Is Your Producers Agreement Worthless?

By Ed Gaelick, CLU, ChFC

What do you do when the trust you place in a carrier is violated? You assume your producer’s agreement is in place to protect you. Think again. When we send carriers a Request For Proposal (RFP), we are trusting them to act in good faith. Sadly, I found out not all carriers are trustworthy. I have been in the employee benefits business for over 26 years. I am well known and well respected by Carriers, General Agents, Master Brokers, TPAs and producers all over NJ. Everyone that knows me would say I know my stuff, am ethical and 100% trustworthy. I truly believe “Your Reputation is your most valuable asset”. To be violated by a carrier that I assumed would act in good faith was especially disturbing. My story should disturb you too but may make you smarter and save you the same fate.

I was the incumbent broker on a midmarket group with approximately 200 employees. They received a very unfavorable renewal and I did a complete market analysis. One carrier, I’ll call them “Carrier X” declined to quote saying they were not competitive based on poor claim history. I went back to them on three occasions afterwards and asked them to reconsider and even release a quote on any plan design that might be competitive. Each time they repeated they would not quote. I had my renewal meeting with my client without quotes from Carrier X. A month later, my client met with a nationally recognized benefits consulting firm, one headquartered in NY and operating in 40 countries, provided them all the info needed along with an additional 2 months claim history not available to me at the time I did my work. This broker received a quote from Carrier X, presented it, my client accepted it, notified me and they formally applied to Carrier X. I contacted my sales rep and the VP of Sales of Carrier X and in a conference call asked how this could happen? The answer was “sorry, we screwed up”. I suggested they assign me a “house case” that I could service so they could correct their “screw up” and I would earn my commission. I was told they will look into that as a solution. I never heard back from them. I reviewed my producers contract and filed a first level grievance (Request for Executive Review for a dispute). Shortly afterwards, I received a letter from the Associate Chief Counsel of Carrier X who said “The quote was so noncompetitive that Carrier X determined that any further quotes would not be competitive and declined to quote on any other product”. He also stated that their decision to work with this nationally recognized broker was “entirely proper” and “appropriate” considering “updated claim information”. Anyone in our business would immediately think the additional claims info was very favorable, hence Carrier X was within their rights to release a quote. I was able to get a copy of the additional 2 month claims info and it was the WORST period by far to date. So how could Carrier X release a quote to this broker based on worse claim history and ultimately take over the business? My next course of action according to the producers agreement was binding arbitration; a very cumbersome and lengthy process. I believed this was a fraud situation so for the first time in my career, I took legal action and filed a complaint with my States court. Carrier X hired a very large law firm who filed a counter motion to move the complaint to a federal jurisdiction where there was a greater likelihood the motion was dismissed. Our motion sighted fraud. The federal judge ultimately ruled to dismiss the motion since “there must be malicious intent” to say it’s fraud and we didn’t sufficiently prove that. I lost a client, compensation, paid legal fees and my reputation was hurt.

How do we prevent this? The producers agreement did not protect me. If a carrier wants to favor a larger broker, I discovered there really is nothing we can do to prevent it. The best recourse is to have an awareness and avoid working with carriers that would break this vital ethical code. Without trust between broker and carrier, we have nothing. Shame on Carrier X. If you did it to me, you’ve done it to others. The word will get around.