Columbia A Giant of Insurance

The State
www.thestate.com
By Jeff Wilkinson

So a priest, a hospital executive and a journalist walk into the State House…

No, that’s not a setup for a bad joke about South Carolina politics. It’s an actual event that happened in 1946 and was one of the reasons Columbia has become the world’s leader in insurance technology and processing.

And you thought that Hartford, Conn., held that title, right?

“Not anymore,” said David Pankau, chief executive of BlueCross BlueShield of South Carolina. “But people don’t see Columbia as being the insurance center of the world. It’s the best kept secret in the state.”

Consider this:

•  BlueCross BlueShield of South Carolina alone handles three-fourths of all the insurance claims for United States military personnel and retirees, and likely will process 100 percent after a recent challenge to its bid for the remaining West Coast claims is settled.

•  The company administers about 28 percent of all Medicare business nationally, and about 70 percent of all Medicare claims run through its data center.

All that data crunching amounts to about 1 billion claims processed each year by BlueCross BlueShield of SC alone. But the company also cuts checks amounting to about $1 billion a day in health care payments.

“That’s five days a week, 52 weeks a year,” said Steve Wiggins, the company’s chief information officer. “It’s about 10 percent of the total health care payout in the U.S.”

And Columbia boasts another 20 or so insurance companies, from startups to Fortune 500 firms. Insurance has produced more than 14,900 jobs in the region, with the average salary at $62,000. And the industry pumps $6.7 billion a year into the area’s economy. That comes close to the $7.1 billion total economic impact of Midlands’ military bases on the local economy and more than Boeing’s estimated $6.1 million economic impact on the Charleston area.

The companies include Seibels Bruce, which pioneered insurance in the city in 1869, and Colonial Life, the nation’s second largest supplemental insurance company with its affiliate Unum U.S. Aflac, the nation’s No. 1 supplemental insurance firm, also is moving into town in a big way, after buying Columbia-based Continental American Insurance Co. in 2009. It plans to employ 825 people here by the end of this year.

“Look at New York, Hartford, Chicago or Des Moines (Iowa) … they have more companies,” said Deb Rasmussen, Colonial Life’s vice president for account services. “But when you combine technology and insurance carriers, you can credibly call us the insurance capital. There’s tons of insurance knowledge and jobs here. It’s off the charts.”

‘IT FEEDS ON ITSELF’

The history of insurance technology in Columbia began in 1869 with the founding of Seibels & Ezell four years after Gen. William T. Sherman marched into town during the Civil War and left much of the Palmetto State’s capital in smoldering ruins. That firm would evolve into Seibels Bruce, which is still in business today on Lady Street.

Efforts to reach Seibels Bruce officials for this story were unsuccessful. But according to a written history provided by the firm, the company gave Columbia’s budding insurance industry its first technological boost with the invention of the vertical filing cabinet, which revolutionized record keeping worldwide – the first of several advances made through the decades that has turned Columbia into a processing powerhouse.

Colonial Life’s story began in 1937, when Edwin Averyt moved here from Alabama to become manager of a firm that sold installment savings and other investments.

“He was a good salesman,” said Gayle Averyt, Edwin’s son and now chairman emeritus of Colonial Life.

Edwin Averyt got a $5,000 commission check after a particularly good year and founded the Mutual Accident Company in Columbia. He took the company public in 1941, raised $100,000, and Colonial Life was born.

Five years later, three men –South Carolina Msgr. George Lewis Smith, Greenville hospital executive Roger Huntington and journalist George Buchanan – saw the need for a nonprofit, pre-paid hospital plan for South Carolina citizens, many of whom were soldiers, sailors, airmen and Marines returning from World War II.

The men raised $5,000 – no small feat at a time when a loaf of bread cost a nickel and a flight to Atlanta was $9.50 – and were granted a license from the State Insurance Commission, and launched Blue Cross. In 1949, Blue Shield, with the backing of the S.C. Medical Association, was formed as a nonprofit to cover doctors’ services. The two then entered into a partnership that exists today.

Columbia’s insurance industry spawned from those three companies, along with others such as S.C. Farm Bureau Insurance, as employees migrated to and from them and branched out on their own.

“Somebody goes out and starts his own company,” Averyt said. “It just feeds on itself and you end up with a cluster. (But) the technology is what exploded. Now it’s not just competition in the Columbia market. You can be in Columbia and do business all over the world. You find your niche and you go for it.”

A NEW INDUSTRY

Fast forward to 1972.

A bright young University of South Carolina student, Larry Wilson, is hired by Seibels Bruce for $350 a month. (Blue Cross had offered him $300 a month.)

“I was 19 and had couple of accounting classes,” Wilson said. “I decided to get married, stay in school and not go to Vietnam. I needed a job.”

One of the unexpected benefits of his new position was that the company had installed new IBM computers and IBM was offering dozens of classes on how to operate them.

“I went to all 90 classes IBM had over five years,” Wilson said. “I got a great education in computer engineering.”

Six years after he was hired, Wilson was in management and found himself in a unique position: “It was the only place on the planet that really deeply understood both insurance and computers,” he said.

It was also a time when record keeping was still mostly paper-based, using large IBM keypunch cards that dated back before World War II. Using his unique combination of knowledge of computers and insurance, Wilson invented the first integrated, on-line insurance administration system.

“Larry Wilson went from one level of technology to another before anyone else,” Rasmussen said. “It spawned a new industry.”

Wilson left Seibels Bruce in 1981 and formed his own company, Policy Management Systems Corp. – PMSC – and took the company public and worldwide. PMSC’s growth was staggering; it eventually was doing business in 35 countries with 70 percent of all the insurance companies in the world, Wilson said.

“We hired five people a week for 25 years,” he said.

In 2000, Wilson sold the company to Computer Sciences Corp. for about $1 billion.

But while Wilson was taking new school to new heights, BlueCross BlueShield of SC was perfecting old school.

In the 1990s, most insurance companies were migrating to server-based computer systems rather than mainframes. Time Magazine even ran a cover story proclaiming the mainframe dead.

But BlueCross BlueShield of SC stayed exclusively with main frames, a decision that Pankau said allowed them to land the large contracts that have become the company’s hallmark.

“We bucked the trend,” he said. “It helped us to do large volumes with a very small footprint.”

Added Wiggins: “The processing power was the key and we have fully embraced that and exploited it. But we also took on a strategy of being platform agnostic. Our software can run on non-mainframe, too.”

THE NEXT BIG THING

Today, the insurance industry in Columbia continues to grow and innovate.

Wilson presently owns three Columbia-based companies EagleEye Analytics, Dove Tail and NetComp. He is also a partner in New York-based FirstMark Capital, which has more than $2 billion under management.

EagleEye, Wilson said, could revolutionize actuarial science by allowing companies to more precisely calculate risk and therefore more accurately set rates.

“It determines the right price and the right risk level of policies,” he said. “That’s going to be the next big thing.”

And Aflac’s entrance into the market – with its trademark Aflac duck – also is a boost. The Columbus, Ga., Fortune 500 company, formed in 1995 by the Amos brothers, is the largest supplemental insurance company in the world. It tallied $22.2 billion in revenue in 2011.

Continental, founded in Columbia in 1980 by Leon Goodall, a former chief executive of Colonial Life, provided Aflac with a platform for marketing group, rather than individual, supplemental policies. It also was an industry leader in providing critical illness coverage.

“Aflac saw a unique opportunity,” said Chris Goodall, son of Leon Goodall and now Aflac’s chief executive of group insurance.

Aflac presently has 481 people working in Columbia, and expects that number to grow to 825 by the end of the year.

It is presently located in three buildings around town and is contemplating a corporate campus in the future that would bring all of the operations together.

“We recognize we are going to need more space,” company spokesman Jon Sullivan said.

But in addition to absorbing a niche company to expand their business, Aflac was also drawn to town by the city’s educated work force, built in large part by USC and Midlands Technical College, and its technological history, Goodall said.

“Columbia has a deep and rich history” in the insurance industry, he said, “and it’s been expanding significantly in the past few years. It’s wonderful and exciting to be part of that expansion.”