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Cultural Underwriting: A Revived Disability Pricing Concept?

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Cultural underwriting was a hot topic in the 1990s, especially in the group disability insurance industry.

It looked at a range of human resource and risk management programs implemented at a group prospect/employer level in order to help forecast disability claims experience and incidence.

Today, cultural underwriting incorporates some individual employee risk factors, too. This article examines the revived use of this approach. But first, a closer look at its history.

In the beginning, cultural underwriting gained popularity when group disability and workers’ compensation carriers were marketing integrated disability programs–the plans that combine short-term disability, long-term disability and workers’ compensation insurance under one package. Some carriers also included group medical insurance in the package.

From a group disability perspective, cultural underwriting generally included investigating three areas:

1) Corporate human resources policies,

2) Intervention programs,

3) Workers’ compensation carriers’ service offering.

A review of an employer’s corporate human resources policies included its organizational alignment, any formal absence and lost time policy, availability of training programs, and performance management systems. Formal programs such as these provided consistency and protocols across the organization.

Another area that was investigated was whether the employer had a centralized decision-maker for the selection of benefits. A decentralized decision-making process could result in delays, redundancy and poor communication. Also important: learning whether information was shared between the risk manager and the benefits manager.

The review of a company’s intervention programs included loss prevention and wellness. Preventive programs typically included workplace safety programs (e.g., training employees to lift properly, ergonomics, etc.). Wellness programs included employee assistance programs, health club membership incentives and health programs such as pre-natal, stress management, smoking cessation, and weight control programs.

The workers’ compensation review examined whether the employer was covered by a proactive workers’ compensation carrier–one focused on prevention and return to work. If that was the case, it was more likely that the organization would also be a good partner with the group disability provider.

Since the 1990s, cultural underwriting as a group disability pricing tool has gone through a metamorphosis.

In fact, an informal survey of some group disability underwriters indicates that cultural underwriting questionnaires, with corresponding pricing loads and discounts, are no longer generally used.

However, like all good concepts, cultural underwriting has survived as part of an underwriter’s arsenal. The thought process behind cultural underwriting still makes sense. For example, employees in favorable work conditions are less likely to file a disability claim, and, even if they do, the early intervention, monitoring and treatment may help reduce the duration of the disability.

But the pricing of employer intervention programs is still problematic for disability insurance carriers. Although an underwriter may not have a pricing tool to place a value on specific employer intervention programs, this information may be included as part of the overall rating process for a new prospect.

Why did cultural underwriting never gain momentum? Here are some possible reasons:

o Lack of data. Underwriters found it difficult to obtain information about the employers’ risk management and human resources programs. Also, the disability insurance industry may not have demonstrated the importance of obtaining information regarding employer intervention programs and corporate policies to the brokerage community.

o Proving the value. There was a struggle in the disability insurance industry regarding both the definition and value of integrated disability products. Furthermore, tracking the results to determine if these programs reduced disability durations and cost was difficult.

o Setting realistic expectations. Expectations may have been too high regarding the value of any discounts offered for these programs. Cultural underwriting pricing programs may have been eliminated prematurely instead of reviewing them, and correcting or changing the pricing assumptions.

o Communications issues. There may have been disconnects in communication between the carriers’ finance departments and claim departments regarding the true impact of intervention programs.

o Debit or credit. Some disability carriers never formalized a cultural underwriting pricing program because they felt intervention programs are already implicit in the disability claims experience. A potential flaw with the old process was that, if a case were running well and already had all the programs in place, the rate would be discounted further. In reality, the cases with bad experience that did not have any of the programs were the best candidates for the discount; some of the programs could be implemented. The tool was only used to give cases a discount, not to load for cases that did not have any programs.

Today the industry is taking new approaches to risk assessment.

For instance, the growth of worksite products (when employees are paying for the coverage) has been accompanied by a natural shift to more individual employee cultural underwriting techniques. As a result, some potential questions not traditionally utilized in the group disability underwriting process may include:

o Does the employee smoke? Should smoker rates vary from nonsmoker rates? This approach is used today in the group supplemental life market.

o Is the employee single or married? Is a person more likely to stay out on disability longer if he is single or married? Are married individuals more likely to stay out on disability longer if they have a spouse who works full time outside the home?

o Does the employee have dependents? Is an employee more likely to come back to work if he has five dependents vs. one dependent?

o What is the employee’s medical history? How might understanding an employee’s medical risk factors influence the rate?

o What stressors does the employee have? Do family members have medical issues? Caring for a sick child or an elderly parent?

o Where does the employee live? Can a Metropolitan Statistical Area analysis help to correlate a variety of risk factors? For example, are there areas of the country that have more obesity-related disabilities (i.e., diabetes, stroke) than other areas of the country? More incidences of cancer, respiratory problems, etc.?

There is much that group disability underwriters can learn from individual disability income underwriters and underwriters of non-disability products.

It is yet to be proven whether exploring the above considerations, as well as other risk factors, can be incorporated into the group disability rating process. If it can, what is the real value of such data?

In order for this new cultural underwriting process to be successful in group disability, a partnership must be formed between insurance carriers, brokers and employers. This partnership needs to focus on obtaining accurate employee demographic and risk factor data.

Today, many industry professionals struggle to obtain the basic underwriting information they request. They must continue looking for new ways to enhance the risk selection and pricing process.

William G. Mariski is senior disability underwriter with JHA, Portland, Maine. His e-mail address is [email protected].


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