On July 1, 1998, New
Jersey Gov. Christine Todd Whitman signed a bill that would allow
Prudential Insurance Company to reorganize from a mutual company --
nominally owned by policyholders -- into a public stock company.
The
process, known as demutualization, will probably not commence until
early 2000. But what does this complex process mean if you hold a
policy from Prudential? Policyholders, who currently receive dividends
based on the company's profits, will receive Prudential stock once the
company goes public. Consumer advocates are happy that the plan offers
something to policyholders, because the demutualization plans of other
large life insurance companies
have left policyholders holding nothing except their usual policies.
But consumer advocates also express concern about loopholes in the law
that's been passed in New Jersey.
Prudential
officials say that they will be distributing 100 percent of the
company's common stock -- at an estimated value of $20 billion -- to
its nearly 11 million policyholders. But the actual law passed does not
specify how the company will divide up its stock among policyholders.
Other loopholes could allow directors and managers to get stock or
stock options, thus limiting the amount that policyholders will
receive.
Two other
segments of the law are also cause for worry, warn consumer advocates:
the public hearing process and confidentiality provisions.
New
Jersey law generally provides for full public hearings of such cases,
with the opportunity for questions and cross-examinations. But the
"legislative hearing" provided in the case of the Prudential
demutualization will have little give and take. "There's no way to get
any information other than what the company wants to present," says
Paula Isola of the Center for Insurance Research, a consumer group
based in Cambridge, Mass.
The confidentiality provisions
of the law make it unclear whether the documents that Prudential has to
produce for the New Jersey insurance department will be made available
to the public -- documents that would be of great interest to consumers
as well.
"The promises sound good, but whether or not
they'll be fully delivered remains to be seen," says Bob Hunter,
director of Insurance the Consumer Federation of America. "The devil
can be in the details."
Prudential has come under
criticism in the past for its close ties to New Jersey officials. As
one of the state's largest employers, the company has had several
former governors and other political leaders serve on its board.
Whitman's husband, John, worked as a senior manager at Prudential-Bache
Interfunding, a subsidiary in the company's securities group. He left
the job in 1990.
Prudential's move is the latest in the
trend of mutual insurance companies going public. John Hancock,
MetLife, and Mutual of New York (MONY) have announced similar plans.
Prudential officials say that the company needs to reorganize in order
to stay competitive, and thus attractive to policyholders.
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