Agreement Subject to Consent of Participating States;
Special Investor Call Set for 9:00 A.M. (EST) on November 19CHATTANOOGA, Tenn., Nov. 18 /PRNewswire-FirstCall/ -- UnumProvident
Corporation (NYSE: UNM) today announced that certain of its insurance
subsidiaries had entered into settlement agreements with state insurance
regulators upon conclusion of a multistate market conduct examination led by
Maine, Massachusetts and Tennessee relating to disability claims handling
practices. In addition, the U.S. Department of Labor, which has been
conducting an inquiry relating to certain ERISA plans, has joined the
settlement agreements, and the New York Attorney General's Office, which had
engaged in its own investigation of the Company's claims handling practices,
has notified the Company that it is in support of the settlement and is,
therefore, closing its investigation on this issue. The insurance authorities
of the 47 remaining states and two other jurisdictions also participated in
the examination. The agreements are conditioned upon obtaining the consent of
two-thirds of these 47 states and two jurisdictions.
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The examination report did not make any findings of violations of law or
market conduct regulations. However, the exam report did identify areas of
concern. These became the focus of specific changes and enhancements to the
Company's disability claims handling operations which were designed to assure
each claim decision is made in a consistently high quality manner.
The primary components of the settlement agreement include: enhancements
to the Company's claims handling procedures; a reassessment of certain
previously denied or closed claims; additional corporate and board governance
to support the oversight of the reassessment process and general claims
handling practices; and payment of a fine in the amount of $15 million to be
allocated among the states and jurisdictions that join the agreement.
UnumProvident anticipates recording a loss of $127 million, before tax, or
$88 million, after tax, which is $0.29 per diluted common share, upon
obtaining consent of two-thirds of the 47 other states and two jurisdictions,
or such lesser number of consents as the Company may choose to accept for the
agreements to be binding. The Company expects to receive the required number
of consents during the fourth quarter 2004. The loss is comprised of four
elements: $27 million of incremental direct operating expenses to conduct the
two-year reassessment process; $44 million for benefit costs and reserves from
claims reopened from the reassessment; $41 million for additional benefit
costs and reserves for claims already incurred and currently in inventory that
are anticipated as a result of the claim process changes being implemented;
and the $15 million fine. The ongoing costs of changes in the claims handling
process and governance improvements will be included in the Company's
operating expenses as incurred going forward. These ongoing costs are not
anticipated to materially affect the Company's results of operations.
"UnumProvident is committed to handling customers' claims in a fair,
thorough and objective manner," said Thomas R. Watjen, UnumProvident president
and chief executive officer. "We have committed significant resources over a
number of years to build a sound claim process. At the same time, we have
always been willing to make changes as needed. We have learned from this
process, especially the regulators' view of this important activity at our
Company, and I am confident the steps we are taking in response to this review
will improve the consistency and quality of our claims decisions, improving
further the quality of service we provide our customers, and help establish
best practices throughout the industry. I am very pleased with the efforts of
those leading the multistate examination process, that the U.S. Department of
Labor has joined the settlement agreement and that the Office of the Attorney
General of New York is supporting the settlement agreement and closing its
investigation on this matter. Although the number of parties obviously led to
complicated negotiations, by successfully concluding this settlement we will
have put a number of related matters behind us. I am very confident that
through the actions we are taking internally we will meet the requirements
contained in these settlement agreements."
The insurance commissioners of Maine, Massachusetts and Tennessee, the
states in which the Company's three principal insurance subsidiaries are
domiciled, began the multistate targeted market conduct examination in
September 2003 and, as the lead state regulators, directed the course of the
exam. The Company also has an insurance subsidiary domiciled in New York, but
New York had been proceeding separately with its market conduct exam prior to
commencement of the multistate exam. It became a participating state and also
entered into a substantially identical settlement agreement covering the
subsidiary domiciled in New York. The insurance departments of 46 other
states, the District of Columbia and American Samoa have since joined as
participants in the exam. The purpose of the exam was to determine whether
the long-term disability claims handling practices of the Company's insurance
subsidiaries reflected unfair claim settlement practices. Examiners working
under the direction of the three lead state regulators reviewed policy forms,
manuals and administration and organization charts, but primarily focused on
reviewing individual or group long-term claim files closed, appealed or open
during two time periods from 2002 to early 2004. The claim file review led to
discussions with the Company that resulted in the settlement agreement.
A principal feature of the settlement is a reassessment process. Under
the agreement, UnumProvident is offering to reassess any individual or group
long-term disability claim that was denied or closed since January 1, 2000,
except for specific categories of closures such as settlement, death or
payment of maximum benefits. The potential pool of claims decided over the
nearly five year period that may be eligible for reassessment if the claimant
elects to participate is approximately 215,000 claims. However, almost half of
these claims are subject to a preliminary determination as to whether the
claimant seeking reassessment "returned to work" under the policy, in which
case the claim is not eligible for further reassessment. Once the agreement is
effective, the Company will begin notifying these claimants over a several
week period that they may elect to have their prior claim decision reassessed
by a special reassessment unit of experienced claims professionals applying
the enhanced claim procedures outlined in the settlement agreement. The
special unit is headed by an officer of the Company with over 28 years
experience in claims handling. The Company will also accept requests for
reassessment from other individuals whose claims were closed after January 1,
1997, and through December 31, 1999, subject to the same closure exceptions as
the group receiving notice, and from claimants who dispute the category for
closure if it affects their eligibility for reassessment. There will be
ongoing oversight by the Company and lead state regulators of the reassessment
process. The DOL may also participate in this monitoring of the reassessment
process.
UnumProvident has also agreed to enhance certain aspects of its claim
operations, including making changes to its organization and procedures to
improve the consistency of and the support for each claim decision and create
an easier process for claimants. First, UnumProvident is increasing the
number of experienced claims professionals involved in making claims
decisions, as well as more heavily involving higher levels of management in
the signing off on adverse claim decisions. Doing so will not only put more
experienced people into closer contact with claim decisions, but it should
also improve turnaround times and clarify accountability for claims decisions.
Second, to improve the support for the initial claim decisions, the Company is
modifying its policies regarding medical information, including guidelines for
the use of independent medical evaluations and the process for handling
claimants with multiple medical conditions. Third, to make it easier for a
claimant to understand and proceed through the claim process, the Company is
adding a number of service components, including referring certain claims to a
field case manager who will meet with the claimant in an effort to make the
process less burdensome. Also, there will be an additional telephone hotline
available to claimants who seek additional assistance. Finally, to further
assure consistency in the initial claim decision, the Company is adding a
position of quality compliance consultant to assess the totality of the claim
decision and to focus on issues of compliance and documentation.
The final principal part of the settlement agreement addresses aspects of
corporate governance which are intended to reflect today's greater emphasis in
this area and to help establish best practices for the industry. A regulatory
compliance unit is being created to monitor the reassessment process,
compliance with market conduct regulations and ERISA requirements, as well as
general claims handling compliance. This unit will be headed by the Company's
chief ethics officer and will report directly to a newly formed regulatory
compliance committee of the board of directors. This committee will be
responsible for monitoring compliance with the settlement agreement as well as
with a broader range of regulatory and compliance laws and regulations. The
committee will be composed of five independent directors, including two
directors with significant insurance industry or insurance regulatory
experience and subject to the approval of the lead state regulators.
Additionally, the board of directors intends to add an additional director
with significant insurance or regulatory experience by June 30, 2005. As
previously announced, three independent directors with senior management
experience in the insurance or financial services industries were elected at
the company's August 2004 board meeting.
Separate settlement agreements have been approved and executed by the
respective insurance subsidiaries of UnumProvident, the lead state regulators
for the Maine, Massachusetts and Tennessee insurance subsidiaries, the
Superintendent of Insurance of New York for the company's insurance subsidiary
domiciled in New York, and the U.S. Department of Labor. In addition to these
parties who have executed settlement agreements, the effectiveness of the
agreements is conditioned upon the consent of at least two-thirds of the
"participating states," which does not include the three lead states, but
includes the 47 other states and two other jurisdictions, so that two-thirds
would be 33 of the participants, unless the company approves a lesser number.
The agreements are being circulated to the participating states, which have
until December 20, 2004, to sign the documents in order to consent. Once the
settlement agreements are effective, they will remain in place until the later
of January 1, 2007 or the completion of an examination of claim handling
practices and an examination of the reassessment process, both of which will
be conducted by the lead state regulators. In addition to the fine of
$15 million to be paid when the settlement agreements become effective, the
insurance subsidiaries that are parties to the settlement agreements are
subject as a group to potential fines for non-compliance with the settlement
agreements, including contingent fines of $100,000 per day if certain
implementation deadlines are not met and a contingent fine of $145 million for
failure to satisfactorily meet the performance standards in the settlement
agreements relating to the examinations referred to above, which will be
conducted in approximately two years. This latter contingent fine relating to
examination of the claims handling practices or the reassessment process is
limited to a maximum of $145 million for both examinations should the
performance standards not be met. The performance standard is based on
compliance with a maximum tolerance standard for claims procedures based on
review of a statistically credible random sample of individual or group
claims. The company believes that the changes it has made and will be making
to its claims operations and to enhance its oversight functions will
substantially reduce the likelihood that the company would fail to meet the
performance standards in the agreement when these examinations are concluded.
"I am confident that the plans and people are in place to meet the
requirements of these agreements," Mr. Watjen stated. "In addition to the
changes occurring in our benefits area, we will also have a special internal
claim audit team dedicated to reviewing the matters required by the settlement
agreements, including claim decisions in the reassessment process as well as
those made in the normal claims operations. We will be reviewing the results
of this audit team's work on a regular basis. The multistate exam team will
also be reviewing claim decisions and compliance with procedures contained in
the agreements. We expect to have frequent discussions with this multistate
exam team to jointly review our progress. We believe these activities over a
period of almost two years prior to these examinations will minimize the
potential for any failure of the Company to meet the requirements of the
agreements when the exams are undertaken."
Arizona, California, Minnesota and New Mexico are participating in the
multistate examination; however, while the multistate examination was in
progress these states chose to continue pursuing their own market conduct
examinations and investigations, each of which had begun prior to the
beginning of the multistate exam. The Company has reached agreement with the
Minnesota Department of Commerce covering three exam periods dating from 1995
and involving three of the Company's insurance subsidiaries, which have agreed
to pay a penalty totaling $250,000 relating to various matters outside the
general scope of the multistate examination. California has conducted an
examination with two phases and an investigation relating to claims handling.
Discussions with the California Department of Insurance have been ongoing
relating to various issues, some of which are within the general scope of the
multistate examination and others that are outside its scope and relate to
such matters as policy provisions. It is uncertain as to whether California,
Arizona or New Mexico will consent to the multistate settlement agreements,
pursue their own examinations to conclusion or a combination of joining the
multistate settlement agreements and resolving certain state specific issues
separately.
Through a significant investment of resources, UnumProvident has developed
the industry's largest disability claims and return-to-work organization,
managing approximately 450,000 new short term and long term disability claims
annually. In 2003, UnumProvident paid $4.1 billion in disability benefits,
more than double any other insurance provider. To meet future policyholder
obligations, the company maintains a sound balance sheet, including
$16 billion in statutory disability reserves.
UnumProvident Corporation senior management will host a conference call on
Friday, November 19, at 9:00 a.m. (Eastern) to discuss the multistate market
conduct examination and settlement agreements and may include forward-looking
information as well as other material information. The dial-in number is
(913) 981-5591. Alternatively, a live webcast of the call will be available
at http://www.unumprovident.com in a listen-only mode. About fifteen minutes
prior to the start of the call, you should access the "Investor and
Shareholder Information" section of our website. A replay of the call will be
available by telephone (888) 203-1112 and on our website through Wednesday,
November 24.
For full examination report and regulatory settlement agreement, please
visit http://www.unumprovident.com/commitment .
About UnumProvident
UnumProvident is the largest provider of group and individual disability
income protection insurance in North America. Through its subsidiaries,
UnumProvident insures more than 25 million people and paid $5.7 billion in
total benefits to customers in 2003. With primary offices in Chattanooga,
Tennessee, and Portland, Maine, the company employs more than 12,500 people
worldwide.
Safe Harbor agreement
A "safe harbor" is provided for "forward-looking statements" under the
Private Securities Litigation Reform Act of 1995. Statements in this press
release, which are not historical facts, are forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those contained in the forward-looking statements. These
risks and uncertainties include such general matters as general economic or
business conditions; events or consequences relating to terrorism and acts of
war; competitive factors, including pricing pressures; legislative,
regulatory, or tax changes; and the interest rate environment. More
specifically, they include fluctuations in insurance reserve liabilities,
projected new sales and renewals, persistency rates, incidence and recovery
rates, pricing and underwriting projections and experience, retained risks in
reinsurance operations, availability and cost of reinsurance, level and
results of litigation, rating agency actions, regulatory actions, negative
media attention, the level of pension benefit costs and funding, investment
results, including credit deterioration of investments, and effectiveness of
product and customer support. For further information of risks and
uncertainties that could affect actual results, see the sections entitled
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors"
in the Company's Form 10-K for the fiscal year ended December 31, 2003 and
subsequently filed Form 10-Qs. The forward-looking statements are being made
as of the date of this press release and the Company expressly disclaims any
obligation to update any forward-looking statement contained herein.
SOURCE UnumProvident Corporation
-0- 11/18/2004
/CONTACT: MEDIA, Jim Sabourin, Vice President, Corporate Communications,
+1-423-294-6300, or Toll free, +1-866-750-8686 (UNUM), or INVESTORS, Thomas A.
H. White, Senior Vice President, Investor Relations, +1-423-294-8996, both of
UnumProvident Corporation/
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/Web site: http://www.unumprovident.comhttp://www.unumprovident.com/commitment /
(UNM)
CO: UnumProvident Corporation
ST: Tennessee, Maine, Massachusetts
IN: FIN INS
SU: CCA MAV SVY LBR
JE-WB
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