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Affinity Arrangements between Insurance Companies and Associations may give rise to Regulatory Issues
Friday, February 7, 2020

Affinity programs involving insurance companies and associations are on the rise as to all lines of insurance business. An affinity program is an arrangement in which a business offers discounts on products or services to an organization’s membership. In Friedman v. AARP, a federal court considered whether an affinity arrangement between United HealthCare (“UHC”) and AARP harmed AARP members because AARP received compensation related to insurance sales. The case demonstrates that insurance companies need to be careful in establishing affinity arrangements with associations.

Friedman v. AARP, Inc.

In Friedman v. AARP, Inc.,  UHC issued a group Medigap policy to AARP and Plaintiffs purchased Medigap coverage as members in AARP. AARP endorsed the policy and, for every AARP policy sold, UHC paid AARP an amount equal to 4.9% of premium. UHC characterized the payment as a royalty in exchange for UHC’s use of ARRP’s intellectual property (IP) in marketing and selling the coverage. Plaintiffs alleged the payments were unlawful commissions which harmed Plaintiffs by raising the cost of insurance.

In its Decision, the Court noted that the royalty fee could be considered a commission, but the Court dismissed Plaintiffs’ claims because Plaintiffs did not show they were harmed by the fee. Importantly, the premium rate charged to Plaintiffs had been approved by the state department of insurance (DOI), and there was no evidence the premium rate would have been any lower had AARP not received the fee. Thus, the AARP royalty fee was considered an expense paid out of the DOI mandated rate, not a charge that raised Plaintiffs’ premium. Absent allegations that Plaintiffs paid more than they would have paid without the fee, measured by a non-hypothetical theory, Plaintiffs did not plausibly allege economic harm.

Other Cases Involving the AARP Royalty

There are several other cases regarding the AARP royalty throughout the country.[1]  Most similar to the Friedman case is the case Dane v. UnitedHealthCare Ins. Co.[2] In Dane, the Plaintiffs allege the same claims: that the arrangement involving royalties were “illegal commissions” and such arrangement is a kickback. The court in Dane also concluded that Plaintiffs did not have standing, because the amount was not actually inducing insurance, and the amount was included in a regulator-approved premium.

Steps Companies Can Take To Avoid the Issues Presented in the Friedman and Dane Cases

Although UHC and AARP won a dismissal of the Friedman case, companies can avoid the problems that led to the case by following certain guidelines:

  1. Before making payments based on insurance sales or premium volume to an organization not licensed as an insurance agency, carefully check applicable law.

  2. If a royalty payment is made related to the use of IP in connection with the sale of insurance, make the payment a flat fee not tied to insurance sales or premium volume.

  3. If an insurance company wants to work with an association to market insurance products to association members, have the association form an affiliate insurance agency to market and sell coverage to association members. This structure can be help to avoid claims that commissions are paid to an unlicensed entity.

  4. Before making a payment to a person or organization to endorse an insurance product, carefully check applicable law.

The rules that apply to insurance affinity arrangements and commissions differ from state to state, and therefore it is important to review applicable law before proceding with such an arrangement.

[1] See Sacco v. AARP, Inc., No. 18-14041-CIV, 2018 WL 502191 (S.D. Fla. July 24, 2018); Bloom v. AARP, Inc., No. 2:18-cv-0-2788 (D.N.J. Nov. 30, 2018); Krukas v. AARP, Inc., 376 F. Supp. 3d 1 (D.D.C. 2019).

[2] Dane v. UnitedHealthCare Ins. Co., No. 3:18-CV-00792 (SRU), 2019 U.S. Dist. LEXIS 104687, 2019 WL 2579261 (D. Conn. June 24, 2019) at *3

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