Despite unumprovident corp.’s $127 million multistate settlement of investigations of its claims practices, it still faces challenges that could hurt its group disability insurance sales, some observers say.
Continued legal challenges, rating agency actions and general policyholder wariness of dealing with the insurer will likely still be significant concerns for UnumProvident, they say.
But the disability insurer, which is based in Chattanooga, Tennessee, is on the road to repairing its damaged reputation and needs time for improvements to play out, says Tom White, senior vice president of investor relations for UnumProvident. Business retention numbers, while falling slightly since last year, prove that buyers still believe in the company, he adds.
In November, UnumProvident announced that it would pay a $15 million fine, change its claims-handling practices and reassess potentially hundreds of thousands of claims closed or denied since 1997. The settlement stems from market conduct examinations in several states that allegedly uncovered a number of problems, including an inappropriate burden placed on claimants to justify benefit eligibility, according to regulators.
The insurer says the $127 million settlement figure includes potential benefit adjustments related to the reassessment of claims.
But the settlement won’t end Unum-Provident’s problems.
Trial lawyers have vowed to continue pressing individual and class-action lawsuits alleging that UnumProvident improperly denied or terminated disability claims.
Additionally, four days after the company’s Nov. 18 settlement announcement, Moody’s Investors Service placed the corporation’s credit ratings and the financial-strength ratings of its insurance subsidiaries on review for possible downgrades. Moody’s currently rates UnumProvident’s senior debt at Ba1 and rates the financial strength of its life insurer units at Baa1, which is considered adequate, says Ann G. Perry, vice president and senior credit officer for Moody’s in New York.
The rating agency says it will review how ongoing broker compensation investigations affect UnumProvident’s core U.S. group long-term disability coverage business—particularly sales and customer retention.
Neither A.M. Best Co. nor Standard & Poor’s took any rating action against UnumProvident following the settlement announcement.
Atop the reputational damage from various settlements and investigations stemming from UnumProvident’s claims handling, additional harm to the company’s image could result from lawsuits filed by the California Department of Insurance and New York Attorney General Eliot Spitzer, Perry says.
"Our concern is that if there is additional damage to the company’s reputation, it could translate into lower sales and lower retentions," she says.
In a lawsuit filed Nov. 18, the California Department of Insurance alleged that four insurers, including UnumProvident, participated in a client-steering kickback scheme with benefits broker Universal Life Resources Inc. Spitzer earlier sued ULR, charging the broker with steering business to insurers paying it secret override commissions, but he did not name any insurers as defendants.
Sharon Kaleta, chairman and CEO of the Disability Management Employer Coalition, a San Diego-based organization founded by employers to advance integrated disability management, said that no employer she has spoken with has changed its disability coverage arrangements because of negative news involving UnumProvident.
But a disability manager for a California county that provides long-term disability coverage for its employees says that recent events have changed her view of UnumProvident. If she were looking to purchase new coverage and other insurers presented similar quotes, she would pass on UnumProvident, says the disability manager, who asked not to be identified.
No group disability clients of New York-based brokerage Travers, O’keefe Inc. have faced employee complaints because UnumProvident denied their claims, says John Van Wie, a broker at the firm who places disability benefits.
But some new accounts are passing over UnumProvident for other insurers, Van Wie says. UnumProvident might have overcome one bad news story, but as several emerge, it grows increasingly difficult to do so, he adds. Over the past two years, several TV news programs have investigated UnumProvident’s claims practices, and other media outlets have reported on settlements and additional litigation.
Financial reports issued by Unum-Provident show a drop in sales. In its third-quarter results released Nov. 3, UnumProvident reported that new sales for group long-term disability fully insured products declined 23.9 percent to $41.1 million from $54 million in the same period of 2003. Group sales of short-term income protection products also fell.
But UnumProvident says that is by choice. The report attributes the sales decline to a "disciplined pricing strategy and the competitive market environment," with expectations for a "lower rate of sales activity to continue as it places a higher emphasis on the profitability of its business."
Meanwhile, the insurer will still have to contend with some ongoing lawsuits over its claims-handling business.
"I and all of the other lawyers with UnumProvident cases are going to press ahead," says Michael Tobin, a Coral Gables, Florida, plaintiffs’ attorney who regularly communicates with lawyers nationwide who are suing the insurer.
Tobin says he will continue pressing lawsuits he has filed until UnumProvident shows it will stick to the terms in its settlement agreement by properly addressing his clients’ claims.
UnumProvident’s White says that claims-handling changes made even before the global settlement have already reduced litigation. The number of claims litigated peaked in early 2003 following television news stories about UnumProvident’s claims handling. Litigated claims have been declining since, he says.
From the November 8 issue of Business Insurance. Written by Roberto Ceniceros