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When looking at the disability insurance
industry from 1986 through 1994 and linking certain economics to
claim history, we find a growing number of problems. These
problems involved increasing number of disabilities, new forms of
disabilities and certain business and competitive pressures.
In addition to Health Care Reform and Managed
Care, the major problems our industry was facing included the
following:
- Corporate consolidations, mergers
& acquisitions resulting in the layoff of a large number of
Americans in our work force.
- Increase in the number of AIDS
related disabilities.
- Carpal Tunnel Syndrome, Chronic
Fatigue Syndrome & Fibromyalgia related disabilities that
either didn’t exist in the past or were never diagnosed as
serious disability conditions.
- Increase in the number of
disability cases caused by or contributed to by Depression,
Anxiety Disorders and Substance Abuse.
- Liberalized Policy Language that
made it "easy" especially for physicians to claim total
disability benefits.
- Underwriting concessions of
"guaranteed issue" non-cancelable policies without
medical requirements to members of professional societies.
I can remember, as a Senior Account Executive
for a major disability carrier, getting into a "bidding
war" with other carriers, for the exclusive rights to market
individual disability policies to the physician members of a State
medical society. When the "bidding" rose above $2,000
mo., 90 day Elimination Periods and To Age 65 Accident &
Sickness Benefit Periods, I removed my company from contention.
These offers were getting too rich.
Many of the company management personnel who
were making product, sales and marketing decisions at this time,
were gone from those same companies within the next few years. I
sometimes think these decisions were made for market share and
gross revenue only. Net profits where becoming nonexistent!
The following graph will show the nose-dive
that profit margins took during this period of time. This
represents the top 8 companies issuing disability insurance.
Companies scrambled to reduce future claim
costs by instituting several major changes within their individual
disability departments. These changes included:
1. Reducing Issue & Participation limits so
future blocks of business would reflect less potential liability
and therefore, less risk.
2. Reduce available options, especially those
that represented the most future risk.
3. Strengthen blood requirements so that most,
if not all underwriting required blood. In some states, blood was
required on every individually underwritten risk.
4. Reduce the Percentage of income that could
be issued from as high as 60-80% of net income down to 50%.
5. Increased premium rates on new product
series.
6. Significantly reduce or eliminate Guaranteed Issue offers.
Companies also increased the number of staff MD’s
that would review underwriting, as well as employ CPA’s to more
carefully screen the financial requirements submitted by proposed
insured’s. Claim departments hired more rehabilitation experts
who worked with disabled policyholders to try and get these
claimants back to work. Disability case managers were assigned to
many cases to monitor their progress. Special Investigative Units
and Special Fraud and Litigation Units were established in many
leading companies to aggressively review individual claimants.
In addition, many companies stopped issuing
what they considered were the "rich" featured policies
of the 1980’s and designed more plain vanilla contracts. Many of
the individual policy portfolios were redesigned on a guaranteed
renewable platform so that future premium rates could be
raised within a policy series, if claim results were not
favorable. This was a significant change from the majority of
policies issued throughout the 1980’s and early 1990’s.
Marketing concepts were altered to spread risks
within the individual disability business. Work-site marketing
became a "buzz" word within our industry, as though it
was something new. In reality, it was nothing more then focusing
sales within employer/employee relationships, creating additional
opportunities to provide "middle management" the ability
to purchase coverage. In many of these sales, the underlining
coverage was provided by employers through group LTD plans and
individual sales were for supplemental coverage.
In part three of this series, I will discuss
the investigative tools of claim departments, provide you with a
list of "potential" claim problems and walk you through
a typical individual disability claim.
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