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By JARED SHELLY, senior editor/web editor of Risk & Insurance®

In a scathing report, the New Jersey state comptroller accused the Delaware River Port Authority of cultivating a culture of wasteful and inappropriate spending of taxpayer dollars. It not only emphasized lavish parties and free toll passes for friends and relatives, but also possible corruption in "true-up" agreements, where insurance brokers share commissions.

The Delaware River Port Authority owns four toll bridges connecting Philadelphia and New Jersey which are separated by the Delaware River.

Over the past 10 years, "more than $1.5 million in commissions derived from the placement of DRPA insurance policies was shared among disclosed and undisclosed insurance brokers in a series of ambiguous and non-transparent dealings," it said. "The commissions were shared regardless of whether the brokers actually performed any corresponding services for the DRPA."

The report said that Willis of New Jersey Inc., a subsidiary of Willis Group Holdings Inc. did not even know it was under consideration for DRPA's business until the company found out from Conner Strong, another brokerage -- not DRPA, the client. While that may make Willis' payment of $455,000 of DPRA related commissions to Conner Strong (over seven years) seem suspect to the Comptroller's office, Willis' claims they simply earned the business through a referral.

A Willis spokesperson said: "As is clear from the report, Willis received a referral from Conner Strong to be the DRPA's insurance broker in 2003 and was thereafter contacted by the DRPA and informed that Willis had been selected as one of their brokers. Willis then began doing work for the DRPA in that year."

The report, however, found inconsistencies regarding why Willis paid the $455,000 to Conner Strong. It said that Conner Strong claims that the payments were "attributable to general marketing and referral efforts and had nothing to do with the DRPA." Willis, meanwhile, told the Office of the Comptroller that "the payments were made as a referral fee to compensate Conner Strong for its role in securing the DRPA business for Willis," according to the report.

In another true-up agreement, DRPA's business was shared between Philadelphia-based insurance brokerage The Graham Company and Willis of New Jersey. To comply with the arrangement, "Graham Company paid Willis of New Jersey more than $500,000 over the next six years [staring in 2003]. As a result, Willis received payments that didn't correspond with actual broker services, while Graham performed services for reduced compensation," said the report.

Willis did not alert authorities regarding the payments, according to the company, but has "cooperated fully" into the investigation about how DRPA retained its insurance brokers.

While DRPA officials originally said that the true-up agreements were deals between the brokerages, the report said that DRPA was actively engaged in redistributing the money. A Willis spokesperson reiterated that DRPA "required its brokers" to share commissions, even though the report states that DRPA said the agreements were purely between brokerages. In a 2010 interview with Risk & Insurance®, William A. Graham IV, then-CEO of The Graham Co., said he was "forced" into the agreement.

True-up agreements are legal in New Jersey and Pennsylvania but have been outlawed in New York.

"This commission arrangement was explained to each of the brokers when they were selected to handle the work for the DRPA and it was understood by each broker that the fees that each broker would receive would vary from year to year," said Willis' statement. "It does not mean that either one of the brokers necessarily did any more day-to-day work than the other.

DRPA's failure to take advantage of Graham's willingness to perform services at a reduced cost shows that it deliberately passed taxpayer money along to vendors, said the report.

According to Willis: "The DRPA discontinued its commission-sharing arrangement in 2009. In 2010 the DRPA began selecting its brokers by RFP. As the report stated, Willis's response to the RFP was 'outstanding' and Willis was selected again as one of the DRPA's insurance brokers."

April 10, 2012

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