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Disability Insurance Observer: Failure

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Many news organizations have published stories this week with headlines along the lines of “Zurich American to refund $4.6 million to disability policyholders in New York.”

The real story is that policyholders in the state’s statutory disability insurance program are getting the refunds because Zurich American failed to spend at least 60 percent of total premiums on claims over the period from 200 through 2011.

One can argue about whether minimum medical loss ratio (MLR) requirements protect customers from scurrilous insurers or simply muck up market efforts to connect supply with demand in a smooth and bureaucracy-free way.

But, clearly, Zurich American knew all about the minimum MLR requirement and probably did its best to avoid having to go through the administrative headache of sending out the refunds.

It seems to me that the real story may be that the insureds were healthy enough or eager enough to stay at work, even during a recessionary period when staying at work may have been difficult, that they filed fewer claims than a big insurer’s actuaries would have thought.

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Health insurers were reporting slower than expected claims growth over that period.

Maybe that’s because workers were simply too scared to give up the kind of steady jobs that provide benefits, even if they were on the edge of being too sick or injured to work.

But one could speculate that maybe wellness programs, return-to-work programs and the like actually worked, and that Zurich American had lower-than-expected claims because the kinds of employers that do business with Zurich-American did a great job of keeping their employees mentally and physically fit enough to work.

If that’s what happened, and the workers were simply more able-bodied than expected: Here’s to that kind of forecasting failure. Let’s hope we see a lot more failure like that.

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