First Unum and Unum Group, recently re-branded from UnumProvident, has been the target of hundreds of lawsuits, as well as various actions at the behest of several States with regard to unfair practices. While Unum promotes itself as a stable and effective insurer—and a great place to work—that same company has acquired a dubious reputation in the trenches as a company that exploits its clients, allegedly cancelling policies and withholding payouts.
Complaints among Unum life insurance customers are legion, and many have been left with irreparable financial damage after their insurer abruptly cancelled coverage, or stopped payments on policies that had been dutifully supported with good faith and in good standing on the part of well-meaning policyholders for years.
And then there is the investor issue. This past spring Unum Group settled a class action lawsuit that had been dragging on for five years amidst an allegation that the company issued misleading financial statements, improperly accounted for certain impaired investments, failed to properly estimate disability claim reserves and pursued improper claims handling practices. The lawsuit involved tens of thousands of investors during a period covering March 2000 to April, 2003.
Even so, it appears Unum caught a break: in agreeing to the $40 million settlement, Unum did not have to admit liability, and stemmed any further controversy surrounding the case. Settling also allowed the company to close the floodgates on the costs associated with continuing to defend the case.
And even though the settlement, approved by U.S. District Judge Curtis L. Collier in May was for $40 million, the real cost to the company will be substantially less: once insurance proceeds are factored in, the payout to a fund established to compensate investors will be $11.6 million, according to documents filed last year by Unum with the Securities Exchange Commission (SEC) when the settlement was first struck.
Unum continues to deny the allegation.
And now the Senate Finance Committee is investigating the alleged practice of requiring claimants to apply for Social Security Disability benefits as a requirement to receive their insurance funds provided within their policies. This serves to clog an already overburdened Social Security disability system, where the waiting time to have a legitimate claim dealt with is a full year.
Such a wait, according to Senator Charles Grassley (R-Iowa) is far too long for sick and injured people to linger before receiving benefits. The allegation, which first surfaced in the New York Times this past April, contends that insurers will press claimants to apply for Social Security Disability benefits even if their case doesn't warrant such benefits, in the off chance that a claimant will be approved, and the insurer can get the claimant off of its books. There have been allegations in the past that insurers—Unum allegedly among them—have threatened to cut off payments unless claimants apply to Social Security, and it has also been alleged that in some cases the insurer has asked for money back if, and when Social Security disability benefits have been secured.
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The incentive to the insurer is obvious: by co-coordinating benefits with Social Security or Worker's Compensation, an insurer such as Unum can reduce the benefit payout accordingly, given that the benefit is blended. What's more, it has been reported that the more pending Social Security disability applications there are, the lower the insurer can take its claim reserves.
That translates to more profit for the insurer.
The insurance industry defends the push to apply for Social Security as standard practice. Regardless, the mere thought of UnumProvident allegedly finding ways to mitigate payouts and increase profit is one more reason for disgruntled First Unum customers to loathe their insurer…