John and Jane Smith walk into a mortgage network office and tell the loan officer they are interested in a loan for a house they are hoping to buy.
The loan officer is excited about the opportunity to work with them and promptly pulls out the list of needed information to process their loan application.
The Smiths review the list of needed information and tell the loan officer, “We dont want to tell you anything about our existing home other than it is really nice and we think it is worth $250,000. By the way, we have tax returns from last year, but we changed accountants, so any older information would be too difficult to get.”
The loan officer tries his best to convince the Smiths of the need for the older returns. The Smiths interrupt and say, “We have three other banks willing to give us loans with the information weve described. Do you want our business or not?”
It seems as if every time I attend a group disability insurance industry meeting or visit an underwriting department, one topic of discussion is the quality of data received on prospects. Or more appropriately, the lack of quality data received on prospects. The problem isnt only associated with large cases, but that certainly is where the data issues are most pronounced. As the disability industry has struggled to attain desired profit levels, we must continue to address this problem.
For disability insurance, the data quality problem cuts across all aspects of a case analysis. Census files often are missing dates of birth or other key fields, claims information is incomplete and a copy of the current plan may not be included. Underwriters cant do an appropriate review without this information. An underwriter can often make a reasonable assumption about one or two aspects of a case, but more and more, it seems we are faced with multiple pieces of missing data.
One area of concern related to this is that newer underwriters may not recognize the apparent inconsistencies in the data. The newer underwriters might accept what has been submitted as complete. I have seen several situations lately where the claim listing is a year old, and we are told that there have not been any new claims in the last 12 months. That is hard to believe on a 3,500-life hospital that should generate 15 to 20 claims a year. In fact, when we pursue the claim information, we receive an updated listing with a current date.
The data we need to properly assess an LTD risk has not changed significantly over the last 15 years. The industry has made incredible progress in the technology we use to manipulate and analyze the data we receive.
The question is: Are we any further ahead if we are putting worse data into better tools? Some of the tools being used by brokers and carriers to prepare RFPs and RFP responses hold great potential as long as we dont sacrifice needed data for simplification and speed of the bid process.
Carriers also have made significant investments in national accounts or large case areas to help with the RFP process. My sense is that we have focused more attention on the qualitative and service-related responses and less attention on the quantitative data related analysis.
The following is a list of our desired quote information:
1. Full name and complete address of policyholder.
2. Specific nature of the business (4-digit SIC, if known).
3. Current plan design, any plan changes in the past three years and any requested alternatives.
Copy of policy or certificate.
Definition of eligibility including the number of eligible employees and a clear definition of any classes especially if multiple classes are needed for rating or benefit differentiation.
4. Current census including gender, birth date or age, salary, occupation and class.
5. Request for proposal documents.
6. Special case issues, such as competition and broker concerns.
On LTD cases over 250 lives, we will need to experience rate. Therefore, we will require the following information:
1. Paid premium for the prior three years.
2. Paid claims for the prior three years.
3. Covered lives for the prior three years.
4. Rate history.
5. Open claims listing with:
Date of disability.
Date of birth or age at disability.
Cause of disability (if available).
Prognosis (if available).
Gross monthly benefit.
6. Closed claim history.
Some carriers may require or request additional information based upon their specific guidelines, but this should cover it about 95% of the time. Given the technology used by the client companies and the carriers, it is hard to believe that the listed information would be difficult to produce. It is the responsibility of the bidders to push as hard as necessary for complete information.
Some in the industry say that we should come up with an industrywide data list that applies to all carriers and cases. I think we have it 95% done already. The issue is that on a given case one or more carriers are willing to forego some information and that becomes the standard for all other carriers.
It is not easy balancing the many demands of a quote: profit, sales, growth and marketplace relationships. However, carriers have all learned an expensive lesson about the perils of incomplete data in the large-case short term disability market over the past few years. It is well documented how some carriers mispriced large STD cases because they relied on incomplete self-insured data.
In addition to these data issues, even when good data is available, both the new and the seasoned underwriter alike are facing other, more recent challenges.
Regulatory influences such as the medical privacy regulations adopted to implement the Health Insurance Portability and Accountability Act of 1996 are having an unintended effect on the way some carriers underwrite cases. HIPAA requires separate authorizations for health insurance underwriting, and some officials at the U.S. Department of Health and Human Services are applying this interpretation to disability underwriting.
HHS says in a description of the types of benefits excluded from the HIPAA privacy regulation that interested parties should see 45 CFR 160.103.
“As described in the statute, excepted benefits are one or more (or any combination thereof) of the following policies, plans or programs: Coverage only for accident, or disability income insurance, or any combination thereof,” HHS says.
When HIPAA-compliant authorizations are not available, underwriters simply are omitting important data from the underwriting process rather than taking extra steps to obtain the information.
It is easy to say “we just need to be more disciplined with what we accept on a case.” It is not as easy to do in a competitive marketplace. Brokers and employers are faced with many competing demands across all products.
What is certain is that if we continue to accept this lower standard of data, we will continue to get the lower standard. We need to make sure that all parties to the bid process–sales reps, underwriters, brokers, employers–understand what data is needed and why. Otherwise, well get garbage in, garbage out.
is a senior vice president specializing in long term disability insurance underwriting at John Hewitt and Associates Inc., Portland, Maine.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 19, 2003. Copyright 2003 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.