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Disability Insurance Claims Ė An Inside View (Part 2)



When looking at the disability insurance industry from 1986 through 1994 and linking certain economics to claim history, we find a growing number of problems. These problems involved increasing number of disabilities, new forms of disabilities and certain business and competitive pressures.

In addition to Health Care Reform and Managed Care, the major problems our industry was facing included the following:

  • Corporate consolidations, mergers & acquisitions resulting in the layoff of a large number of Americans in our work force.
  • Increase in the number of AIDS related disabilities.
  • Carpal Tunnel Syndrome, Chronic Fatigue Syndrome & Fibromyalgia related disabilities that either didnít exist in the past or were never diagnosed as serious disability conditions.
  • Increase in the number of disability cases caused by or contributed to by Depression, Anxiety Disorders and Substance Abuse.
  • Liberalized Policy Language that made it "easy" especially for physicians to claim total disability benefits.
  • Underwriting concessions of "guaranteed issue" non-cancelable policies without medical requirements to members of professional societies.

I can remember, as a Senior Account Executive for a major disability carrier, getting into a "bidding war" with other carriers, for the exclusive rights to market individual disability policies to the physician members of a State medical society. When the "bidding" rose above $2,000 mo., 90 day Elimination Periods and To Age 65 Accident & Sickness Benefit Periods, I removed my company from contention. These offers were getting too rich.

Many of the company management personnel who were making product, sales and marketing decisions at this time, were gone from those same companies within the next few years. I sometimes think these decisions were made for market share and gross revenue only. Net profits where becoming nonexistent!

The following graph will show the nose-dive that profit margins took during this period of time. This represents the top 8 companies issuing disability insurance.

Companies scrambled to reduce future claim costs by instituting several major changes within their individual disability departments. These changes included:

1. Reducing Issue & Participation limits so future blocks of business would reflect less potential liability and therefore, less risk.

2. Reduce available options, especially those that represented the most future risk.

3. Strengthen blood requirements so that most, if not all underwriting required blood. In some states, blood was required on every individually underwritten risk.

4. Reduce the Percentage of income that could be issued from as high as 60-80% of net income down to 50%.

5. Increased premium rates on new product series.

6. Significantly reduce or eliminate Guaranteed Issue offers.

Companies also increased the number of staff MDís that would review underwriting, as well as employ CPAís to more carefully screen the financial requirements submitted by proposed insuredís. Claim departments hired more rehabilitation experts who worked with disabled policyholders to try and get these claimants back to work. Disability case managers were assigned to many cases to monitor their progress. Special Investigative Units and Special Fraud and Litigation Units were established in many leading companies to aggressively review individual claimants.

In addition, many companies stopped issuing what they considered were the "rich" featured policies of the 1980ís and designed more plain vanilla contracts. Many of the individual policy portfolios were redesigned on a guaranteed renewable platform so that future premium rates could be raised within a policy series, if claim results were not favorable. This was a significant change from the majority of policies issued throughout the 1980ís and early 1990ís.

Marketing concepts were altered to spread risks within the individual disability business. Work-site marketing became a "buzz" word within our industry, as though it was something new. In reality, it was nothing more then focusing sales within employer/employee relationships, creating additional opportunities to provide "middle management" the ability to purchase coverage. In many of these sales, the underlining coverage was provided by employers through group LTD plans and individual sales were for supplemental coverage.

In part three of this series, I will discuss the investigative tools of claim departments, provide you with a list of "potential" claim problems and walk you through a typical individual disability claim.

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