Although all insurance companies have their own unique way of managing their disability claims decision-making, I’m going to use Unum as a typical example.
The difference between perception and reality is that insureds tend, or chose to believe, insurance companies can advise and act in their best interests rather than their own. In fact, the law also assumes this by naming insurance companies as fiduciaries that are expected to choose the alternatives that benefits insureds.
Unfortunately, insurance companies do NOT in fact act at fiduciaries, nor do the courts necessarily support it. Insurance companies act almost exclusively in their own best interests, and, as corporations that means making money, and lots of it. Insurance companies have never been able to police themselves.
Disability insurance companies couldn’t care less about whether any insured lives or dies. The disability products sold both in the ERISA and non-ERISA categories are underwritten with a 60% payout rate. This is how premium is determined, which I’ve found is pretty standard among insuers. This means that the price insureds or employers pay as premium covers the insurer’s costs and produces profit up to a 60% payout. Beyond that, insurers lose money, plain and simple.
The reality is, that despite what insurers may say or do, internally disability claims are managed using what is called the LAR, or “Liability Acceptance Rate”. Claims managers and claim VP’s keep close watch as to what percentage of the claims presented for payment are approved and paid. This is how claims are managed at the review level in order to produce profit.
Anyone who has ever worked for a large corporation, particularly in the insurance industry, knows how it works. Management goes “offsite” for three days, eats large amounts of candy in bowls strategically placed on long tables, and returns with strategies as to how profit is to be made. The results of the “think tanks” are handed down to claims handlers who are expected to carry out the “new strategies.”
Haven’t you ever thought it odd that every time you try to contact your claims handler they are always in a meeting? As someone who attended these meetings for nearly 9 years I can assure you that they are sitting around like little magpies devising strategies to deny claims. It’s not a pretty sight! In the end, claims handlers are performance managed in accordance with how well they carry out “the new profit making strategies.”
In fact, claims managers scream and holler, “the sky is falling….the sky is falling”, whenever the LARs rise above 60% My manager was particularly fond the of “F” bomb and all hell broke loose with, “go tell them to deny more “fu_king” claims”, which had the effect of stressing everyone out. End of the month, quarter and year-end were all the same, with hundreds of anxiety driven employees looking for claims that could be denied.
Claims handlers are asked to work Saturdays and Sundays making calls, are forced to take on more claims than they can handle, increased round tables or reviews, and overtime which salaried employees did not get paid for.
Therefore, if you’re wondering what’s going on inside YOUR insurance company right now, wonder no more. The system is already broken administratively due to COVID, AND managers are raving lunatics, driving the claims handlers to work more, deny more, and stress out more. It’s inevitable, when lack of leadership endorses systems of review that depend on profitabiity.
No where in my above descriptions have I mentioned, concern for the insured, sympathetic and support- oriented claims handlers, or fiduciaries looking to pay claims rather than deny them. That’s because no one cares about the “person insured” or the effects of financial hardship. It’s all about the LARs and how approval and denials can be timely manipulated to show profit results.”
One example of manipulation has to do with “validation” where managers have to sign-off on all decisions. A good example of the manipulation is that, at Unum at least, a claim cannot be opened and denied in the same month because the financial reserve would be a wash with no profitability effect. If, however, the claim was opened in one month and denied in the next there would be a hit to profitability. Manipulation of the financial reserves is a good way to show profit, but the poor insured often has to wait “for the right timing” before the claim can actually be paid.
Therefore, insureds need to take great care in the month of quarter end. It’s important to know what’s going on. So, what’s the big deal about quarterly profitability? Your claim could be the big hit YOUR insurance company is looking for and you will wish you had paid more attention.