Helping people to weather the uncertainties and mitigate the risks associated with living, Unum has navigated difficult waters itself in recent years. Indeed, companies, like individuals, do experience challenging times. Bolstered by its strong resurgence and looking to a future filled with promise, Unum is a leader in employee benefits products and services and remains the largest provider of group and individual disability insurance in the United States and the United Kingdom.
Headquartered in Chattanooga, Unum provides coverage for more than 100,000 businesses and more than 25 million individuals worldwide, while holding 76 percent of the group long-term care contracts in the U.S. In addition, the company employs more than 10,000 people, with 2,800 of these in Chattanooga. In 2007, its revenues surpassed $10.5 billion, while Unum paid more than $6 billion in benefits across the globe.
Unum Chief Executive Officer and President Thomas R. Watjen joined the company in 1994 and assumed his present role in the autumn of 2003. Since then, he has guided the company through extraordinary internal and external change. Recently, CityScope Magazine publisher George Mullinix and writer Mike Haskew visited with Mr. Watjen, who provided his perspective on Unum, today and tomorrow, and described his team’s clear focus of achieving an ever-higher standard of excellence.
A Future Filled with Great Promise
CS: How would you define the state of the industry in which you currently compete?
TW: It is a good industry. When you think about our industry, we are actually in the business of providing employers and their employees a wide array of benefits. If you step back, there are a lot of things going on that affect that business, such as the stress and strain of managing a workforce in a complex environment while healthcare expenses continue to rise. Our clients and individuals go through a lot of challenges with personal issues and a changing regulatory environment in the U.S. and the U.K. At the same time, there is strong competition in every business we are in. So, you might say, ‘My gosh, how can you be so excited about the business?’ We say opportunity comes from that. We think we are in good businesses long-term, but we have got to continue to react to the marketplace, making changes as necessary to respond to customer needs and deal with an ever-changing landscape. We think we are in good position to do that.
CS: The market segments in the US and UK seem different. Do you see your U.S. and U.K. market segments as similar?
TW: If we set aside the near-term issues of softening economic conditions and financial calamities around the world and look at long-term issues, you have individual consumers unprepared for many aspects of life, with low levels of savings and many of them underinsured for what they need to protect against life’s tragic events. Although, in the U.S., we have government safety net programs like Medicare, Medicaid and Social Security, those programs are under financial stress as well. There are very similar characteristics in the U.S. and the U.K. that can translate into opportunity for our company to be there helping in the marketplace. There are different cycles in different markets, but when you get to the root of them, they are very similar. The collection of businesses we have each stands on its own, but we get benefits across those businesses by sharing best practices because of similar issues in each market.
CS: Could you describe the different segments within your business?
TW: Our main businesses are Unum US, Unum UK, and Colonial Life. These are the three platforms we have to operate, and we have stand-alone management teams with a CEO for each of these businesses who has control of the resources in order to be competitive in the market. These businesses are fairly large in their own right, and there are differences in how they segment the marketplace. For example, Unum US deals with everything from small employers all the way to Fortune 500 accounts. We have to get fairly granular because the needs of a small employer are very different from those of a Fortune 500 company. We have got to customize the way we come to market with products and services and the people resources to support those businesses. We do this not just by customer size but also by product because we sell an array of products in each of those markets. So, we need to understand which products are profitable and which are not and to be sure to look at product line profitability as well.
CS: How much does an economic slowdown impact your customers and ultimately your business?
TW: Right now, there are three things we need to keep a careful eye on. First, there is a short-term issue in financial markets because we have a substantial investment portfolio. So, the first place people look is at how the investment portfolio responds to changes in economic conditions. The good news is that we didn’t get into some of those troubled asset classes like sub-prime lending that you are seeing discussed so much in the general financial services environment right now. We’ve got to be very conscious of that because the shifting of financial markets day to day and week to week can certainly have an impact. We did a lot of work during the last three or four years to reposition our investment portfolio, which has held up very well. The second dynamic is how consumers feel about things. Are they comfortable continuing to purchase products in the workplace that support their needs?
The third dimension is that sometimes when you go through soft economic conditions, you see a higher level of claims activity for certain products. One of the things we are pretty proud of is that as we restructured the business, we did a lot to minimize some of those investment risks, changing the composition of our investment portfolio to be more conservative. With respect to products and services, we actually are finding that consumers really see them as a huge need. In claims, you never know, but so far that has held up well. During the last soft economic cycle, we saw a higher level of claims from certain types of customers. We reduced the exposure to those kinds of customers, and so far have not seen a higher level of claim incidence as a result of the economy. Having said that, we all sit on the edge of our chairs because it is still too uncertain an environment to sit back and say that we have this one licked.
CS: What do you see as the greatest opportunities for profitable growth?
TW: We do see growth out there, and certainly over the last several years, we have focused on getting the company righted and getting the platforms in place to support the business. Now that we have put that behind us, the focus is on growth. In the U.S., two themes are very much behind our growth aspirations. One is that we tend to believe there is great growth opportunity in the small to mid-size employer market. That is where, if you look at those sorts of customers, some don’t have the products and services we sell. But that doesn’t mean we’re not going to serve the large employer, which continues to be an important part of our business as well.
The second area of the U.S. growth is voluntary benefits, which plays into an environment where employers face increased cost pressures and are actually getting the employee involved in paying for more of the benefits that they have. We have quite an array of voluntary benefits products and services through Unum US and Colonial, and as employers move through the whole decision process to think about managing their businesses a little differently and migrate some of those benefits from an employer-paid plan to an employee-paid plan, we are in a very unique position to do that. If an employer is paying for those benefits, they want a partner to help migrate that plan from one variety to another variety.
In the U.K., it is a little different story. The U.K. market is generally underpenetrated for the kinds of products and services we sell. If you look at the whole industry, probably 60 to 70 percent of the employers in the U.S. have some form of the benefits we provide available to their employees. In the U.K., the comparable industry number would be about 10 percent. Our focus there is to find ways to expand the market, and that requires a different set of products and services and differences in how we staff and perform in the marketplace. Again, we are in a very unique position because we have over half the market in the U.K. now, and we are far and away the market leader. We are a niche player in a smaller segment of the overall market. The second source of growth in the U.K. is also the voluntary benefits market with more employee involvement in some of the benefit decisions, but admittedly it is much behind the U.S. marketplace.
CS: Where are the challenges right now in the U.S. and the U.K.?
TW: One of these is constant change. For companies like us, it can be an opportunity, but it can also be the Achilles heel because we have got to react to the market and get out of our comfort zone a little bit in terms of things we are doing. So, the big challenge is profitably growing the business in places that frankly didn’t exist before, or if they did, they were fairly immature in terms of business. That is new territory to wander through, and we’ve got a whole number of new initiatives we have begun to roll out. We need to be innovative and thought- provoking, to listen to our customers, and not be afraid to make some changes in the fundamentals of what we are doing to respond. I think we are doing well there, but you never relax because the markets, the customers, and the environment are changing. While we are doing all this, the competition doesn’t take a day off either.
CS: Do you see future acquisitions for Unum?
TW: I can never say never, but it would have to be the absolute perfect opportunity. We are in three businesses, so in one theory do you add a fourth leg to the stool? I think that is pretty unlikely. It would take a very special fourth leg to the stool for us to do something because we see great opportunity with the three businesses we have right now. To get distracted on something else, it would have to be pretty special. Within each of those three businesses, certainly we are going to continue to look for add-on acquisitions that bring us some products or capabilities we don’t presently have, but there again you have got to be very selective because they are not just lying around everywhere. These are hard to come by, and that is why often we have to build something new ourselves or partner with somebody versus going out and buying it.
It all starts with the customer. If there is a need for something we don’t provide, the question for us is whether we should provide it in a way that adds to the relationship, and whether we have the core competencies to manage it. Do you build it yourself or partner with somebody else for that? The answers are out there.
CS: Do you see Unum expanding internationally outside the U.K.?
TW: One of the things we did over the course of our restructuring period was get out of some international businesses. We found ourselves with a series of small things spread across the world which possibly allowed us to be a little more global in how we positioned the company. However, we didn’t add value to those markets, and they were fairly insignificant to the company. Some of them were little operations, smaller than some of our field offices, whether in France, Germany, The Netherlands, Argentina, Japan, or Canada. So, we actually got out of most of those. When we took a clean piece of paper and said, ‘What are we good at and where can we leverage our competencies,’ those things didn’t fit in that mold. Looking outside the U.K. and the U.S. would be in the spirit that we have to add value.
CS: In the last year you have changed the corporate name from UnumProvident to Unum. What prompted the change, and how has it benefited the company?
TW: It was a very natural thing actually. UnumProvident was a merger name, and for those who have seen mergers in financial services, the name is certainly one of those items that comes into play during the negotiations of the merger. It made perfect sense to keep the name where it was while going through a redefining of what this company stood for and trying to set the direction of the business for the long term, but once we have been through that, you ask yourself how you want to brand yourself, where you want to advertise, and what the core messages are. It is a good time to look at everything -- your name, your logo, your tagline -- and that is what we did. It was a very systematic process to look at the way we come to market and the image we want to project with this new company.
In reality, the marketplace had already truncated the name to Unum. If you look at customers, brokers, Wall Street, everyone was calling us Unum. This company represents a whole host of legacies, not just Provident, but also Paul Revere in Massachusetts and others. We had some tremendously strong and longstanding names in the marketplace, but if you are trying to brand and get your message to the market in a more straightforward way, you have to look at simplifying things, and this was part of a growth strategy tied to completing restructuring and promoting the new company.
CS: The company just finished a very successful year in 2007. What are your expectations for 2008?
TW: We have gone through a period of change, not just executing the plan, but also managing expectations. We have really tried to be sure we have managed the outside audience’s expectations, hopefully not just meeting them, but exceeding them. So, it was nice to have the last quarter in terms of operating earnings that exceeded Wall Street expectations for the seventh quarter in a row, but you do still feel the pressure. Where do you go next? We are not going to change our stripes. I think we long ago set out a pretty simple plan focusing on execution and on disciplined, profitable growth, as well as on extending our leadership positions and developing our people. That is one of the things that has led to our success to date, a very simple set of marching orders contained around a few things we think we can do well. We recognize that the bar keeps getting raised, and that is the world we live in.
We have got to continue to perform better, and our people are really energized right now. They were energized during our worst times because they recognized everybody was in this together, whether serving customers, raising capital, selling assets, or whatever to support the bigger cause. Our people were really engaged from the start and are even more so now because we are through those times that were very defensive in some respects, and now we are very excited about being able to play offense again. The whole company will continue to rise to the occasion.
CS: You have been in your job now for almost five years. When you look back, what do you see as the company’s greatest accomplishments under your leadership?
TW: When we started this journey, there was a whole laundry list of things -- raising capital, dealing with regulatory issues, outstanding litigation, employee morale problems -- but when you sum it all up, the greatest prize for me and the leadership team was how everyone banded together early and bought in that this was something that was not going to be solved overnight. It was also something in which virtually everyone could play a role -- whether they were a call center representative dealing with a customer, helping them understand there had been some bad publicity about the company and walking them through that, or the people who were dealing with the gruesome task of working with some regulatory issues and getting those behind us.
The point is that everybody understood early on that if we divide and conquer and focus the efforts on very specific things that have to get done, we would get through this and get through it in a way that we don’t just survive but prosper. It is unusual to see companies go through as much change and adversity as we did and still end up as the market leader, so that is the greatest joy. In spite of the cards very much being dealt against us, the whole organization embraced the situation, and, frankly, they are the heroes in this thing. It was a lot of work by a lot of people, and they had to have faith that this would work out. There have been a whole host of victories, but that is probably the biggest one, because we would not have gotten those victories had it not been for what I just said. Some organizations are going through adversity now, and we have been through that. You can emerge stronger, not just financially, but with a stronger heart.
CS: If you had a crystal ball, where would you see Unum in five years?
TW: I would like to think we will continue to be the leader in providing benefits to employers and their employees. That simple theme is one I just don’t see us wavering from. The details for five years are a little more difficult to figure out. We have to be responsive to a changing customer dynamic, which, again, is happening as we speak. The world is getting smaller, and people are running businesses in very different ways. We also have to respond to a changing regulatory environment.
It is very difficult to see the pieces specifically, but our role is working with employers and their employees, and I continue to see a big piece of our deliverable to customers being a high quality service experience. We really do believe customers will pay and reward those who provide good service, and that is a huge aspect of the culture we have built. We have millions of contacts with customers every year, and that will not change. This is still a people business, and that will not change either. We will continue to recognize that Unum has got to be a place where the best and brightest in our industry want to come and work and where there is a career path for people to start early and have full careers with this company. The politics, regulatory side and economy are things we can’t predict, but we will be in a position to do the right things as issues emerge.
While he has had precious little time to devote to leisurely pursuits in recent years, Mr. Watjen has undoubtedly seen Unum begin to harvest the fruits of his labor and that of many other dedicated team members. Achieving balance in his personal life now includes spending time with his two daughters and escaping to the North Carolina coast for boating and fishing. His passion for Unum and the dedication of its workforce will continue to energize the future of the company and drive its profitable growth in the days ahead.