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AARP bails on the Rock
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September 11, 1996: 9:56 a.m. ET
Association has dropped its $4.5 billion contract with Prudential Insurance Co.
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NEW YORK (CNNfn) -- Prudential Insurance Co. of America has lost an exclusive contract with the American Association of Retired Persons, an agreement worth $4.5 billion annually, The Wall Street Journal reported Wednesday.
Prudential, which had provided long-term care insurance and administrative services to the 30-million-member association since 1981, lost the contract in a bidding war to a group of rival insurers made up of United HealthCare, Metropolitan Life Insurance Co., and ITT Hartford Group Inc.
If the contract is approved by the AARP board in November, United HealthCare, a Minneapolis-based health-care services company, will provide a variety of health-care insurance products to AARP members; Metropolitan will render the long-term care section of the contract; and ITT Hartford will take care of various administrative services.
Prudential's contract with the AARP comprised approximately 30 percent of the health-care unit's revenue. Last year alone, the contract delivered $40 million in pretax operating profit, industry experts told the paper.
A spokesman for Prudential told the Journal it would have liked to continue the relationship with the AARP, but the insurer was "not prepared to do so at any price."
David Havens, an analyst with Standard & Poor's Insurance Ratings Group, indicated that the Prudential's defeat in this bidding war came at a critical time, as the company has also recently lost several other large contracts, including AT&T Corp. and Bell Atlantic.
Based on the contract's current value, Wayne Haefer, director of the AARP's membership division, told the paper United HealthCare stands to get approximately $4 billion in additional revenue and Met Life should earn approximately $350 million. Potential revenue gain for ITT Hartford was not yet available.
Haefer indicated that the three insurers were chosen because they offer more flexibility in their product lines, and were more willing than Prudential to customize products for use in home care, instead of hospital or institutional care.
The new contract will not require any change in procedure or coverage to AARP members. "Our goal, " Haefer emphasized to the Journal, " is to make this transparent to them."
The AARP announced its intention to consider other insurance carriers in November 1995, a time during which the New Jersey-based Prudential was already combating allegations of deceptive insurance sales practices, and trying to trim bureaucracy from day-to-day operations.
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