CHATTANOOGA, Tenn.--(BUSINESS WIRE)--Oct. 3, 2005--UnumProvident
Corporation (NYSE: UNM) today announced that three of its insurance
subsidiaries have entered into a settlement agreement with the
California Department of Insurance, concluding a market conduct
examination and investigation of the subsidiaries' disability claims
handling practices. As part of the settlement, UnumProvident has
agreed to change certain practices and policy provisions related to
its California business and consistent with California case law. The
settlement also incorporates claims handling practices previously
covered by the multistate agreement reached last year with 48 other
states, and includes certain additional claim handling changes.
Additionally, UnumProvident has agreed to pay a fine of $8 million to
the Department as part of the settlement.
"We are pleased, after more than two years of discussions with
California, to have reached a settlement that eliminates the
regulatory uncertainty around claims handling in this important
market, and allows UnumProvident to move beyond questions about past
claims handling practices," said Thomas R. Watjen, president and chief
executive officer. "With these issues resolved, we can now focus our
full attention on running our business in a way that's good for
customers, shareholders and employees. We look forward to introducing
new products into the California market, and we remain committed to
delivering exceptional service to consumers in California and
throughout the country."
In entering the settlement, UnumProvident did not agree with the
allegations and characterization of the company's past claims handling
practices made by the Department.
"While we are taking this step to remove the regulatory cloud that
has been hanging over us, we do not agree with the generalizations the
Department has made about our company through this process," said
Watjen. "UnumProvident is an organization that works hard to serve its
customers, and I am proud of the work our employees do on behalf of
the more than 2 million Californians our policies protect. Last year
alone, we paid more than $600 million in benefits to California
residents, more than any other disability provider. We are committed
to doing the right thing and to always striving to improve the level
of service we offer our customers."
Added Watjen, "Over the past two years, our company has undertaken
broad changes designed to improve the quality of claims decisions and
our service levels to policyholders. We made many changes during this
time to improve in these areas, and added to those through the
multistate settlement that was previously approved by 48 other states.
Because of this, we do not believe that California's allegations or
the market conduct exam report, which is essentially a snapshot from a
prior period, provide an accurate portrayal of our claim practices
today.
"Nevertheless, we have concluded it is in the best interest of our
California customers and our company to reach this settlement so that
we can focus our energy on continuing to build upon the progress we
have made as a company over the last two years. Since 2003, we have
undergone significant financial and operational restructuring, built a
new management team and improved many of our business processes. As a
result of these and other efforts, we are essentially today a 'new'
UnumProvident."
Under the terms of the settlement, UnumProvident will change a
number of provisions specific to California disability policies,
including the definition of "total disability." The California
Department of Insurance is expected to notify all disability providers
who do business in the state of its concerns about the lawfulness of
certain provisions contained in present policy language, and to spell
out an approach for addressing these concerns.
"The landscape is changing significantly for all disability
insurance carriers who do business in California," added Watjen.
"While we believe that ultimately some of these changes may impact the
cost and availability of disability insurance coverage, we are fully
committed to implementing the terms of the settlement agreement, which
include bringing new products to market, and to establishing new
industry standards in claims practices."
Additionally as part of the settlement, UnumProvident will receive
approval from California for the use of new individual and group
disability policy forms, which will become available for sale on Nov.
1, 2005.
The California settlement also incorporates the claim reassessment
process and the changes in claim handling practices contained in the
November 2004 multistate regulatory settlement agreement that was
previously ratified by 48 other states. California claimants were
included in the 2004 multistate settlement and could choose to
participate in that claim reassessment process even though California
did not join the multistate agreement. Under the California agreement,
reassessment notices will be mailed to approximately 26,000
individuals whose claims were denied or terminated between Jan. 1,
1997, and Sept. 30, 2005. Many of these individuals have already
received reassessment notices under the multistate agreement.
Additionally, an individual whose claim denial or termination is
upheld in the reassessment may request an independent review by a
member of a panel established for that purpose.
UnumProvident also said it would amend the multistate settlement
agreement to include mailing a notice of the claim reassessment
process to approximately 29,500 individuals whose claims were denied
or terminated between Jan. 1, 1997, and Dec. 31, 1999. Under the
original multistate agreement, claimants during this period could
request participation in the reassessment process, but they were not
sent a notice.
Watjen said this change is one that has been considered in the
past. "The enhancement we are making is one that had previously been
discussed on the request of the lead insurance regulators of the
multistate agreement," he said. The amendment will also confirm that
eligible claimants in the 1997 to 1999 period who do not receive a
notice under the amendment, but who are entitled to request a
reassessment, will have until June 30, 2006, to do so.
Separately, UnumProvident said it is proceeding with a company
plan to offer to reassess private label, acquired and reinsured block
claims, as well as claims administered on behalf of certain employers
from Jan. 1, 1997, through Jan. 18, 2005 (and through Sept. 30, 2005
for California residents). These approximately 24,000 claims were not
included in the 2004 multistate regulatory settlement, but the offer
being made will generally follow the reassessment procedures contained
in that agreement.
Based on the settlement agreement and related matters,
UnumProvident will record a charge of $75 million before tax or $51.6
million after tax ($0.16 per diluted common share) for the third
quarter of 2005. The pre-tax charge is comprised of four elements:
$14.3 million of incremental direct operating expenses to conduct the
reassessment process; $37.3 million for benefit costs and reserves
reopened from the reassessment; $15.4 million for additional benefit
costs and reserves from claims already incurred and currently in
inventory that are anticipated as a result of the claim process
changes being implemented; and the $8 million fine. The ongoing
expenses of changing certain claim practices and policy provisions in
California insurance forms will be included in the company's operating
expenses as incurred going forward. At this point, the company
anticipates that these ongoing expenses will not materially affect its
results of operations. The company also expects its ratings to be
reaffirmed.
UnumProvident will hold its 2005 Investor Meeting on Monday, Oct.
17, 2005, at 10 a.m. Eastern. A live audio webcast of this meeting can
be accessed via the "Investors & Shareholders" section of
www.unumprovident.com. A replay of the webcast will be available on
this site for two weeks beginning Oct. 18, 2005.
About UnumProvident
UnumProvident (UNM) is the largest provider of group and
individual disability income protection insurance in the United States
and United Kingdom. Through its subsidiaries, UnumProvident
Corporation insures more than 25 million people and paid $5.9 billion
in total benefits to customers in 2004. With primary offices in
Chattanooga, Tenn., and Portland, Maine, the company employs more than
12,000 people worldwide. For more information, visit
www.unumprovident.com.
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 and investigations, 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, 2004, 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.
CONTACT: UnumProvident Corporation
Media Relations:
Jim Sabourin, 423-294-6300
Toll free: 866-750-8686 (UNUM)
or
Investor Relations:
Thomas A. H. White, 423-294-8996
SOURCE: UnumProvident Corporation