Attorney General, Insurance Commissioner Announce $30
Million Settlement With Insurance Agency

August 31, 2005

Attorney General Richard Blumenthal and state Department of Insurance (DOI) Commissioner Susan F. Cogswell today announced a $30 million settlement with Hilb Rogal & Hobbs, the nation's eighth largest insurance agency, for surreptitiously steering clients to certain insurers in exchange for hidden commissions.

The $30 million will be distributed to hundreds of thousands of consumers nationally – between 5,000 and 6,000 in Connecticut alone. This nationwide settlement is the first to involve insurance agents who sell primarily to individual consumers and small businesses.

The company has also agreed to pay a $250,000 fine to the state DOI. The fine is for the payment of an improper rebate to Women's Health USA, Inc., a Connecticut-based physicians management company for the nation's largest group of ob-gyns.

The company has also agreed to adopt significant reforms, unprecedented in the industry, including a "Customer Bill of Rights" that informs consumers of their right to know up front HRH's compensation arrangements with insurers.

"This $30 million settlement is 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," Blumenthal said. "Hundreds of thousands of ordinary consumers paid higher premiums to insure their homes or cars because HRH secretly steered clients to a select group of insurers in exchange for improper hidden payments. They moved whole blocks of hundreds of clients at a time – owners of homes, cars and small businesses – often to the so-called 'Big 3.'

"As important as the money for consumers, is the bill of rights: an iron clad guarantee for full candid disclosure to clients of all commissions or other payment. Consumers unknowingly subsidized HRH's closet kickback scheme because the secret payments were built into the clients' premiums. These unconscionable business practices raised insurance costs for consumers who were systematically steered in exchange for the biggest bonus to HRH, not the best deal for the client. The scheme also stifled competition, shutting out the dozens of insurers from HRH's preferred stable.

"Consider this major settlement a win for consumers and a warning to the entire industry that such unconscionable schemes must stop. My investigation into insurance industry abuses is continuing vigorously and aggressively," Blumenthal said.

Cogswell said, "The agreement that was entered into with Hilb Rogal & Hobbs today is significant because of the substantial recovery for both the citizens of Connecticut and for residents of other states. It is an indication of our commitment as regulators to pursue aggressively any available option in order to protect consumers and safeguard their interests from the questionable practices of those who infringe on those rights for their own selfish interest. This settlement sends a strong message that we will fight strenuously to prevent abuses and to preserve not only the rights of consumers, but also the public's confidence in the insurance industry."

The settlement was reached after Blumenthal's office uncovered several agreements where HRH secretly steered clients to certain insurers in return for undisclosed commissions. Many of the agreements secretly rewarded HRH for directing personal lines clients – those seeking homeowners and automobile insurance – to HRH's select group of carriers, dubbed the "Big 3." The Big 3 included The Hartford, Travelers and CNA.

HRH has also agreed to cooperate in an ongoing investigation involving employee benefit insurance, such as health, disability and group life insurance.

The state's investigation also found HRH steered consumers to insurers where HRH had a partial undisclosed ownership interest in the companies. HRH also took payments up front from insurers including MetLife and CNA, disguising the payments as "loans." In return, HRH funneled clients to those companies.

HRH will notify by mail those clients eligible for cash from the settlement fund. The notices will be delivered before or by Aug. 1, 2006. Those clients will be instructed to return their notice of settlement and a claim form to HRH by Nov. 21, 2006.

Under the settlement, HRH has also agreed to cooperate with the attorney general's ongoing insurance investigation and adopt additional business reforms, such as:

• Disclosure of all bids and quotes received by the broker on behalf of the client.
• A prohibition on accepting any contingent compensation for its brokerage business.
• Mandatory training of all HRH sales staff regarding commission issues.
• Creation of a Business Practices Committee at HRH to monitor compliance with this settlement agreement.
• HRH must disclose to clients its ownership interest in insurers.

View Complaint (PDF-147KB)

View Settlement Agreement (PDF-1,213KB)