Provident Life and Accident Insurance Company of America

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Provident Life and Accident Insurance Company of America

1 Fountain Square
Chattanooga, Tennessee 37402
U.S.A.
(615)755-1011
Fax: (615) 755-1883

Public Company
Incorporated: 1887 as Mutual Medical Aid and Accident Insurance Company
Employees: 5,700
Assets: $11.85 billion
Stock Exchange: NASDAQ

Provident Life and Accident Insurance Company of America is one of the leading multi-line insurers in the United States. Established in 1887 during the southern industrial boom, Provident has weathered two world wars, the Great Depression and, more recently, health-care-cost inflation and increasing industry regulation. The company was a pioneer in first covering “uninsurable” workers, such as those at coal mines, blast furnaces, coke ovens, and certain railroad occupations. Provident later pioneered group medical and hospital coverages. Despite its name, Provident did not sell its first life insurance policy until 1917. Provident maintains a reputation for prompt claim payment and conservative investment. Its primary business segments are employee benefits, group pension, individual disability income, and individual life.

Provident’s forerunner, the Mutual Medical Aid and Accident Insurance Company, was founded in Chattanooga, Tennessee, in May 1887. Founders included lawyers, an architect, and a real estate salesman, none of whom had any real knowledge of insurance. Chattanooga was enjoying a boom at this time, as mineral hunters had discovered coal and iron ore nearby in the 1870s. There was an industrial explosion in the South in the 1880s. Chattanooga’s future seemed limitless in 1887, as steel went into production south of the Mason-Dixon Line for the first time, and the mineral wealth ignited development. The insurance industry was dominated by the eastern old-line companies who would not cover high-risk workers. Mutual Medical chose these “uninsurables” for its market niche. The employing company would withhold 2.5¢ a day from laborer’s wages in return for $7.50 coverage a week for lost time, and compensation for death or lost limbs. For workers whose only other recourse had been passing the hat, the policies were attractive.

The founders were forced to reverse their medical-aid policies almost immediately, after realizing that a single yellow fever epidemic—like the one in 1878—could wipe out the company. They bought back some 100 medical policies and resolved to sell only accident insurance. The company changed its name and incorporated with its current name in December 1887. When local iron ores proved unsuitable for steelmaking, Chattanooga’s development stalled. Companies withdrew, businesses defaulted, and seven banks collapsed. In five years of business, Provident had moved five times. It had 850 accident policies and no life policies. By 1892 Provident had also moved through 15 directors, and two Scotsmen offered to pay $1,000 for a one-half interest in the directionless company. Thomas Maclellan and John McMaster bought out the other owners by 1895.

In those days the insurance industry was regarded with deep suspicion, as many unsound insurance companies had soured public confidence. Maclellan and McMaster applied themselves foremost to reversing this mistrust, even choosing to go without salaries when necessary in order to pay claims promptly. By 1893 the number of policyholders had doubled. The following year saw premiums coming in from out of state. As full owners in 1895, McMaster became president and Maclellan secretary and treasurer. Their partnership ended in 1900 due to differences, and, by prior agreement, the company went to the higher bidder. Maclellan then took over the company and became its president.

Maclellan added two lines to Provident’s coverage: sickness insurance and industrial insurance. Sales—which had been McMaster’s strength—suffered with McMaster’s departure. In 1905, the Armstrong Committee’s investigation of New York State’s insurance industry sparked more public mistrust, and state legislatures moved to enact reforms, including requirements of larger reserves. In 1909 Provident was forced to withdraw from Alabama and West Virginia after legislative reforms. It remained, however, in Tennessee, Kentucky, and Virginia, collecting premiums of $108,000 in those three states in 1909. While its field of operations was shrinking, Provident was hit with increased competition when insurance companies flocked to the South, where regulatory laws were less severe than elsewhere. Maclellan reorganized the company in 1910 with added capital, changing it from a mutual to a stock company. In 1911 Provident’s previously shrunken territory doubled when it entered North Carolina, Georgia, and Alabama.

When World War I started in 1914, domestic fears affected financial markets, and Provident’s policy lapses were more than 20%. To combat this, the company slashed operating expenses and entered new sales regions. At the end of 1915, Provident had increased its premium income by $100,000 over the previous year. The war-revived economy combined with the coal boom of 1916, and Provident prospered also. By the end of 1916, the company had a more than 65% increase in premium income. The year 1916 saw the sudden death of Thomas Maclellan, who was then succeeded by his son, Robert J. Maclellan, as president. Two new departments, railroad and life, were formed. After 30 years of operation Provident Life and Accident Insurance Company finally sold its first life insurance policy—to its new president, Robert J. Maclellan.

Provident was hard hit by the influenza epidemic in 1918-1919 that killed nearly ten times the number of Americans lost in World War I. The disaster proved a good advertisement for insurance, however, and Provident’s premium income increased as a consequence in 1919 by more than 50%, exceeding $1 million.

Provident thrived along with the U.S. economy in the 1920s. It moved into a new 12-story building in 1924. That same year, the company wrote its first group plan, for the Tennessee Electric Power Company. Because the company maintained a policy of fair, prompt payment, only three of the 48,000 claims Provident processed in 1926 ended up in court. Most of its 100,000 policyholders were still working in the mines, lumber camps, steel mills, and railroad yards. An automobile liability department was formed as that industry blossomed in the 1920s, but losses closed the department in 1924. In 1925, the company’s operations were still concentrated in the Southeast, but they spread north and west in 1926, with the purchase of the Standard Accident Company of Detroit. Within two years, Provident had extended to 34 of the then-48 states. With the Standard purchase came $500,000 annually in premiums. The 1929 acquisition of the Meridian Insurance Company, of West Virginia, added another $300,000 in premiums.

After the stock market crash of 1929, Provident’s premium income declined. In 1931 Provident purchased the accident insurance business of the Southern Surety Company. The Des Moines, Iowa-based company’s accident premiums totaled $1 million annually. The acquisition of Southern also provided an experienced staff. Provident managed not to borrow during the difficult years of the early 1930s, and by 1934, sales were picking up slightly. By its 50th anniversary, in 1937, Provident’s assets were nearly $10 million, and it had an annual premium income of $7.5 million.

More industry changes came at the close of World War II as labor unions gained power and group insurance policies came into focus as an ordinary, and thus deductible, employer business expense. In 1946 Provident’s accident and health income had grown by 25% over the year before. This growth rate was more than double the national average for the industry. The company’s first subsidiary was formed in 1951, the Provident Life and Casualty Insurance Company. The subsidiary sold no casualty insurance; it was formed to allow Provident to do business in New York according to its state insurance laws, without subjecting the rest of the company to those same regulations. New York was the last frontier left for the company, as it had entered Canada in 1948. In 1952 R.L. Maclellan succeeded his father, Robert J. Maclellan, as president. The company moved into yet larger quarters. In 1955 it wrote the largest single group hospital and surgical policy in history, with premiums exceeding $5 million annually. Of 250 companies writing group life in 1954, Provident ranked 11th. Meanwhile, Provident’s insurance pension business had grown in just six years to a $2 million operation in 1954. The following year it was $5 million. Robert J. Maclellan died in 1956, not long after celebrating his 50th year with the company.

In 1960 Provident made another move into larger quarters. Growth also was reflected in its premium income, which nearly doubled between 1959 and 1965. Asset growth was fueled largely by increasing individual life products sales. In 1964 Provident reported $5 billion worth of life insurance in force. It closed the decade with triple the assets and premium income of 1959.

The accident department signed one of its largest accounts in 1970, with the American Medical Association. R.L. Maclellan died in 1971, and Hugh Maclellan, another grandson of the company’s first Maclellan, assumed the presidency. Two subsidiaries were formed in 1974 to stimulate the company’s flexibility: the Provident General Insurance Company, which sold automobile and homeowners’ insurance; and the Provident National Assurance Company, which sold variable annuities. This last grew out of the purchase of the American Republic Assurance Company. Especially strong was Provident’s group department, whose premium income in the 1970s placed it among the top ten writers of group health insurance—ahead of established giants such as John Hancock and New York Life. Self-insurance flourished after the Employee Retirement Income Security Act was passed by Congress, sending ripples throughout the industry by the mid-1970s. In 1976 Forbes ranked Provident first in sales growth and in earnings per share among the top investorowned life insurance companies. In 1977 Hugh Maclellan left the presidency to chair the finance committee, and H. Carey Hanlin took his place.

The 1980s dealt Provident and the insurance industry a series of hard blows. By 1980 Provident ranked seventh among the nation’s stockholder-owned life insurers for insurance in force. Its primary business was group life, group accident, and health insurance, with the group business concentrated among groups of 500 or more. Between 1969 and 1979, sales of individual life insurance increased 73%, with the emphasis on tax-favored insurance plans. Then the mid-1980s brought a rash of regulations for the taxation of life insurance companies, starting with the stop-gap Tax Equity and Fiscal Responsibility Act (TEFRA) in 1982. While TEFRA reduced company taxes, the 1984 Deficit Reduction Act increased them considerably. Then the 1986 Tax Reform Act, by redefining the nature of life insurance policies, restricted certain promising Provident tax-favored products, such as corporateowned life insurance.

While adjusting to these changes, Provident was also contending with health-care cost inflation that rocketed in 1986 and 1987, with claims costs rising by 20% to 25% a year. The company suffered low earnings during these years. To right itself, Provident responded with large-loss-case management, preferred-provider organizations (PPO), and flexible benefit plans. Unlike most of its competitors, Provident decided not to invest in company-owned health-maintenance organizations (HMO). This decision proved sage when other companies with massive capital investments in HMOs were hit doubly hard by that industry’s problems. The combination of health-care-cost inflation; government regulation; AIDS; new high-tech, high-cost medical treatments; and stock market volatility proved significant hurdles for Provident and others in the industry. As the company celebrated its centennial in 1987, it also reached the trough in its downcycle, when declining earnings and the purchase of the group business of Transamerica Occidental further reduced company profits. Provident continued low earnings in 1988 but rebounded to close 1989 with record earnings, after addressing inadequate pricing and focusing on core business.

In 1988, the Department of Health and Human Services began an investigation into Provident and others, to determine whether Medicare had paid for services that should have been covered by the insuror. Suits were pending in 1989, with Provident cooperating in the investigation. In 1988, the presidency passed from Hanlin to Winston W. Walker.

The company’s post-tax net income increased 65% in 1989 over 1988, with an especially strong recovery in the employee benefits portion of its business. Despite considerable challenges, particularly in the 1980s, Provident proved to be a survivor.

Principal Subsidiaries

Provident Life Capital Corporation; Provident Life and Accident Insurance Company; Provident Life and Casualty Insurance Company; Provident National Assurance Company; Provident Marketing Corporation; Health Point Corporation.