A major disability insurer says it could spend more than $127 million to respond to regulators’ concerns about its handling of group and individual long-term disability insurance claims.[@@]

UnumProvident Corp., Chattanooga, Tenn., says its insurance subsidiaries have negotiated a package of settlement agreements with the U.S. Department of Labor, the New York attorney general’s office and a group of 3 state insurance regulatory agencies.

The agreements call for UnumProvident to volunteer to review hundreds of thousands of claims processed since Jan. 1, 2000, and to revamp its procedures for handling future LTD claims. The unit also will take requests for reviews of claims closed between Jan. 1, 1997, and Dec. 31, 1999.

If the company fails to make good on performance guarantees, it could end up paying an additional $145 million “contingent fine,” the company says.

UnumProvident says the settlement agreements will take effect if insurance regulators in at least 33 jurisdictions, or some lower number that UnumProvident accepts, approve the agreements by Dec. 20. If the agreements take effect, they would remain in place at least until January 2007, UnumProvident says.

UnumProvident negotiated the settlement agreements in response to a multistate market conduct exam that insurance commissioners from Maine, Massachusetts and Tennessee began in September 2003.

“UnumProvident is committed to handling customers’ claims in a fair, thorough and objective manner,” Thomas Watjen, UnumProvident’s president, says in a statement about the settlement agreements. “I am confident the steps we are taking in response to this review will improve the consistency and quality of our claims decisions.”

Insurance commissioners in the 3 states that ran the main exam reviewed many LTD claims opened, closed or appealed during 2 time periods from 2002 to early 2004.

“The purpose of the exam was to determine whether the long-term disability claims handling practices of [UnumProvident's] insurance subsidiaries reflected unfair claim settlement practices,” UnumProvident says.

Although the final exam report includes no findings of violations of law or market conduct regulations, it does identify “areas of concern,” UnumProvident says.

The insurance regulators in all of the states other than Maine, Massachusetts and Tennessee and 2 other jurisdictions also participated in the exam.

Regulators in Arizona, California, Minnesota, New Mexico and New York have been conducting exams of their own.

UnumProvident has agreed to pay $250,000 in penalties to resolve concerns in Minnesota, and New York has agreed to apply an agreement similar to the main multistate agreement to a UnumProvident subsidiary in New York, UnumProvident says.

“It is uncertain as to whether California, Arizona or New Mexico will consent to the multistate settlement agreements,” UnumProvident says.

If the settlement agreements take effect, they would require UnumProvident to offer to reassess any individual or group long-term disability claim that was denied or closed since Jan. 1, 2000, unless claims were closed because of events such as death or payment of the maximum available benefits.

The review could cover about 215,000 claims, but UnumProvident believes that about half of those claims involves claimants who returned to work, the company says.

If a claimant returned to work “the claim is not eligible for further reassessment,” UnumProvident says.

Settlement-related expenditures could include:

- $15 million for fines.

- $44 million in new benefits and reserves for reopened claims.

- $41 million in extra benefits and reserves for claims that are still in the processing pipeline.

- $27 million in claim review costs.

UnumProvident would have to pay the $145 million fine if it failed performance exams in 2 years, and it also might have to pay $100,000 per day in fines if it failed to meet certain implementation deadlines, the company says.

UnumProvident has set up a special unit to review the post-2000 claims.

In the future, UnumProvident will increase the number of experienced claims professionals involved in making claims decisions, change guidelines for the use of independent medical evaluations, and give claimants easier access to field case managers, the company says.

The company also will set up a regulatory compliance unit that will be run by UnumProvident’s chief ethics officer.