Hooper Holmes, Inc.
Hooper Holmes, Inc.
170 Mount Airy Road
Basking Ridge, New Jersey 07920
Fax: (908) 766-5729
Sales: $156.3 million (1996)
Stock Exchanges: American
SICs: 8099 Health & Allied Services
Hooper Holmes, Inc. is the nation’s leading provider of alternate-site health information, primarily for life and health insurance companies. With 200 offices in 50 states, the company’s network of medical professionals conducts physical examinations, testing, and personal health interviews. The information gathered is used by insurance underwriters to assess risks and make informed decisions before selling a policy to any particular customer. Hooper Holmes performed approximately 2.7 million tests in 1997 on insurance applicants under its trade name Portamedic.
A Turn-of-the-Century Alliance
A predecessor company to Hooper Holmes, The National Insurance Information Bureau was founded in 1899 by two partners, William DeMattos Hooper and Bayard P. Holmes. Hooper had been educated at Oxford University, England, and immigrated to the United States via Canada in 1870. For five years he worked as the city librarian of Indianapolis, Indiana, before taking a position as actuary of the Railroad Officials and Employees Accident Association of Indianapolis. He was recognized as a talented writer, and as someone of considerable organizational and statistical skills. His partner, Holmes, came from an influential New York family—his maternal grandfather, Joseph Reynolds, served as a commissioned Brigadier General following the War of 1812, and worked as a judge in the State of New York and as a member of the United States Congress. His grandson, Bayard, proved himself an entrepreneurially innovative heir. He graduated from Cornell University and received his law degree from New York University. While still at Cornell, Holmes became fascinated with the criminal mind after reading a book entitled, Criminology, written by an Italian psychologist. Instead of entering into the practice of law, Holmes became a New York book agent for the purpose of selling the book which had so intrigued him. That effort led to his acquaintance with Tom Lonergan, manager of Thiel’s Service Company, one of the leading New York City detective organizations of the day. Lonergan eventually offered Holmes a job with his detective agency, telling him, “If you really want to make a study of criminology from the inside, come in and see me.”
In the days prior to sufficient in-house investigative departments, insurance companies would hire a detective agency to investigate questionable claims, thus aligning the industries of insurance and investigation. After becoming manager of Thiel’s New York Office, Holmes became assistant general manager of the company. By this time he had also established the Holmes Mercantile Agency, independently providing underwriting information for insurance companies—where his work soon brought him into contact with William Hooper, who had served as actuary to the International Association of Accident Underwriters.
The two men decided to form a partnership with the intention of providing nationwide information for accident, life, health, and disability insurance contracts, and to protect subscribers from fraudulent insurance practices, which might be attempted by present or prospective policyholders. Hooper was elected president after the 1906 incorporation of their newly named firm, The Hooper Holmes Information Bureau. In 1907 Hooper Holmes acquired the Holmes Mercantile Agency. Vital to the success of the claims clearinghouse was the expansion of membership and increasing claims reporting activity. Member companies would submit all claims paid by them to the Hooper Holmes central database, i.e. the Casualty Index, where they could then have access to information provided by other member companies’ claims activity reports, enabling them to identify potentially risky insurees. Reports from that period indicate that 14.9 percent of accident claims were “from persons who had previous claims, ranging up to three people on their tenth accident claim.” In an effort to uncover fraudulent claims, the company organized a system for comparing “sound alike” surnames (and first-name variations), with other information such as date of birth and address.
Rapid Growth Through the 1920s
Membership grew rapidly with transportation subscribers accounting for nearly one-third of the accident claim reports. People riding on passenger trains and city streetcars filed a high number of casualty claims against those companies, and all of the major railroads and many regional lines held individual memberships. In many instances, preexisting injuries, or fraud—often a pattern of systematically filed claims—were revealed in the file search.
In 1912, following the death of William Hooper, Holmes assumed the presidency of the company. John J. King, a friend and former colleague from Thiel’s (and former stagecoach driver and investigator), became the new assistant manager. Under King’s direction, Hooper Holmes developed a network of branch offices extending throughout the United States and Canada. By 1917, according to company reports, 4.5 million records were on file, “representing fully eighty percent of the accident and health business written in the United States.” (When former U.S. President Calvin Coolidge was a young lawyer he occasionally made investigations for the company, charging a fee of 50 cents per case).
Throughout the 1920s and 1930s Hooper Holmes expanded very rapidly, especially as the automobile gained in popularity and accident claims increased. After 1920, following the passage of The Volstead Act—prohibiting the manufacture and sale of liquor—widespread bootlegging by organized gangs and others, often involving intoxication, high-speed chases, and general lawlessness, posed a major challenge to the insurance industry. An Hooper Holmes article from the period stated that ’ The effect is seen in life insurance, in automobile insurance, in health and accident insurance, in the prolongation of malingering and complication of claims arising under workmen’s compensation, in robbery and burglary epidemics, homicides and other phases familiar to every insurance man.” One insurance company reported receiving an average of 10 applications per day which investigators attributed to persons involved in the bootlegging trade.
1930: New Ownership
By 1917 King had been elected vice-president, and by 1930 he became president and general manager, while Holmes served as chairman and assumed semi-retirement until his death in 1931. During the Great Depression King managed to maintain full employment for his entire staff, although the company imposed a 10 percent salary cut during their most difficult months. Management began to consider a diversification plan to offset the general decline in the insurance business, which the company lamented in its bulletin: “The dollars which should have gone for various kinds of insurance; the dollars which might have gone into new homes, new automobiles, new business enterprises ... were dropped into the bottomless maw of stock speculation . ..”. King invested heavily in the company. Over the next decade he and his children bought all of the outstanding Hooper Holmes stock.
As part of their diversification program, the company began providing credit reporting services to financial institutions, utilizing the previously unemployed to investigate property and asset information. This enabled lenders to extend repayment terms when feasible. In 1934, with almost 60 branch offices in operation, the company experienced a 25.8 percent gain in revenues, largely attributable to this new service. They also entered into the field of Market Research, conducting audience surveys for radio and for private industry. Total revenues increased from approximately $1.5 million in 1935 to $2.1 million by 1940.
Investigative Services Provided During World War II
During World War II insurance sales began a decline largely due to the drain of manpower and resources expended toward the war effort. King responded by obtaining contracts from the federal government, offering security investigative services. Government work represented 46 percent of Hooper Holmes’s revenues for the year 1943, primarily related to investigations into defense industry employment.
John King died in 1948, leaving leadership responsibility for the company to his two sons, Edward and Charles, serving as president and executive vice-president, respectively. Improvements in communications systems marked the era of their leadership. Teletype machines, electric files, office copiers, and eventually computers were among the technological innovations which streamlined office procedures. Around 1959, Hooper Holmes helped to pioneer experiments involving photographically recording insured dwellings as an aid to evaluating underwriting risks through the purchase of Polaroid cameras for all of their inspectors.
Hooper Holmes offers the industry’s widest geographic coverage and up-to-date technology to ensure timely, accurate delivery of health information. Hooper Holmes’ mission is to be recognized as a quality service provider that meets the needs of its customers, employees, and shareholders. We pride ourselves on anticipating new challenges that face our clients and finding solutions to help them adapt to change. The Company’s ongoing strategy is to combine positive industry trends, increased market presence, entrance into related markets and our superior technology to become the leading health information services provider in the life and health insurance industry.
The introduction of computers made it possible to incorporate high-volume credit information services. In 1963, Hooper Holmes established The Credit Index, a clearinghouse for the Credit Industry offering subscribers credit information about individuals who are delinquent on payments for merchandise or services. Subscribers to the Index included major companies in the book and record club business, mail order and catalogue mail order, petroleum credit card, and general credit card industries.
1980s: Public Offering and Restructuring
The King family continued to own the company until it went public in 1984, and James M. McNamee, who had started at Hooper Holmes in 1968 as a management trainee, became president. He immediately began selling off some of the divisions, choosing to concentrate on home healthcare services and health information. According to Dan Goldblatt of Business News, ’ Those choices would almost be the undoing of Hooper Holmes—and perhaps its salvation.” McNamee made a score of acquisitions, building the company from approximately $50 million in 1984 to $252 million a decade later. In 1993 Hooper Holmes bought a large home healthcare firm, Norrell Health Care of Atlanta. McNamee told Goldblatt that Hooper Holmes could not integrate the larger business into their operation: their systems failed to work, the business itself, which involved sending nurses and health aides into people’s homes, was too decentralized and became unmanageable. Also, competition with other larger healthcare networks and Medicaid and Medicare changes affecting home health dollars affected Hooper Holmes’s profits. One division, Nurse’s House Call, had plenty of business but the company was having a difficult time collecting receivables, forcing the company—a company with an historic aversion to debt—to borrow $50 million to cover lagging income. The profit margin could not compare to that of the firm’s information products, resulting in the decision to reconsider their focus.
In 1995 Hooper Holmes negotiated an asset swap, trading its home health business for Olsten’s (a New York temporary employment firm) ASB/Meditest division, which performed medical examinations on applicants for insurance policies, plus $34.5 million in cash. Profit margins soon increased from the 1.5 to 2 percent range before the swap to more than 6.5 percent by 1997.
Insurers worried about “buyer’s remorse,” meaning that the longer buyers wait, the more likely they are to change their mind about wanting a policy. In an effort to reduce the time between medical lab testing—sometimes taking several weeks—and the transfer of that data to insurers, Hooper Holmes signed a 1993 letter of intent with Home Office Reference Laboratory, Inc. of Kansas (providing marketing and technical support), to create an electronic data interchange (EDI) computer network. Hooper Holmes was also teaming with EDS, a Texas electronic data company that General Motors purchased from Ross Perot, to develop the nation’s first centralized underwriting information clearinghouse, providing information to customers in the United States and Canada.
A New Company Limb: Artificial Intelligence in the 1990s
Blood and urine tests, physical examinations, and other procedures which are required before an insurer can decide whether to issue a policy were electronically sent to the network, which are then relayed to the carrier, saving on time and paperwork. The network allowed tests to be completed within 72 hours. The system featured an artificial intelligence-decision-support system that assisted companies in the underwriting process. The system evaluated test results from information providers, and determined whether more tests were required. The evaluation and test results were sent to the carrier simultaneously. The speedier process not only allowed insurance companies to provide better service to customers, but it also shortened the time it took for agents to receive their commission, resulting in more satisfied agents and providers.
With the 1996 Food and Drug Administration approval of at-home HIV tests, ushered into the marketplace by Johnson and Johnson Co., some people who tested positive did not tell their insurance providers. The enormous costs involved in treating AIDS patients prompted insurers to reevaluate their testing criteria. All of the major and most of the minor insurance companies began testing every applicant, greatly increasing the volume of information handled by Hooper Holmes.
Following Hooper Holmes’s sale of its home nursing unit, revenues increased, and by the end of 1996, the company’s bank debt was reduced from $28.8 million to $6.3 million. The company began providing specimen collection and related health information to a clinical research organization involved in managing clinical trials, expanding on market opportunities. By 1997, some of Hooper Holmes’s biggest clients—among the 900 insurance companies it serves—included Prudential Insurance Co. of America, State Farm Life Insurance Co., and Metropolitan Life Insurance Co., with Prudential making up almost seven percent of Hooper Holmes’s business. Testing approximately 250,000 applicants a month, the company controlled 25 to 35 percent of the U.S. market.
Hooper Holmes began a 1996 restructuring program to integrate the three key components of their information technology infrastructure: MIS, their centralized management information reporting system that tied together branches and the corporate offices; the Client Services group, which fulfilled the multiple information needs of customers; and Infolink, the channel that delivered financial and health information reports electronically to customers. Functioning as a single entity, the company hoped the integration of the divisions would allow more efficiency in service delivery and in adaptability to future change.
A more recent company venture involved contract work for a research organization utilizing Hooper Holmes’s network of medical personnel to obtain specimens for tests. The data gathered was needed for studies the research company provided to pharmaceutical companies. Following the company tradition for quality and efficiency, management continued to streamline its operations. For the future, President, Chairman, and CEO McNamee envisioned changes in the way insurance would be marketed, according to Goldblatt of Business News. He predicted that more and more policies would be sold directly to consumers. “We expect to offer an alternative to the sales force,” said McNamee. He envisioned a process by which information traveled back and forth, flowing through the growing files of Hooper Holmes.
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