Full Disclosure – I am a licensed Life and Disability Insurance broker and about 40% of my business consists of group insurance programs for small business. One of my clients was a victim of this scam recently so I feel compelled to out what is sadly, common practice in the industry.
The Group Health Insurance industry is very competitive. At the present time there about twenty insurance companies in Canada offering this type of product and almost none of them work directly with clients, instead running their new sales and client management through a broker network. As with anything, there are two types of brokers out there. Those who work with honesty and integrity in the best interests of their clients, and those who seek to cheat the system for their own gain.
Here’s how to tell the difference.
When you are approached by a new broker the conversation will likely go as follows. The new salesperson will offer to provide you with some competitive quotes. That’s not a bad thing but in order to do that he/she will say that they need to see your current experience ratings and past history. If you still have a copy of your most recent renewal offer it will be enough give him/her that and the conversation should end there. They will have everything they need to do their job and provide you with competitive quotes. If you don’t have that information handy, all you need to do is call your current provider and ask for it. There is nothing wrong with a new broker asking to see your current experience rating or with you asking your current provider to forward the details to someone new. Like I said, this is a competitive business and there is nothing wrong with you trying to keep your current provider honest. Good brokers do it all the time and good companies welcome the opportunity to prove their worth to their clients, that just good business.
Now, here’s how the scam artist operates.
If you tell him/her you don’t have the experience rates, or you don’t know what they are he/she will say “that’s okay” and slide a piece of paper across the desk toward you saying, “All you need to do is sign this document and your current provider will release all of the information I need directly to me.” They will start talking very quickly in the hope that you don’t actually read the document. If that happens stop and read it very carefully.
The fact the broker has asked you to sign this is not really the scam, some honest brokers my still have this as an option. Earlier in my career I did it too, even though I now consider it to be lazy. What the document should say is that you are requesting your current provider to release the information for marketing purposes only. And they may even tell you that’s what is says. But nine times out of ten what the document actually says is that you are transferring the entire file to the new broker, including commissions payable and making it impossible for anyone, including the person who originally set up your account, to view your file or sell you a new policy with any carrier. What they have done is cut your current broker off at the knees and made themselves your exclusive agent. If there is any mention of commissions whatsoever tear it up and throw the “broker” out of your office immediately.
While technically not illegal, this practice amounts to theft. You see, most brokers are not paid upfront by the carriers they represent they are instead paid a trailing commission on a monthly basis. By signing this document you are designating the new broker as your agent of record and all commissions currently owed for the previous renewal period are transferred to them, even though they have done absolutely nothing to earn them. Call your current broker immediately and tell them there is a scam artist out there trying to steal their money.
The only time you should sign anything with a competing broker is when they bring you a new offer or in rare circumstances if you are truly dissatisfied with your current broker and wish to fire them.
The insurance industry gets a bad enough rep as it is. We don’t need scam artist running around lying to clients and trying to cut off their competitors. Competition is good for you and a good broker should welcome the opportunity to prove to you why they are the best in the business, not lie to you and try to shut out the competition and steal other people’s money.