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Industry Spotlight > Broker Dealers

UnumProvident Settles With New York And California

By Staff Writer

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A disability insurer has announced a pair of broker compensation settlement agreements.

UnumProvident Corp., Chattanooga, Tenn., has negotiated one broker comp settlement with New York Attorney General Eliot Spitzer and a second settlement with the California Department of Insurance.

The New York settlement calls for UnumProvident to develop a simpler group insurance broker compensation program and improve broker compensation disclosure.

UnumProvident has agreed to stop paying contingent commissions for the sale of any group products and to provide full disclosure of broker compensation to employers and other organizations that buy its products on behalf of their employees or members, according to officials in the New York attorney general’s office.

UnumProvident also has agreed to stop making loans to, or obtaining undisclosed ownership interests in, insurance brokers; to pay a $1.9 million fine; and to put $15.5 million in a national customer restitution fund.

“These reforms, many of which were conceived by Unum itself, will help restore the integrity of the market and promote competition,” Spitzer says in a statement.

UnumProvident notes that it improved disclosure and eliminated compensation programs that provided loans, equity investments, contests and trips in March 2005, after investigators began raising questions about the company’s compensation programs.

Like UnumProvident’s New York broker comp settlement, the California broker comp settlement calls for UnumProvident to expand broker comp disclosure.

UnumProvident President Thomas Watjen says in a statement that the company has cooperated with authorities since broker comp concerns surfaced.

UnumProvident is hoping the New York and California agreements can serve as models for the entire insurance industry, Watjen says.

Meanwhile, UnumProvident is continuing to implement a disability claim reassessment effort required by a multistate settlement. Participating states could impose additional fines if UnumProvident fails to meet their standards for the claim reassessment process.

In other UnumProvident news:

- UnumProvident is reporting a $64 million net loss for the third quarter on $2.7 billion in revenue, compared with $53 million in net income on $2.5 billion in revenue for the third quarter of 2005.

The net results include a $325 million “claim reassessment reserve increase.”

The increase reflects the extra benefits UnumProvident may owe to claimants as result of the claims reassessment process and the cost of implementing the New York broker’s comp settlement agreement, UnumProvident says.

- UnumProvident reports that it has succeeded at raising $130 million by issuing senior, secured notes through a subsidiary, Tailwind Holdings L.L.C.

The transaction, which involved notes insured by a guaranty company, securitized group long-term disability claim reserves, UnumProvident says.

UnumProvident hopes to apply the same securitization strategy to its closed individual disability insurance block of business, the company says.

Securities analysts in the New York office of Fox-Pitt, Kelton, write in a commentary that the $325 million charge for the claim reassessment reserve increase calls the adequacy of the reserves for the entire block of business into question.

UnumProvident’s group life and group disability sales were weak during the third quarter, but the company’s Colonial Life unit and voluntary benefits operations did better than expected, the analysts write.

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