State, Federal Regulators Crack Down on Insurance Firms

November 18, 2004 ( - Insurance regulators in three states on Thursday announced a sweeping agreement with a trio of disability insurance providers requiring the companies to revamp their claims procedures and review certain claims back to 1997.

A news release said the settlement with Maine, Massachusetts, and Tennessee requires the companies to:

  • offer, in writing, to reassess claims from about 215,000 claimants that were denied or closed since January 1, 2000 for reasons other than settlement, death, or reaching benefit maximums
  • allow for reassessment of claims similarly denied or closed between January 1, 1997 and December 31, 1999
  • modify claims handling and benefit determination practices
  • improve accountability and oversight of claims processes
  • enhance corporate governance by expanding the Board of Directors by three directors with insurance industry or regulatory experience.

The cost of the examination, the continued oversight called for in the settlements, and compliance with the settlements is estimated to be more than $120 million. The companies also will pay a $15 million fine, which will be divided on a pro-rata basis among the participating states based on the long term disability income insurance premium in each state as of December 31, 2003. If the companies fail to meet the terms of the Plan of Corrective Action set forth in the agreements, a substantial fine ($145 million) will be imposed, the announcement said.

According to the press release, the 47 other states and the District of Columbia joined the three “lead states” in the market conduct examination of the three owned by UnumProvident Corp.: Unum Life Insurance Company of America, The Paul Revere Life Insurance Company, and Provident Life and Accident Insurance Company. The US Department of Labor (DoL), which conducted a related investigation of UnumProvident’s practices involving employee benefit plans covered by the Employee Retirement Income Security Act (ERISA), is also a party to the settlement agreements.

Agreements with the three states and the DoL become effective once two-thirds of the participating states have approved.

“This action is one of the most significant multistate insurance regulatory actions in history, providing a uniform, verifiable and effective state-based settlement for the benefit of UnumProvident policyholders nationwide,” said Maine Insurance Superintendent Alessandro Iuppa, in the news release.

The regulatory probe identified several claims handling practices of concern to the state insurance regulators, including:

  • excessive reliance on in-house medical staff to support the denial, termination, or reduction of benefits
  • unfair evaluation and interpretation of attending physician or independent medical examiner reports
  • failure to evaluate the totality of the claimant’s medical condition
  • an inappropriate burden placed on claimants to justify eligibility for benefits.

“As regulators, our duty is to protect the hundreds of thousands of policyholders who depend on these companies for disability benefits,” said Tennessee Commissioner Paula Flowers. “This agreement makes sure that policyholders and claimants, past and present, get what they paid for – meaningful disability coverage.”

The complete Examination Report, the settlement agreements and exhibits are at .