[Federal Register Volume 64, Number 99 (Monday, May 24, 1999)]
[Notices]
[Pages 27991-27992]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13001]
=======================================================================
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
[File No. 9910101]
Provident Companies, Inc., et al.; Analysis To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
-----------------------------------------------------------------------
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
[[Page 27992]]
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
