Provident Companies, Inc., et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 9910101]

Provident Companies, Inc., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before July 23, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 600 Pennsylvania Avenue, NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Jacqueline Mendel, FTC/S-2019, 601

Pennsylvania Avenue, NW, Washington, DC 20580, (202) 326-2603.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the

Commission's rules of practice, 16 CFR 2.34, notice is hereby given

that the above-captioned consent agreement containing a consent order

to cease and desist, having been filed with the accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of sixty (60) days. The following Analysis to Aid Public

Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for May 18th, 1999), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, Washington, DC

20580, either in person or by calling (202) 326-3627.

Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, Room 159, 600 Pennsylvania Avenue, NW,

Washington, DC 20580. Two paper copies of each comment should be filed,

and should be accompanied, if possible, by a 3\1/2\ inch diskette

containing an electronic copy of the comment. Such comments or views

will be considered by the Commission and will be available for

inspection and copying at its principal office in accordance with

Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR

4.9(b)(6)(ii).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted subject

to final approval an agreement containing a proposed Consent Order from

Provident Companies, Inc. (``Provident'') and UNUM Corporation

(``UNUM''), under which Provident and UNUM will be required to submit

data relating to disability insurance sold to individuals to an

independent entity responsible for soliciting, aggregating, and

publishing industry-wide actuarial tables, studies and reports.

The proposed Consent Order has been placed on the public record for

sixty (60) days for reception of comments from interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

proposed Consent Order and the comments received, and will decide

whether it should withdraw from the proposed Consent Order or make

final the proposed Order.

On November 22, 1998, Provident and UNUM entered into an Agreement

and Plan of Merger whereby the companies will form a new entity, UNUM

Provident Corporation, with a combined stock value of $11.43 billion.

The proposed Complaint alleges that the merger, if consummated, would

violate section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and

section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C.

45, in the market for disability insurance sold to individuals.

Provident and UNUM are two of the leading providers of disability

insurance sold to individuals. Total premiums from individual

disability insurance policies were over $4 billion last year.

Disability insurance protests against loss of income due to disability

from sickness, accident or injury. Unlike group disability insurance,

which is made available to consumers by a third party, e.g., an

employer or other organization, individual disability insurance is

purchased by consumers themselves, who individually hold policies.

Individual disability insurance policies are sold primarily to people

who do not have group disability insurance coverage available through

their employers or other organizations, or who desire to supplement

group disability insurance. Each such individual disability insurance

policy is individually underwritten, based on the applicant's medical

background, financial portfolio and income projection, and occupation.

The proposed merger of Provident and UNUM raises antitrust concerns

in the market for disability insurance sold to individuals. If

Provident and UNUM merge, they will control a significant percentage of

all data relating to individual disability claims. Such data is used by

insurance providers to make actuarial predictions about the type,

occurrence and duration of disability claims used to design and price

individual disability insurance policies. In order to assist insurance

providers that only have a limited amount of proprietary claims data,

independent entities such as the Society of Actuaries solicit,

aggregate, and publish industry-wide actuarial tables, studies and

reports. Because of the amount of all industry data it will control,

UNUMProvident's participation in industry-wide solicitations for data

made by the Society of Actuaries and other industry groups designated

to conduct industry-wide solicitations by the National Association of

Insurance Commissioners (``NAIC'') is essential in order to ensure that

resulting actuarial projects are credible.

Further, timely entry in the market for disability insurance sold

to individuals on the scale necessary to offset the competitive harm

resulting from the combination of Provident and UNUM is highly unlikely

because of significant impediments to new entry. In addition to

requiring data on past claims in order to price and design its

individual disability insurance products, a new entrant would need

expertise to predict morbidity--the likelihood that an

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individual or a class of individuals will become disabled, and the

length of the disability. This expertise is different from the

expertise used to predict mortality, which is used to develop life

insurance products. Making predictions about morbidity includes

assessing the most likely disabilities, trends relating to new types of

disabilities, the likely duration of various disabilities, and economic

variables that may influence whether an individual is likely to make a

claim. In addition, an entrant must contract with and train a large

network of brokers to distribute its product. Finally, in order to

evaluate claims, an entrant would have to develop a highly-skilled

network of medical personnel and claims adjudicators. Because of

difficulties in pricing products profitably, a number of large

insurance carriers have exited the individual disability insurance

market over the last several years.

The proposed Consent Order lowers barriers to expansion for

existing providers of individual disability insurance. Because access

to credible data on disability claims is required to design and price

disability insurance policies for individuals, an existing provider of

individual disability insurance without its own credible base of such

data or the ability to access a credible public data base is unlikely

to expand successfully. After the merger, UNUMProvident will posses a

substantial percentage of available data, which will need to be

contributed to a publicly available data base in order for industry-

wide data to remain credible for use by smaller individual disability

insurance providers. However, as a result of the merger, UNUMProvident

may have an economic incentive not to contribute its data in response

to industry-wide solicitations.

The proposed Consent Order requires that for a period of twenty

(20) years, Provident and UNUM continue contributing individual

disability claims data to an independent entity--the Society of

Actuaries, the NAIC, or the NAIC's designee--that will publish

actuarial tables, studies and reports. In addition, the proposed

Consent Order contains terms and conditions that are intended to

protect the confidentiality of UNUMProvident's data before and after it

is aggregated with the data for other industry participants. For

example, if Respondents' data represents 60% or more of the contributed

data for any particular specification in the request for data,

Respondents may require that the Society of Actuaries, the NAIC or

NAIC's designee certify that Respondents' data was weighted for that

specification in order to mask Respondents' identity. The Society of

Actuaries and the NAIC both indicated that they are willing and able to

provide any certifications set forth in the proposed Consent Order. The

Consent Order also requires UNUM and Provident to provide the

Commission a report of compliance with the provisions of the Consent

Order within ninety (90) days following the date the Consent Order

becomes final, and within ninety (90) days of each request for

submission of data. The proposed Consent Order is not intended to have

any effect on the NAIC's requirements for data pursuant to the statutes

and regulations of state insurance commissions.

The purpose of this analysis is to facilitate the public comment on

the proposed Consent Order, and it is not intended to constitute an

official interpretation of the agreement and proposed Consent Order or

to modify their terms in any way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 99-13001 Filed 5-21-99; 8:45 am]

BILLING CODE 6750-01-M