[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]


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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

[[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