All risk is based on the “law of large numbers”, which simply put means that insurers place bets not everyone who buys a policy will file a claim. The more people who buy disability policies, the more profits can be made as long as payouts remain static. The laws of probability we now call “actuary” come in to play.
Think of how smart Unum was when it sold life insurance policies to pioneers crossing the mountains in 1849 as part of the nations “gold rush.” How many covered wagon deaths do you think they actually paid out on during the next few years? Clever, very clever.
Most insurance companies “cost out” their premium at a 60% “payout rate”, which is determined to be “breakeven”. Payout rates greater than 60% do not produce profit, and therefore, insurers learned over time, HOW TO DENY MORE CLAIMS. In fact, insurers have developed very sophisticated ways to deny legitimate claims while creating the illusion of credibility. It’s not as difficult as you might think.
Unfortunately, insurers boxed themselves into a never-ending competition since raising the payout rates, (and premium), would bring ALL of the house of cards down at the same time. Insurance is now so inter-twined in the American economy that once the first domino is pushed, the economy could be destroyed. This is one of the reasons why UnumProvident wasn’t brought down to its knees in 2004 with the Multi-State Settlement. Instead, it only had it’s hands slapped with a 15M + fine.
To summarize, insurance companies who PAYOUT on claims greater than 60% for a period of time are losing money. Disability claims, per se, are never about the insured, or claimant. It’s all about the payout rate, and the accompanying financial reserve loss when a company, like Unum, pays out greater than 60% of claims written. Unum managers and VPs still go berserk when payout percentages reach around 70%.
Today, the disability insurance industry is surviving on its ability to devise strategies that deny payable claims and still make their actions “look good.” In fact, one might say, that disability insurers can’t make a profit paying claims that should be paid, and denying those that should be denied. The actual “profit” is always made on the number of legitimate claims that are denied minus payouts on claims litigated and overturned. It looks like the money makers are those who have devised claims practices that provide documentation sufficient to convince judges and litigators that denials are legitimate. Once you achieve these results, the rest is history.
Most insureds should know about these things, but they usually do not. Or, do you really need to know? Most people still think their insurers “care” about them, when in fact the only reality is scrutiny of the payout rates and financial reserves.
<p class="just"This Consultant is of the opinion that "knowledge is power", and that knowing helps to keep insurers fairly honest, even if it does sound like a contradiction in terms.
