UnumProvident, the nation's largest disability insurer, has reached agreement with New York and California, resolving an investigation of deceptive practices in its compensation of brokers and consultants in the sale of group insurance products.
Under the agreements, the UnumProvident Corporation will become the first life and disability carrier to agree not to pay contingent commissions on all group insurance products and to provide full disclosure of broker compensation to employers and other organizations that purchase its products on behalf of their employees or members.
"This settlement eliminates incentives for brokers to act against their clients' interest, and ensures full disclosure of Unum's compensation arrangements," New York Attorney General Eliot Spitzer said. "These reforms, many of which were conceived by Unum itself, will help restore the integrity of the market and promote competition."
"We are pleased we have resolved ... in a way that is good for our customers and brokers," said Thomas R. Watjen, president and chief executive officer of UnumProvident. He said the settlements "can be a model for our industry."
The New York agreement sets forth allegations concerning a variety of undisclosed compensation programs previously employed by Unum.
They included payments made to brokers based on their ability to persuade clients to renew policies in the face of rate increases, and loans made by Unum to brokers that could be "earned off" if Unum obtained a sufficient amount of business from the brokers' clients.
In addition to measures that will increase the transparency of broker compensation to consumers, Unum has agreed to stop certain practices altogether, such as the making of loans to, or obtaining undisclosed ownership interests in, brokers. It is anticipated that the agreement could serve as a model for carriers and other participants in the employee benefits insurance industry.
As part of the New York settlement, Unum, based in Chattanooga, Tenn., will pay $15.5 million in restitution to policyholders and a civil penalty of $1.9 million.
