Insurers receive subpoenas on fees

Helen Stock

Monday, June 14, 2004 | 9:13 a.m.

Aetna Inc., Cigna Corp., and MetLife Inc. said they received subpoenas from New York Attorney General Eliot Spitzer amid a widening investigation into possible conflicts of interest over fees collected by insurance brokers.

Spitzer is investigating whether the brokers, which make money by helping companies choose policies, are compromising their client relationships by also accepting payments from insurers. The requests made to Aetna, Cigna, and MetLife, which sell group life and health plans, indicate the probe has expanded beyond fees paid on property and liability coverage.

Spitzer has already subpoenaed the three biggest brokers, which have said the collection of fees from insurers is a long- standing practice that they disclose. At the same time, brokers such as Terry Havens, chief executive officer of Havensure LLC, touts his firm as one of the few that make the fees fully known.

"It's not a surprise that his investigations have led him to the employee benefits area," said Havens, who founded the Gloucester, Massachusetts-based firm. "Employers will be surprised to find that many of the negotiations being held on their behalf increase the broker's compensation at their expense."

Havens said there are two types of hidden fees widely charged by brokers who help companies choose life and related insurance.

One, called an override fee, is collected from the insurer and is based on the volume of premiums the insurer gets from the broker. The other, called a "communications fee," is a flat fee charged directly to each employee participating in the plan.

Aetna and Cigna are the third- and fourth-biggest U.S. health insurers and MetLife is the second-largest U.S. life insurer. Spokesmen for Prudential Financial Inc., the third- largest U.S. life insurer, declined to comment. UnitedHealth Group Inc., the biggest health insurer in the country, declined to comment.

The New York attorney general began his investigation after receiving a letter in February from the Washington Legal Foundation, an advocacy group.

The probe became public in April, when Marsh & McLennan Cos., Aon Corp. and Willis Group Holdings Ltd., the three biggest insurance brokerages, said they'd been subpoenaed. Aon has said the fees paid to it by insurers generated about $200 million, or 3.5 percent, of its brokerage revenue last year.

Spitzer previously subpoenaed at least two other insurance companies -- Chubb Corp., which sells property and liability insurance, and Hartford Financial Services Group Inc., which sells most types of coverage.

American International Group Inc., the biggest commercial property and casualty insurer and life insurer in the U.S., doesn't comment on regulatory matters, spokesman Joe Norton has said previously.

Spitzer spokesman Darren Dopp wouldn't comment on today's subpoenas. Cigna spokesman Wendell Potter said the company is cooperating with the investigation. Aetna and MetLife are also cooperating, according to their statements.