From 1996 to 1999 Unum Life Insurance ran a tight claims operation that included actively engaging in claims practices it knew were out-of-contract, unfair and potentially illegal. Still, the company played the numbers until it got caught in late 2002 when 60 Minutes and NBC Dateline aired exposes eventually leading to the Regulatory Settlement Agreement in 2004. Prior to 1999 the Provident Companies had already merged with Paul Revere and Harold Chandler and his henchmen including Ralph Mohney and Tim Arnold turned their sights to Unum Life Insurance as a viable take-over opportunity since the company had not been doing well since at least 1996.
Under the former leadership of Jim Orr III and the failure of the 1998 People Goals to bolster profit targets, Unum Life Insurance was indeed an easy target. As far back as 1996 Unum America and Unum Enterprise (Unum’s executive subsidiary ) were putting together executive golden parachutes in anticipation of the merger or take over that was inevitable. The make-up of the “chutes” included generous grants of stock options, treasury stock, insurance and pension guarantees as well as other executive deferred compensation benefits. You may remember Unum granted employee stock options when Unum’s stock was selling around $60 per share. Shortly thereafter the company approved a stock split increasing the number of options, but diluting the market price to $30 per share. Most of the vice presidential parachutes were heavily vested in stock options and Unum’s pension plan was also generously funded with Unum stock.
In 1996 news of the pending merger appeared to have leaked out when sales management personnel attempted to engage in cash stock option exchanges resulting from inside information. As the compensation specialist who actually transacted these cash-ins on behalf of the executives with Smith-Barney it quickly became obvious information about the future of Unum Life Insurance as inside information was prompting a large volume of requests to sell or cash-in on Unum stock options. SEC rules at the time dictated a waiting period of 6 months before entering into any stock transaction resulting from inside information. (People like Martha Stewart actually go to jail for that.)
Eventually, Unum’s Vice Presidents were forced to leave the company taking with them parachutes which now were grossly undervalued due to the stock split, insider trading, and financial upsets due to the 1999 merger with Provident. Eventually, the VPs and other management entered into a class action lawsuit against Unum regarding the devaluation and misrepresentation of stock value afforded to them. In truth, all employees got screwed with respect to Unum’s stock options since management kept telling people the value of the stock would go back up when in fact the stock price eventually plummeted to $5 per share.
Ralph Mohney’s “hungry vulture” claims management philosophy permeated Unum Life Insurance quickly with announcements that all claims decisions would be made without the consideration of any information from the claimant’s physicians. This “philosophy” apparently continues today as part of Unum’s misdirected “fair and equitable claims review”. From 1999 forward claimant’s physicians were left out of the claims review process.
In addition, in an effort to manipulate its profit reporting to stockholders and bond rating investors, it is probable Unum concocted a way of integrating its BAS payment system with financial reserves by establishing Expected Recovery Dates (ERDs) which when coded would decrease or limit its balance sheet liability and increase profitability on its Profit and Loss Statements. Therefore, after the 1999 merger UNUMProvident was able to create a fairytale of profitability by under reserving its financial reserves.
Expected Recovery Dates, in theory, were sold as the expected date the insured or claimant would “recover or get better”. In reality, ERDs quickly became identified with “expected dates of claim denials” and management used the ERDs to budget and plan unit financial reserve targets that were expected to be “rolled in”. In other words, ERDs were set by medical personnel and were approved by claim management who could then plan which claims were intended to be denied and in which month.
ERDs were actually input into the BAS payment system. For example, a claimant would be assigned an ERD of 12/10/2010. Instead of Unum recognizing the full financial reserve liability of the claim to age 65, the payment system only recorded a financial reserve to the ERD date. Quite clever actually, since Unum was able to engage in “off balance sheet financing” by not disclosing the full value of its liabilities for claims. Investors who determine bond ratings as well as federal and state regulators were fooled into thinking UNUMProvident was much more solvent than it really was.
Eventually, the integration of ERDs with financial reserves ended when it became obvious there was too much fluctuation (highs and lows) in the financial reserve. It is also suspected the system was changed in 2002 when the company was exposed on 60 Minutes and management may have feared further exposure. However, ERDs were still assigned to each claim since the process gave management a way to manage their unit financial reserves and target claims that were “supposed to have been denied” as of specified dates. Claims specialists were held accountable to deny claims on or before the set ERD dates and the entire process remained an endless race to collect documentary evidence so that claims could be denied as of the date set by the ERD. Potentially, ERDs can be set to any arbitrary date coinciding with monthly, quarterly or year-end profit reporting.
There is evidence in Unum claim files that ERDs are still being used today as a management device in the claims system. While it is doubtful Unum’s management continues to integrate ERDs with its financial reserves, its ability to target the denial of claims in contradiction of the insured’s actual medical condition or ability to return to work is obvious. Unum’s use of ERDs also led to the use of MDA, a software medical recovery management program which sets arbitrary dates of expected recovery based on thousands of impairments and diagnoses.
What is astounding in all this is why regulators continue to allow Unum to engage in deliberate manipulation of its claims review process and why employers continue to purchase group STD/LTD plans from a company which has no intention of providing a disability benefit to its employees. It’s clear decisions made by Unum’s claim management actually have nothing to do with the claimant or his/her medical disability, but only how quickly, and when the claim can be denied and profit realized.
Unfortunately, Unum’s setting of ERDs is only one in a long list of internal strategies used to target and deny claims that should be paid. Insureds who are NOT clients of DCS should begin to ask their claim specialist what their ERD date is. If it’s earlier than age 65 you will get a good idea of when Unum plans to deny or terminate the claim.
Don’t be surprised though if the claims specialist refuses to tell you. The company hasn’t been known for its honesty, or its integrity for that matter.