Every disability claims organization strives to provide the best service in the industry. We want claims to be handled promptly and accurately. We want thorough claim reviews with timely decisions. We ask that phone messages be returned within 24 hours or, better yet, answered on the first ring. We ask our claims professionals to be empathetic with claimants, yet firm with decisions. Sounds easy enough. In reality, it is a complex process that balances friendly service with an eye on profitability.
Many group disability insurance customers dont realize what goes on behind the scenes to ensure that they receive the disability payments they need and keep their premiums stable. The expectation in the worksite market is for insurers to pay claims first and ask questions later. In the customers mind, it sounds something like this: “I pay premium. You pay the claims.”
It would certainly be ideal to be able to charge a premium that would support paying every claim submitted with a physicians check mark in the “totally disabled” box, while still providing profits to all parties. But that approach would take the disability industry back to the claims processing model of two decades ago. Today, the approach is claims management, which is the closest thing to ideal in the 21st century.
But what if we did revert to the claims processing model (pay now, ask questions later). Heres what it would look like:
An insurer increases premium rates to a level that can support a claims processing model. A percentage of healthy certificate holders would be lost as a result of the premium hike. The fewer participants, the more likely the premium increase will not provide the profits it was intended to; that means the insurer may still need another rate increase in the future. Its an endless cycle: the higher the rates, the lower the participation, and the lower the profits for the insurer.
We also have to remember that the insurer may have 80% of first-year premiums tied up in marketing, sales and service expenses that have been prorated over a four-year period. The insurer is betting on long contracts to absorb those expenses. So, when participants drop coverage early as a result of increased premiums, the insurer loses again.
And its not only the insurer that loses. Producers wont be able to profit from increased premiums; theyll suffer losses because of the resulting decreased participation. You will find that producers end up visiting their clients again and again to explain the increase in rates. Clients will usually ask for alternative proposals from other insurers as a result.
So, instead of thanking the insurer for taking the “ideal” pay now, ask questions later approach, the client penalizes the insurer by searching elsewhere for a lower rate. What they may not realize is that the lower rate will never come with the claims processing approach.
We need to bring balance between claims processing and claims management into the worksite market. Granted, the aggressive claim management model common in the true group market just wont be accepted among worksite clients. However, insurers need to be allowed to manage claims based on contractual provisions, definitions, and documented medical confirmation of disability, not based on a producers or physicians special request.
Disability claims in the worksite market need to be managed accurately, fairly and contractually while providing the service customers expect. Thats the perfect balance. The result is stability in rate structure, along with lower and predictable lapse rates. This approach ensures profits to both insurers and producers, and leads to satisfied customers. Thats the new ideal.
is vice president-business development, disability, at RMS, a CORE Inc. subsidiary. He can be e-mailed at [email protected]
Reproduced from National Underwriter Life & Health/Financial Services Edition, July 29, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.