Those of you marketing disability insurance today will no doubt agree that our choices in competitive contracts have significantly changed and diminished in number during the past 5-8 years. The days of the 1980�s give-aways have disappeared. The industry has turned to "guaranteed renewable" forms of policies and away from the "noncan" policies we once relied upon to market. From a contractual aspect, "return to work" incentives have become new buzzwords within policy design, and most companies have abandoned the once heralded guarantee of "specialty definitions". "Work-site marketing" has become the new thing! My, has this business changed!
To better understand what our industry has lived through, I need to take you back to the 1970�s, which I view as the "building and competitive period" of the disability insurance business. Disability insurance carriers, mostly in the brokerage arena, focused on product features to compete against each other. Many mutual life insurance companies with captive agents did not offer a truly competitive disability policy, and their business products were either lacking or did not exist.
Premium growth rates of 8-9% and more were the "norm" among the top 8-10 companies in our business. Although a good deal of "guaranteed renewable" individual premium was already in force, "noncan" policies were really catching on. Group association products, mostly cancelable and sold to members of professional associations through the mail, had increased in numbers during the previous 10 years. Blood and special screening tests were used only for some very large cases and HIV had not yet become an underwriting problem.
Individual disability products were written with maximum benefits of $8,000 to $10,000 per month for total disability. Elimination periods (waiting periods) of 30-90 days, with growing emphasis on 60 days, were indicative of our individual market. Long-term "own occupation" contacts were heavily marketed by most of the top 8-10 companies, all seeking to underwrite similar occupational segments.
"Lifetime Sickness" before age 45 and then age 50, was becoming the choice of many brokers.
It was during this historical period of our industry, that "Residual" (long term partial disability) and Cost of Living Adjustments (COLA) were developed and offered by many companies. Residual (loss of 20-25% net income) triggered long term "partial disability" benefits from most of the products sold during this period of time and commissions were paid on a sliding scale that increased from a base of 45-50%. Producers writing more than $10,000-$15,000 of annualized individual premiums earned bonuses of 5-10% and those who wrote $20,000 or more were paid up to 70% in first year compensation. Individual disability business products were designed to meet the needs of higher-earning professionals and business owners.
Overhead Expense plan issue limits climbed for the first time going beyond $10,000 per month, and Disability Buy-Sell policies were written by a handful of companies with maximum issue amounts of $500,000 on one life. Although the premiums for these business products were not a significant segment of our business, they facilitated the sale of new life insurance cases and gave some of the more sophisticated agents an edge, by "packaging" and solving several different client needs at one time.
General economic conditions had not necessarily played a big part in the marketing of disability products prior to this period of time. However, you may be old enough to remember standing on line to fill up the gas tank in your cars. You may also remember the 9-14% interest rates you were receiving on some of your "conservative" investments. The income stream from these new disability premium dollars created higher expectations for company earnings. These expectations (among other considerations) led to product and underwriting assumptions that would create problems for our industry 10-12 years down the road.
The 1980�s gave rise to rapid growth of new companies entering the individual and group disability market places. In an effort to capture more market share and premium income, many mutual companies began to market disability insurance, with some requiring that full-time agents not place this type of business with other companies.
Increasing emphasis was placed on prices and policy features. Premium growth rates hit record high levels of up to 20%. Specialty definitions of total disability were being marketing with the aid of separate "specialty" letters, explaining to surgeons and other professional specialists how they would be "guaranteed" disability benefits. In addition, a small group of very competitive brokerage-oriented carriers began to make major underwriting concessions to receive endorsements from professional associations. This same group of companies also began to significantly discount premiums for "list-bill" sales of multiple lives in a business or professional practice.
First year total compensation rose to 80% with 15-20% renewal rates, for those producers who were the "big-hitters." It was a time in our industry when several
companies "peaked" their issue limits on individual disability policies to 70% or more, of an individual�s net income.
Lifetime Sickness benefit periods were extended to age 50, 55 and 60. Individual issue amounts of up to $20,000 per month and more were being issued on a single life. That same person could, under specific underwriting and occupational rules, also apply for up to $30,000 to $40,000 per month overhead income limits. Buy Sell coverage was available to high earning attorneys, surgical group members and business owners, in amounts of $1 million on one individual.
Several companies were issuing Cost of Living adjustments beyond 10% per year and some of the most competitive among them provided "guaranteed" minimal COLA no matter how low the government�s Cost Of Living Index became. These same companies built an "annual indexing" (annual increase) into their individual policies, and these increases were granted without any medical or financial underwriting. Policyholders were guaranteed an annual increase in their disability benefits by merely paying a small additional increase in premium. Financial underwriting was requested only after five years of indexing.
By 1986, it was obvious to some companies (and should have been more obvious to others) that overhead and the cost of doing business were taking a toll on company profits. There was a significant "spike" in the number of new claims. "Managed care" was effectively reducing historically high income within the physician and surgeon occupations. In addition, due to a combination of past give-a-way programs, concessions in underwriting, reduction in base premium rates and the emerging of several "new" forms of disability, net profits were disappearing!
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 didn�t 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-cancellable 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:
- Reducing Issue & Participation limits so future blocks of business would reflect less potential liability and therefore, less risk.
- Reduce available options, especially those that represented the most future risk.
- Strengthen blood requirements so that most, if not all underwriting required blood. In some states, blood was required on every individually underwritten risk.
- Reduce the Percentage of income that could be issued from as high as 60-80% of net income down to 50%.
- Increased premium rates on new product series.
- Significantly reduce or eliminate Guaranteed Issue offers.
Companies also increased the number of staff MD�s that would review underwriting, as well as employ CPA�s to more carefully screen the financial requirements submitted by proposed insured�s. 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 1980�s 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 1980�s and early 1990�s.
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.
You should be aware of the several Investigative Tools used by insurance carriers to help legitimize disability insurance claims. These tools include:
- Attending Physicians Statements
- Personal Claimant Interviews
- Video Surveillance
- Independent Medical Examinations
- Functional Capacity Evaluations
- Financial Underwriting
I won�t go into great detail about each of these tools but do want you to better understand their use in evaluating the merits of a disability claim.
Attending Physician Statements are just what they sound like. The physician caring for a disabled client of yours will be asked to submit an initial APS outlining the specific disability and its resulting limitations and restrictions on the insured. He or she will also be asked for specific dates of treatment, when the total or partial disability began and when the physician feels your disabled client can or will return to full-time or part-time work.
In addition to many disabled insured�s not completing their initial claim application properly, the APS is often incomplete, at times confusing to claim personnel and in my experience, can be the cause for some disagreement between insured and insurance company, regarding the degree of disability. It is important for the treating physician to understand the nature of disability, not merely be able to describe symptoms and treatment! He or she must also understand what your disabled client did during a normal workday. The treating physician should personally complete the APS and not merely hand it off to a medical secretary to fill in the blanks from the client�s file. It is also important that the treating physician be "appropriate" for the type of disability. Companies frown on a GP or Family Physician (as an example) treating your client who is severely depressed, especially where "heavy duty" medications are involved.
The Personal Interview is another "tool" used during the process of many claims. Here, a field investigator will contact your disabled client and typically ask for a 30-40 minute meeting to review information the company has received from that client, his treating physician(s) and perhaps, other sources. Questions related to incomplete information and any ongoing progress the disabled insured is making would generally be the topic of conversation. If there are any real concerns about the legitimacy of a claim, the field investigator will probe more deeply into all aspects of the past and current activities of your disabled client.
Field investigators sometimes don�t call in advance to make an appointment with the disabled insured. They may just show up at the door with, "I was in your neighborhood and thought I�d stop by." My advice to disabled clients is, if it�s not a convenient time, ask the field investigator to make an appointment. A disabled client of yours should never feel they are on the defensive side of life.
Video Surveillance is an entirely different affair. I personally look at them as a necessary tool but wonder how many times this tool is not handled "properly." Some claimants are overly concerned about the use of video surveillance. They have heard the war stories from others who were denied disability benefits for what seemed to be the misuse of this investigative tool.
If a disabled insured is claiming disability benefits due to a significant back injury a video tape showing them lifting a large bag of fertilizer out of their Volvo is not going to help the claim! Using the reasoning, "it was one of my good days," isn�t going to help either.
Insurance carriers understand the nature of disability. If they suspect someone is not being totally above board with them, and video surveillance might help prove that fact, it�s going to be used. My biggest concern is when video surveillance is used to establish a myopic view of a claimant. In addition, you should know that claimants who live in gated communities are not immune to video surveillance. Investigators using video surveillance must be careful not to engage in harassment and understand the laws regarding invasion of privacy.
Independent Medical Examinations are a "litmus test" to the validity of many claims. If the attending physician states that your client is totally disabled but does not submit adequate objective information detailing the degree of disability, an IME will almost always be asked for. In addition, in every claim I have handled where mental or nervous conditions where the cause of disability, an IME has been requested. In several of these cases both a psychologist and psychiatrist were separately involved.
The problem with IME�s is, I don�t feel they are totally "independent." After all, the insurance carrier is paying to have these examinations completed. In addition, there are a growing number of physicians I�ve heard of who "specialize" in doing these IME�s for insurance carriers. Thankfully, every once in awhile, I hear of an IME that totally supports a claim but recently, I reviewed the following case that heightened my concerns. The IME physician agreed with several treating physicians that the claimant was indeed, totally disabled. Several weeks after the insurer reviewed the IME report, it contacted the IME physician and somehow, the company came away from that conversation with a significantly negative view of the claim. This doesn�t leave me with a good feeling about how the company is handling this particular claim.
Functional Capacity Evaluations are in my opinion, "tests" not examinations. Some attorneys I have spoken to contend that "examinations" are within the scope of most disability policies. However, "tests" may not be. More important for you and your client is the fact that FCE�s may exhaust that disabled client and in specific situations, may actually inflict additional damage. I attending a litigation conference last year and one of the guest speakers was as expert in training physical and occupational therapists in work-related assessments and treatment (FCE�s).
She opened my eyes to the lack of standardization and objectivity of many of these tests, which measure specific performance of physical activities over a brief period of time and extrapolating these results to an 8-hour day. She questioned the consistency and reliability of these tests and the lack of in-depth training of those who administer these tests. Your disabled client might well be advised to resist this type of testing. At the very least, have your clients attending physician know beforehand, that an FCE is being asked for. The physician may object to the test.
Financial Underwriting is necessary in all residual disability claims, as these claims involve the loss of income. When an insured applies for disability benefits, the insurance carrier doesn�t know if the claim will prove to be one for Total disability or Residual disability. The company will take into consideration the definition of Residual Disability (assuming the policy includes residual) and ask for past personal and business tax returns. This could amount to five years worth of previous tax returns. That�s a great deal of financial information for a CPA with perhaps, a forensic background to study and question.
I feel this volume of information isn�t really necessary when a clear-cut case can be made for total disability from the initial filing of a claim. Financial underwriting at the time of claim can however, provide a picture of potential motivation for a disabled insured to remain on claim if his or her business was troubled prior to disability.
The following is a list of what I call "Red Flags" to potential claim problems for a disabled insured. These are indications to the insurance carrier that further investigation might be called for.
- Self-reported symptoms without objective physical findings
- Complaints of pain in excess of objective physical findings
- Restrictions & limitations not consistent with diagnosis
- When appropriate, claimant is not under regular care of a physician
- Physician certifying to disability outside cope of expertise
- Noncompliance with medical recommendations
- Claimant completing supplemental claim form and doctor signing it
- Claimant doesn�t follow-up with recommendation to see a specialist
- E & O claim against disabled insured
- Multiple missed medical appointments
- Pending divorce
- Pending close of business due to financial losses
- Significant discrepancies between treating physicians
- Move of residence without related physical impairments
- No objective medical testing to support claimed disability
- Claimant appears to be doctor shopping
- Treating physician not in same geographic area as claimant
I want to briefly walk through a "typical" claim. If you follow this claim from left to right and in that order through each level, you get a general impression of this process.
From the representative picture view of this sample claim, the insured usually calls the insurance carrier for the disability claim form. This form is actually a small package including the insured�s portion, a portion for the employer (if not self-employed) and a third portion for the attending physician to complete. Please remember that this merely initiates the claim.
A claim file is opened at the home office of the company (or at a third-party vendor) and the claims representative will then either call or write to the disabled insured for additional information. This may include several yyears of personal and business tax returns, a clarification about the insured�s specific job description and occupation and possibly, additional medical information.
Medical information will be sent to the medical department of the company for review by a physician and possibly, a specialist who may or may not be a full-time employee of the company. The claims representative will send all the financial information to an in-house CPA or accountant for review and analysis, especially if the claim involves "residual" disability benefits.
The medical and financial analysis conclusions will be returned to the claims representative with any notes of concern and possibly, the need for additional information. The claims representative will then contact the insured and at this point, there may be a request for a phone or face-to-face interview to further clarify information developed during these investigative stages. Depending upon the type of claim involved (total or residual disability) there may be additional forms to complete. These are often related to specific occupations such as a Trial Attorney, Surgeon or Dentist. They ask for a significant breakdown of the occupational duties and can include several months of daily routine and for medical or dental billing codes.
Many mergers have taken place in the disability insurance business. This has in my opinion created significant changes within our industry that have caused many companies to downsize, retire some of their most skilled employees and within the claims arena, have created havoc!
Many disability claims are processed and paid on a timely basis. There are however, a growing number of long delays between initial submission of a claim and its ultimate conclusion. Sophisticated investigative tools that I previously reviewed are used in a growing number of these claims, providing insurance carriers with a great deal of sometimes "myopic" information.
Having worked in the disability insurance industry for more than 35 years and working within the claims area for the past several years, I have come to the following conclusions. Many claims are delayed with additional layers of investigation, rotating claims personnel to other areas within the insurance company and others are simply handled badly!
Disabled policyholders do not understand the communication process involved in claiming benefits. They don�t really know the "language" of disability claims and they are easily placed in a defensive position. While companies must pay only legitimate claims and therefore, have and use the tools necessary to adequately investigate all claims, I believe the cards are stacked against most of your clients who are disabled and apply for disability insurance benefits.
What can your clients to do gain a level playing field when they apply for disability insurance benefits? They should first, seek advice from an experienced disability claim consultant. Someone who understands policy terminology and the disability claim process. They must understand how their specific disability "fits" into policy language and most important, how to communicate their pre and post disability condition. Your disabled client must be able to instruct his or her attending physician how to adequately describe the disabling condition and not merely detail symptoms and treatment.
A knowledgeable claimant has the best opportunity to collect disability benefits.