Cultural Underwriting: A Revived Disability Pricing Concept?

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.