's insurance commissioner.
HRH did not admit or deny any guilt in the agreement.
The firm was accused of steering clients to carriers who paid larger bonuses or contingent commissions, placing some clients in captive programs where the broker had an interest and failing to inform clients of the relationship; paying improper rebates to retain clients; and allowing preferred carriers preferential treatment in order to secure more business in return for bonuses or contingent commissions.
The broker also paid a $250,000 fine for the improper rebate to Women's Health USA Inc., a Connecticut-based physicians management company. HRH contends it reported the rebate voluntarily to Connecticut officials first.
The agreement calls for payment to clients in 2007 and 2008. The company will pay $20 million by Feb. 2006 and another $10 million by Aug. 2007 into the fund for payment to U.S. clients.
The agreement calls for increased disclosure to clients and written agreements in place with clients over the form of compensation the broker will receive. Clients also will receive a "Customer Bill of Rights," outlining compensation arrangements.
HRH has set up a board of compliance, which was part of the agreement, and will hire a chief compliance officer.
The broker also will be subject to annual examinations by the state's insurance department for the next five years.
As of the close of business today, HRH's stock was up $1.54 at $35.22.
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