2211 Congress Street
Portland, Maine 04122
Fax: (207) 770-4387
Total Assets: $13.13 billion
Stock Exchanges: New York
SICs: 6311 Life Insurance; 6321 Accident & Health Insurance; 6719 Holding Companies Not Elsewhere Classified
UNUM Corp. is, through its various subsidiaries, the leading provider of disability insurance in the United States and the United Kingdom. UNUM also provides services in the realms of employee benefits, long-term care, retirement products, and specialty risk offerings. The company grew explosively between the mid-1980s and mid-1990s as an innovator in the disability insurance industry.
UNUM Corp. was formed late in 1985 as the successor to the Union Mutual Life Insurance Company. At the time, Union Mutual was a relatively modest regional insurance company based in Portland, Maine. The company had operated in the area since before the Civil War. Over the years it had expanded its offerings to include various medical and life insurance plans as well as pension and investment products. By the early 1980s Union Mutual was managing assets of approximately $2.3 billion and employing a work force of about 1,900. Although it was a leader in the long-term disability insurance segment of the industry, the company was not viewed as a competitor with major national or international prospects. Moreover, it was gradually being overshadowed by much larger insurance companies with national marketing programs and increasingly automated operations.
In recognition of the encroaching threat to the company, executives in 1982 took measures to shift Union Mutual’s focus away from market segments that were becoming dominated by the major national insurers. They also decided to take the company public (Union Mutual Life Insurance Company was a mutual company, meaning that it was owned by its policyholders). In 1986 Union Mutual changed its name to UNUM, the Latin word for the numeral one. UNUM’s directors also hired James F. Orr III to help Chief Executive Colin Hampton oversee its transition from a mutual to a public company. Hampton, who had served as UNUM’s leader for 15 years, believed that going public would bring much-needed expansion capital into the company. He also felt that Union Mutual would benefit from the accountability imposed by a corporate structure.
The 43-year-old Orr was an executive at Connecticut Bank & Trust before joining UNUM. He had recently helped to complete the merger of that bank and The Bank of New England, and UNUM directors felt that his background complimented their situation. Orr, who had been a track star at Villanova University in the 1960s, was recognized as an intelligent, frank, even-tempered achiever. He welcomed the move to Maine for both personal and professional reasons. “The company was in a very, very exciting period of transition—demutualization. It was the first, if not only, major demutualization in insurance that’s ever taken place,” Orr recalled of the move in the October 1990 Business Digest of Southern Maine. “The lifestyle in Maine was also appealing. My family and I had been coming to the Maine coast for 25 or 30 years, so putting it all together was just a tremendous opportunity.”
In November 1986 UNUM distributed its entire net worth of $700 million to its policyholders. The company simultaneously sold new shares to new shareholders, a move that brought $700 million into the corporation’s coffers. Although demutualization eventually proved to be a wise move, the transition was sometimes turbulent. Policyholders and employees were not accustomed to having the company’s business scrutinized by the general public. As a result, Orr was deluged with complaints at times. “Looking back on it, I think we all underestimated how difficult it would be to get the people in the company oriented to having a new stakeholder group out there, namely, our shareholders,” Orr noted in the Business Digest of Southern Maine. Orr helped smoothed the transition by increasing the size of performance-based incentives for employees, a program that Hampton started.
In addition to his efforts to engineer the transition to a public company, Orr began to aggressively reorganize and reposition UNUM to compete and grow. Within a year of his arrival—Orr officially assumed the chief executive slot in 1987—he slashed $25 million out of UNUM’s annual expenses by trimming back the work force and dumping some of the organization’s slumping divisions.
Union Mutual had been trying exit various nonperforming businesses since the early 1980s. Orr intensified that effort in 1986, and UNUM eventually bailed out of several of its core businesses, including life insurance, general investment contracts, and individual annuities and pensions. Most importantly, Orr and fellow executives decided to eliminate the company’s involvement in the medical insurance business. Orr poured the resources saved from that business segment into sales and marketing programs for its remaining products.
With its diversified lines of insurance and financial products largely eliminated, UNUM had become primarily a provider of long-term disability insurance. UNUM sold most of its policies to groups—a company’s employees, for example—but also registered sales to individuals and small businesses like medical practices. These agreements stipulated that, when a policy-holder was out of work for an extended period due to a disability, UNUM would pay a percentage of the person’s salary for a predetermined time period until the individual could return to work. In 1988 non-disability businesses still accounted for roughly two-thirds of UNUM’s $1.5 billion in annual premiums. But nearly all of its $129 million in aftertax income came from disability premiums. Cognizant of this state of affairs, Orr continued to reduce UNUM’s large pension and individual life businesses.
Orr’s decision to concentrate on the long-term disability market was influenced in part by UNUM’s established leadership position in the relatively small industry. In addition, the long-term disability market was growing quickly in comparison to most other types of insurance. Between 1962 and 1986, in fact, the number of Americans prevented from working because of a disability more than doubled to 9.3 million, a rate of growth that outstripped population growth more than four-fold. Some industry observers noted that, although sales of disability policies were increasing at a rapid rate of about 15 percent annually, the potential U.S. market of 117 million (by one estimate) was only 36-percent-saturated by the late 1980s.
Between 1985 and 1988 UNUM significantly bolstered its lead in the U.S. disability insurance market. By early 1989, UNUM’s portfolio held a heady 30 percent of all U.S. disability policies and had captured about 17 percent of industry revenues. UNUM’s market share was a whopping four times larger than that of its four largest competitors combined. It achieved those gains by underpricing the competition. One reason for the company’s impressive performance was its $13 million annual investment in what it called “benefits management,” which cut UNUM’s claim payouts through investigation and reduction of false claims. The program also helped clients to secure Social Security payments owed to them. UNUM’s competition scrambled to match the company’s efficiency. Allstate Insurance Co., for example, cut its policy prices by 15 percent in the mid-1980s in an effort to lure away UNUM policyholders. It was unable to post profits, though, and Allstate dropped out of the business in 1988.
As UNUM’s disability business surged, so did its revenues and profits. Between 1987 and 1990 sales rose from about $1.6 billion to roughly $2.2 billion. Profits, moreover, jumped from just under $100 million in 1987 to $160 million in 1989 and then to nearly $220 million in 1990. Orr was confident about UNUM’s future prospects for the early and mid-1990s: “When we go into a marketplace, we want to stake out a leadership position,” he asserted in Forbes. That confidence was reflected in Orr’s vision of the company’s standing in the latter part of the 1990s. Aside from dominance of the U.S. disability market, that vision included charitable efforts in the local community, a healthy corporate culture and work force, and international expansion. One key action meant to help the company meet the latter goal was the 1990 purchase of National Employers Life Assurance Co. Ltd., the largest disability provider in the United Kingdom.
UNUM’s most powerful competitive advantage during the late 1980s and early 1990s was its coveted database. First established in the early 1970s, by the beginning of the 1990s the UNUM database consisted of information on 26,000 clients and 2.8 million insured individuals. Using the detailed information base, UNUM was able to precisely measure risks of disability stemming from numerous occupational, social, economic, and geographic factors. Such data gave UNUM an edge over its competitors in valuing risks, pricing policies, and creating specialized products for small niche markets. During the early 1990s, UNUM’s database advantage was reflected by a 15 percent return on equity from its long-term disability business, a rate of return significantly higher than the industry average.
As a result of increased operational efficiency and intense market focus, UNUM’s sales and profits continued to surge during the early 1990s. Annual revenues bolted to more than $3 billion in 1992 and then to $3.4 billion in 1993 as net income jumped to $300 million. By 1993, moreover, UNUM’s asset base had grown to nearly $12.5 billion. Part of the growth was attributable to various acquisitions and joint ventures. In December 1992, for example, UNUM finalized an agreement with Equitable, a leading U.S. insurance company, to have Equitable’s 8,300-member sales force sell only disability products designed by UNUM. The same year, UNUM purchased Dun-canson & Holt, Inc., a leading accident and health reinsurance underwriting manager. That acquisition increased UNUM’s reach in the United States, Great Britain, Canada, and Singapore. Similarly, in 1994 UNUM established UNUM Japan Accident Insurance Company Limited, a Japanese subsidiary.
After posting successive and impressive gains throughout the late 1980s and early 1990s, UNUM stumbled in 1994. Assets and sales increased, but net income dropped to $154 million and the company experienced its first stock price drop (of 14 percent) since it had gone public in 1986. The slide was primarily the result of setbacks related to UNUM’s individual disability business. The company suffered serious losses from that segment during 1994, prompting executives to announce late in 1994 that UNUM would no longer market individual, non-cancelable disability products in the United States. The losses occurred, in part, because of significantly increased claims by UNUM-insured doctors, which accounted for about 15 percent of the company’s business. UNUM believed that changes in the profession gave doctors more reasons to claim disability payments—which were often $20,000 to $30,000 per month— rather than recover and return to work. UNUM lost $61.7 million from the segment in the third quarter of 1994 alone, a figure that prompted it to lay off 350 workers.
Going into the mid-1990s UNUM barely resembled the mutual company that had preceded it in the mid-1980s. Still focused primarily on long-term disability insurance, UNUM conducted business through seven major subsidiaries with offices in North America, Europe, and the Pacific Rim. Despite setbacks in 1994, UNUM’s long-term prospects were favorable. UNUM continued to dominate the growing disability insurance niche on the strength of a healthy balance sheet, increasing globally diversification, and aggressive pursuit of fast-growing market niches that complimented its core operations.
UNUM Life Insurance Company of America; First UNUM Life Insurance Company; Commercial Life Insurance Company; UNUM Limited (United Kingdom); Duncanson & Holt, Inc.; Colonial Life & Accident Insurance Company Limited; and UNUM Japan Accident Insurance Company Limited.
Cox, Brian, “UNUM to Leave Individual Non-cancelable DI Market,” National Underwriter Life & Health-Financial Services Edition, November 14, 1994, p. 3.
Eleazer, Carol A., “UNUM and The Equitable Form Strategic Alliance,” Business Wire, December 10, 1992.
Ellman, Mark, Guy Davis, Fran Brennan, and Ward Graffam, “UNUM to Focus on Permanent Health Insurance in U.K.; Plans to Sell U.K. Life, Pensions and Mortgage Businesses,” Business Wire, September 26, 1990.
French, Dorry, “Unum’s Long Term Orr-Ganizer,” Business Digest of Southern Maine, October 1990, p. 2.
Gribbel, Susie L., and Gretchen McLain, “UNUM Creates Related Businesses Division to Pursue External Growth; Brennan Selected to Direct New Operation,” Business Wire, September 13, 1988.
Jereski, Laura, “We Understand Risk,” Forbes, March 20, 1989, pp. 127-128.
Kerr, Peter, “Less is Key to an Insurer’s Success,” The New York Times, February 10, 1993, p. Dl.
Libbey, Robert E., “UNUM Announces 1994 Earnings,” Business Wire, February 8, 1995.
McGough, Robert, “Yankee Clipper: UNUM Sails the Fast Tack From Its Home Port in Maine,” Financial World, June 11, 1991, p. 38.