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What is a market conduct exam?
As licensed, regulated entities, insurance companies are frequently
subject to market conduct examinations by the states in which they do business.
These exams are often comprehensive in nature and evaluate not only claims
operations but other areas such as underwriting, sales and customer service.
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What prompted this exam?
Because Unum is in a specialized business, one that involves making
daily judgments about sometimes complex disability claim situations, there are
times when our claims practices have been the focus of litigation and, as a
result, public scrutiny. Although the attention has been focused on a small
percentage of our overall claims, it has nonetheless created challenges for our
company and its key stakeholders including state regulators. Prompted by some
of these lawsuits, state regulators initially launched a number of separate
market conduct examinations. In 2003 these state regulators agreed to carry out
a single, coordinated exam that ultimately involved 50 states and two
jurisdictions and was led by the regulators of our three domestic states of
Maine, Massachusetts and Tennessee.
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Did the company support this effort?
We supported this approach because it was a far more efficient and productive
process than a series of exams from individual jurisdictions, and we have been
fully cooperative throughout. This has been a valuable process as it makes very
clear how regulators view the claims management process within our company.
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How was the claim review conducted?
Examiners working under the direction of the three lead regulators
reviewed policy forms, manuals and administration and organization charts, but
primarily focused on reviewing individual and group long term claim files that
were closed, appealed or open during two time periods from 2002 to early 2004.
The claim-file review led to discussions that resulted in the settlement
agreement.
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Did the multistate exam include all Unum companies and all lines of
business?
The exam did not include our Colonial, Genex and Unum Limited (UK)
subsidiaries, and was focused only on individual and group long term disability
claims.
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What does the report say?
The examination report does not make any findings of violations of law or
market conduct regulations. However, it does identify areas of concern. These
became the focus of specific changes and enhancements to our claims-handling
operations which were designed to assure each claim decision is made in a
consistently high quality manner.
The areas of concern that became the focus of the settlement include: our policy
for use of internal vs. external medical resources and advice in the claim
decision, and the reliance placed on these respective resources; the evaluation
of disabling effects of claimants with multiple medical conditions; the methods
used in determining the circumstances in which the company and the claimant
have the burden of providing medical evidence and additional tests; and the
level of documentation and support for the initial claim decision.
Access the full report.
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What are the details of the settlement agreement?
The settlement agreement has three primary components: enhancements to
our claim handling procedures; a reassessment of certain previously denied or
closed claims; and additional corporate or board governance to support the
oversight of the reassessment process and general claim-handling practices.
Additionally, we have agreed to pay a fine in the amount of $15 million to be
allocated among the states and jurisdictions that join the settlement
agreement.
We have agreed to institute enhancements to our claims operating processes. Some
of the changes include:
We are increasing the number of experienced, front-line decision makers
in the benefits organization; adjusting our policy for the usage of independent
medical evaluations; and introducing an additional quality compliance
consultant function. Some of these changes are already under way in our
benefits organization. We have agreed to offer to certain individuals whose claim was
previously denied to have the claim reassessed using the new procedures we are
implementing. The reassessments will be performed by a special reassessment
unit applying the enhanced procedures outlined in the settlement agreement.
We are strengthening our governance, including the creation of a regulatory
compliance unit that will report to a newly created regulatory compliance
committee of the Board of Directors, and the addition of three new directors.
We have agreed to pay a fine of $15 million. Additionally, there is the
possibility of a contingent fine of up to $145 million if we do not meet
satisfactorily the requirements that relate to exams that will take place about
two years from now. We will be closely monitoring the criteria that will be
used for these exams over the next two years, as will our lead state
regulators, and are confident that we will meet the requirements of the
settlement agreement when the exams are conducted and not trigger this
contingent fine. We believe the steps we are taking in response to this review
will improve the consistency and quality of our claims decisions, enhance the
service we provide to our customers, and ultimately help establish best
practices throughout the industry.
Access the full settlement agreement.
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If the multi-state market conduct exam did not make any findings as to
violations of law or market conduct regulations, why did the company agree to
pay a fine?
We do not believe the fine is a direct result of or response to any
allegation or finding. The fine is a component of a very complex settlement
agreement that was carefully structured to ensure that the settlement gained
the support of a number of parties, including the participating states, the
U.S. Department of Labor and the New York attorney general, enabling us to put
a number of outstanding inquiries and related issues behind us.
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What will this ultimately cost the company?
While some of the cost will be included in our future operating
expenses, the fine and reassessment of claims will result in a one-time charge
of approximately $127 million before tax, or about $88 million after tax, in
the fourth quarter (or when consent is obtained from two-thirds of the
participating states). We have discussed the settlement agreement with the
rating agencies and believe they are generally supportive of the settlement.
The ongoing costs of changes in the claims-handling process and governance
improvements will be offset by expense savings elsewhere in the company.
Will Unum be reassessing any private label, acquired block,
reinsured or administrative services only claims?
Yes. In October 2005, Unum announced plans to reassess
certain private label, acquired and reinsured block claims, as well as claims
administered on behalf of certain employers. The offer to reassess
approximately 24,000 claims was not included in the original 2004 multistate
regulatory settlement agreement, but the reassessment will generally follow the
procedures outlined in that agreement. Claims eligible for this reassessment
are those closed or denied from Jan. 1, 1997, through Jan. 18, 2005 (and
through Sept. 30, 2005, for California residents).
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What is the timeline for the claims reassessment process? How will
Unum be held accountable?
Reassessment of multistate settlement agreement claims is expected to be completed by the end of 2007. The settlement agreement will remain in place until 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 approximately two years.
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How does this outcome impact the other regulatory reviews that are
outstanding?
The U.S. Department of Labor, which has been conducting an inquiry relating to
certain ERISA plans, has joined the settlement agreement. The Office of the New
York Attorney General, 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.
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How will this outcome impact litigation against the company?
Claims-related litigation against the company has been trending
downward overall, and we feel the settlement agreement goes a long way to
reassure policyholders, especially through the reassessment process, that the
company is very willing to do the right thing for our customers.
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What if I think my claim needs to be re-evaluated?
Unum is offering to reassess any individual or group long term
disability claim that was denied or closed since Jan. 1, 2000 except for
specific categories of closures identified in the settlement agreement, such as
death, payment of maximum benefits, or prior settlement. All other categories
of closures will be eligible for reassessment under the procedures set forth in
the settlement. Once the settlement agreement is effective, Unum 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 company will also accept requests for
reassessment from other individuals whose claims were closed after Jan. 1,
1997, and through Dec. 31, 1999, subject to the same procedures and exceptions
as above. Once the settlement agreement is effective, we will be able to assist
each claimant in determining whether their claim is eligible for reassessment
under the agreement. In the meantime, claimants may review the
examination report and the settlement
agreement
or contact us at 866-278-4641.
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For claimants who were not sent a notice from the company but who, under the
terms of the regulatory settlement agreement, would like to request that their
claim be reviewed by the company, what is the timeframe to submit information?
Certain claimants with claims terminated or denied between January 1, 1997 and
December 31, 1999 may request to have their claims reassessed. In addition,
certain claimants with claims terminated or denied on or after January 1, 2000
who were not sent a notice from the company may also request a review if they
dispute the company's characterization on any rational basis that such denial
or termination falls into one of the categories excluded from reassessment.
Unum has agreed to extend the deadline for these requests to June 30,
2006.
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