321 East Main Street
Ada, Oklahoma 74820
Telephone: (405) 436-1234
Fax: (405) 436-7565
Sales: $59.9 million (1996)
Stock Exchanges: American
SICs: 7389 Business Services, Not Elsewhere Classified
To provide middle America with affordable access to quality attorneys and to the legal system of the United States of America through exceptional customer service and rigorous screening of all Provider and Referral Law Firms.
Pre-Paid Legal Services, Inc. develops, underwrites, and markets various legal service plans for customers in all states and the District of Columbia. Because of the increasing need for legal services in many areas of life and the increasing costs for attorney consultations, Pre-Paid Legal makes available plans based on monthly payments similar to insurance for health care or car accidents. If needed, customers then can access a network of selected lawyers or in some cases choose any attorney they wish. Since this company was created in 1972, it has paid over $140 million to more than 100,000 lawyers who have aided Pre-Paid Legal customers. Pre-Paid Legal promotes its services in various ways, but network marketing has been one key to its success. One of the first firms in the U.S. to provide prepaid legal services, in 1997 Pre-Paid Legal remains a leader in a rapidly expanding industry. It is the nation's only public corporation devoted entirely to developing and marketing prepaid legal services.
Many individuals think you have to pay a fee directly to a lawyer for his or her services. However, options to that direct method of payment have existed since around the turn of the century. For example, the Physicians' Defense Company from 1899 to 1910 offered doctors prepaid legal protection against malpractice lawsuits. In the 1920s some auto clubs offered members free legal advice in car-related cases, a type of service the American Bar Association declared unethical.
Meanwhile, Europeans began offering early versions of prepaid legal insurance. Germany had such plans back in the 1930s. However, it was not until the 1960s that certain U.S. Supreme Court cases paved the way for American prepaid legal plans. Backed by the American Bar Association, the first prepaid plan in modern America began in 1971 in Shreveport, Louisiana, where the General Contractors Association provided limited legal services for union members.
These events set the stage for Harland C. Stonecipher to start Pre-Paid Legal Services. In the June 2, 1986 Forbes, he explained one of the reasons for his career choices. "When you grow up a sharecropper's son like I did, you make a list of things you don't want to do for the rest of your life. I didn't want to farm." Stonecipher was the only person in his family to finish high school and attend college. He went to East Central University in Ada, Oklahoma, near his hometown of Tupelo.
After he left college in 1961, Stonecipher began teaching English, debate, and drama. He loved teaching but not its low pay, so in 1966 he quit teaching and began selling life insurance. He did quite well in his new career, and by the early 1970s he considered starting his own life insurance company instead of working for someone else.
Then in 1972 Stonecipher, still a life insurance salesman, had a serious car accident that changed his life. He found his insurance covered both his car and medical bills but not his legal expenses of several thousand dollars. He thought why not have legal insurance, so he first approached the Oklahoma insurance commissioner to gain approval for his idea. He then started Pre-Paid Legal's predecessor company, an Oklahoma "motor service club" which offered reimbursement for legal expenses.
Stonecipher began his business in Ada, a farming and college community of about 17,000 located a couple hours drive southeast of Oklahoma City. Many at first laughed at his idea, and he had to rely on friends to help finance the new enterprise.
In the November 1987 Nation's Business, the founder reflected on the somewhat haphazard origins of Pre-Paid Legal. "If I hadn't had the accident, I probably would have started a life-insurance company. If you wait until you know all the answers, you're not going to start. My theory is simple: ready, fire, aim. I think that's the story of anybody who makes a success. What that means is that you adjust your course as you go along. Looking back, it seems like everything I've done was like jumping off a cliff. But it seems like when I've jumped, things have come out fairly well."
In January 1976 Stonecipher incorporated Pre-Paid Legal Services and acquired its predecessor through a stock exchange. Stonecipher became the chairman, president, and CEO. In 1979 Pre-Paid Legal became a public corporation when its stock was traded on the NASDAQ exchange.
1980s: Expansion and Troubled Times
Pre-Paid Legal and its predecessor firm in its first 10 years used typical marketing strategies in the insurance industry to sell its legal insurance. In 1982 sales reached $4 million, then Harland Stonecipher decided to take the advice of an old friend named John Hail that multilevel marketing (MLM), also known as network marketing, was a legitimate and effective way to sell goods and services. Hail created the independent firm called TVC Marketing Associates to promote Pre-Paid Legal as an experiment in a few states.
Pre-Paid Legal's use of MLM started out great. In just one or two years Pre-Paid Legal sales had jumped to $8 million. The results were so favorable that Stonecipher in 1985 purchased TVC and began using network marketing as the sole means of selling its legal services contracts.
Pre-Paid Legal also used its distributors to market a small radio device called Companion Caller in 1985. Designed by Dr. R. Darryl Fisher, Companion Caller was available to automatically contact a central office in case of emergencies.
By 1987 Pre-Paid Legal had recruited over 200,000 sales associates, who were independent contractors, like distributors in other MLM firms. Each paid $55 to sign up. It also began using network marketing to sell a package of noninsurance services called TVC Advantage. For an annual fee of $120, members received a toll-free telephone number to receive the guaranteed lowest prices on some 250,000 brand-name items.
Not everyone thought multilevel marketing was a great way to sell legal insurance. In 1985 Christopher P. Nolan worked as a Pre-Paid Legal Services salesman, but he felt MLM was more suited for selling a tangible commodity. He left Pre-Paid Legal and worked for a competitor, but frustration at how its services were marketed caused him to start his own firm. Nolan founded Landmark Legal Plans Inc. in Denver and was profiled in Inc. in September 1988, but three months later his firm had almost completely collapsed. Nolan's new firm had been supported by a Denver law firm that provided legal advice for Landmark's customers. However, that same law firm worked with several Landmark competitors, including Pre-Paid Legal. The law firm decided to drop Landmark.
Pre-Paid Legal of course continued to work with the Denver firm and other law firms around the nation. Its revenues jumped from $4.5 million and 39,836 policies sold in 1983 to $42 million and 229,632 policies in 1986. In spite of this rapid growth, Pre-Paid Legal in 1987 still maintained modest headquarters in Ada, Oklahoma. It remodeled a former car dealer's showroom instead of building new offices.
The reality was that Pre-Paid Legal suffered a severe cash shortage at the time. In an interview in the July/August Success, Stonecipher described this most serious crisis in his firm's history. "[We] didn't have the cash to keep growing. So in 1986, we basically shut down our marketing, laid off half our office staff, and just focused on maintaining the accounts we had. Our sales force went from 50,000 to 1,500. It was a terrible thing.
"When we started I was still supporting my family on my renewal commission income from my life insurance career. There were numerous weeks that to meet our payroll of $600 or $700 a week, I would go down to the bank to mortgage my house furniture. After 1986 we went eight years without recruiting. We were $23 million in debt. People thought we were dead."
Pre-Paid Legal in 1987 made a major change in its legal services. It no longer offered the type of contract called an open plan, where consumers could choose their own attorneys. The company began selling only closed plans in which clients had to choose from a network of attorneys created by Pre-Paid Legal. Usually, the company contracted with one law firm per state. Provider attorneys received a fee for each customer in their area. Of course, Pre-Paid Legal continued to honor the open plans signed before 1987, but those declined as time passed. By 1997 about 85 percent of Pre-Paid Legal's business concerned closed contracts. Meanwhile, Pre-Paid Legal in October 1986 changed from using NASDAQ to the American Stock Exchange. Its AMEX symbol was PPD.
While Pre-Paid Legal was barely surviving in the late 1980s, several other firms had entered the rapidly growing field of legal insurance. The National Resource Center for Consumers of Legal Services estimated that in 1987 about 30 million Americans were enrolled in a prepaid legal plan. From about 1985 to 1987, newcomers to this industry included the Montgomery Ward Signature Group, which sold its plan through direct mail. In just two-and-a-half years it sold 200,000 plans. Other firms using direct mail to promote legal insurance included Hyatt Legal Services and Jacoby & Meyers. Amway used its distributor network to sell 14,000 plans in just eight states within one year of starting its Ultimate Legal Network.
The American Bar Association conducted a 10-year study which concluded that in the late 1980s some 70 percent of Americans, mostly middle-class, seldom if ever used a lawyer's service. Pre-Paid Legal and other prepaid legal firms were encouraged by these statistics indicating many more people were potential customers.
1990s: Stable Growth and More Services
As the new decade began, Pre-Paid Legal Services found it was keeping enough customers to generate some cash to pay off part of its huge debt. To raise more money, Harland Stonecipher decided to offer additional stock, which resulted in gaining several million dollars from investors. That gave the firm the resources to expand in major ways in the 1990s and dramatically reverse its earlier poor showing.
Pre-Paid Legal in 1993 began seeking contracts with large businesses, defined as those companies with at least 1,000 employees.
In the 1990s Pre-Paid Legal offered several different prepaid plans. About 40 percent of its customers worked for a company with legal insurance as a benefit funded by payroll deductions. Some 60 percent of all Pre-Paid Legal customers chose one of five individual options.
In 1997 over 90 percent of individual Pre-Paid Legal customers chose the Family Plan, which allowed the customer to have preventive legal services such as unlimited toll-free phone consultations, correspondence, will preparation, and review of all legal documents. The Family Plan also covered trial defense, Internal Revenue Service audit assistance, and motor vehicle legal services. By 1997 the firm was offering its Family Plan in Spanish in states such as Florida, California, and Texas.
Since 1986, the company has offered its Commercial Driver Legal Plan designed for truck drivers and others who drove commercial vehicles. Underwritten by the Road America Motor Club, this plan's benefits included legal assistance in case of moving and nonmoving violations, arrest and bail bonds, tragic accident defense, car rental discounts, and ambulance services.
In 1991 Pre-Paid Legal began offering its Law Officers Legal Plan, which provided many benefits in the Family Plan, plus 24-hour emergency telephone access to attorneys and also legal assistance for any administrative and post-termination hearings.
The firm's Small Business Legal Plan was first developed and marketed in 1995. Small businesses with a maximum of 15 employees and no more than $250,000 net annual income received limited legal correspondence for debt collection or other business disputes, limited document reviews, certain trial defense benefits which increased each year the contract was renewed, and limited other legal consultations and services.
Pre-Paid Legal added two other plans for targeted groups in the 1990s. In 1993 it developed the School Teachers Legal Plan to help teachers facing administrative hearings. Two years later the company worked with a CPA firm to introduce its Tax and Financial Services Plan, designed to help Pre-Paid Legal sales associates receive the legal advice needed to prepare their state and federal income tax forms.
Regardless of the specific legal plan, Pre-Paid Legal customers were entitled to limited benefits. For additional services from a provider attorney, they received a discount, usually 25 percent off standard hourly fees. Average prices for new legal plans increased from $165 in 1993 to $215 in 1996.
In the 1990s Pre-Paid Legal added some new features to its multilevel marketing system. Beginning March 1, 1995, it introduced a level commission schedule where commissions of about 25 percent were paid during each year customers paid their premiums. Previously, Pre-Paid Legal had paid first-year commissions of around 70 percent, followed by commissions in later years of about 16 percent.
A second innovation to the MLM system was the creation of the regional vice president (RVP) program in July 1996. Pre-Paid Legal Services at that time promoted 14 of its top distributors to become regional vice presidents. This decentralization gave each RVP the responsibility to train sales associates within his or her area.
Third, Pre-Paid Legal began on January 4, 1997 a one-day classroom and field training program for sales associates. This optional program allowed new associates to pay $249 covering their regular $65 enrollment fee and also the enhanced training and opportunity to advance faster in the firm's MLM program. Current associates paid just $25 for this new Fast Start Program, which by 1997 already was helping to increase associate productivity.
By the end of 1996, Pre-Paid Legal had 110,350 active sales associates, an increase from 78,281 active associates in 1995. The company defined active associates as those who sold at least three new contracts per quarter or retained his or her personal contract. Similar to other companies using MLM, a significant number of sales associates or distributors worked part-time.
Pre-Paid Legal also was developing a cooperative marketing strategy where insurance companies and other service companies would use their established agents to offer the various Pre-Paid Legal plans in addition to their regular policies. In its 1996 annual report, Pre-Paid Legal stated it had "mixed success with cooperative marketing arrangements in the past and is unable to predict with certainty what success it will achieve, if any, under its current cooperative marketing arrangements.
Another marketing strategy used by Pre-Paid Legal in the 1990s took advantage of the fame of sports celebrities. In 1993 the company entered a marketing agreement to use the services of Roger Staubach, the former Dallas Cowboys quarterback. In 1996 Fran Tarkenton, another former National Football League quarterback, joined the Pre-Paid Legal Board of Directors. In May 1997 Pre-Paid Legal added membership in the Fran Tarkenton Small Business NETwork as one of the benefits of subscribing to its Small Business Legal Plan. This new benefit allowed small businesses to receive motivational audio tapes, newsletters, advice on setting up a web site, and various other aides. This was a good example of the joint operations characteristic of business life in the Information Age.
Like all businesses, Pre-Paid Legal was concerned about government laws and regulations. In 1997, according to a Salomon Brothers report, only 14 states regulated prepaid legal services companies as insurance businesses, while the American Bar Association monitored the interaction between Pre-Paid Legal and similar firms with their provider attorneys.
There appeared to be some confusion on regulation of this new industry. The situation in California, the leading state in social and economic trends, illustrated this disorder. A California Bar official in a July 9, 1996 Los Angeles Times article stated prepaid legal service firms were not required to register with the bar, but that the various plans came under state Insurance Department rules. However, representatives of the California Insurance Department said the bar, not the state agency, regulated the plans.
By 1997, Pre-Paid Legal had contracts with 35 law firms, ranging in size from 10 to 60 attorneys. For example, the Columbus law firm of Maguire, Vivyan and Schneider was the only firm in Ohio authorized to provide legal services for Pre-Paid Legal customers. Pre-Paid Legal began marketing its individual plans in Ohio in February 1995.
The nation's various plans were represented by a trade organization, Chicago-based American Prepaid Legal Services Institute. In 1996 the institute's executive director reported that 90 percent of all prepaid plan subscribers were satisfied with their plans, most state bars had approved prepaid plans, and that they were increasing by 10 percent annually. A 1997 Salomon Brothers report verified that last statistic. It reported that the industry grew 11 percent from 29.5 million consumers 1995 to 33 million in 1996.
Fueling this growth were several general trends in the 1990s. First, increasing litigation over all kinds of issues has increased the need for access to an attorney. The growth of the concept of individual rights unheard of in past years has helped create this litigation. Second, attorneys have become more aggressive in seeking work for themselves, influenced by a 1977 U.S. Supreme Court decision that lawyers have a right to advertise. With more lawyers graduating from law school, they needed ways to find work, even if it meant working under reduced fees through prepaid legal insurance plans. Third, an increasing number of Americans were starting home-based businesses, including those using multilevel marketing. Formerly often ridiculed, MLM gained respect for successfully marketing a wide range of goods and services, from MCI and Sprint long-distance services to Franklin Quest day planners. Salomon Brothers emphasized, "Network marketing is Not a Pyramid Scheme," in its report on Pre-Paid Legal on May 29, 1997.
With all these positive reasons for Pre-Paid Legal's future success, there was a major trend that would tend to damper those prospects. First, more individuals seemed to despise attorneys and thus sought other alternatives. The self-help movement has empowered such individuals to gain knowledge on their own and not rely on professionals. John Naisbett in Megatrends, Alvin Toffler in The Third Wave, and many others agreed that the computer revolution has given average persons the ability to access information and thus gain more control over their own decisions. Doctors, lawyers, and other professionals obviously had not disappeared, but their roles were changing as the new millennium approached.
In any case, Pre-Paid Legal's prospects in 1997 looked pretty good for the immediate future. With no debt and $18 million in cash, the firm was poised for major expansion. Founder Harland Stonecipher in the July/August 1997 Success predicted that all the big insurance companies will soon offer legal insurance and that his own firm would have $1 billion in annual sales within just five years. That confidence was echoed by Forbes on November 4, 1996, including Pre-Paid Legal as one of the 200 best small companies in the U.S. And both Sovereign Equity and Salomon Brothers in 1997 rated Pre-Paid Legal stock as a "Strong Buy."
In 1997 Stonecipher remained at the Pre-Paid Legal helm after 25 years, but the transition to new leadership already was underway. In March 1996 the firm's directors elected Jack Mildren, the former Oklahoma lieutenant governor who in January 1995 was chosen as Pre-Paid Legal's president, to replace Stonecipher as CEO. At the same time the company appointed Randy Harp, its chief financial officer, to the new position of chief operating officer.
Then in February 1997 Mildren resigned as Pre-Paid Legal president, CEO, and director. Wilburn Smith was appointed to be the president and a new board member. Stonecipher reassumed the position of CEO.
With this new management team in place, Pre-Paid Legal moved forward in 1997 to meet the challenges of a rapidly changing industry.
Principal Subsidiaries: Pre-Paid Legal Casualty, Inc.; Pre-Paid Legal Services, Inc., of Florida; National Pre-Paid Legal Services of Mississippi, Inc.; Legal Service Plans of Virginia, Inc.; Ohio Access to Justice, Inc.
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