The single most important thing about disability claims from the insured’s point of view is knowing about financial reserves and how they affect claims management. Although I’ve written many good articles on the subject of “financial reserves”, it’s clearly time to do so again.
In fact, if insured’s aren’t well informed about financial reserves, it is unlikely claims can be managed well because so much of the internal claims process depends on this one key figure. So, let’s begin.
Despite what you may have read or heard, while insurance companies do use medical information as proof of claim, there is an entirely separate review conducted by senior management long before medical reviews take place. Limited to senior and executive management, claims are reviewed and sorted in accordance with their financial reserve value. (Incidentally, insurance companies always try to keep their financial reserve figures secret because they wouldn’t want anyone to allege claims are approved/denied because of the impact of the financial reserves.)
A financial reserve is cash money required by your state DOI and SEC to be put away to pay claims on which liability is admitted (at least temporarily). Large portions of this money are portfolio invested to receive dividend and interest, which ultimately reduces the cost of claims. However, increases in Financial Reserves increase liability and decrease profit. Approved disability claims increase financial reserves, increase Balance Sheet liabilities, and reduce profit. Approved claims decrease profit.
On the other hand, the opposite is also true. Decreases in financial reserves (denials) decrease liabilities and are immediate contributions to profit. A lightbulb should be going on for you right now. Simply put, claim approvals decrease profits and claim denials increase profit. Management doesn’t really care about you or your disability. The important objective is to decide/write a claim “Primary Plan Direction” describing how to deny your claim thereby reducing financial reserves and adding to company profit. You might even say, every action taken on your claim is toward this end.
Unless, insureds really understand financial reserves, it’s likely they won’t ever understand the concept of “targeting”, or what the term, “biggest bang for the buck” really means. My definition of this saying is “the highest contribution of profit per $1 financial reserve value.” Or, put another way, the higher the financial reserve of a claim, the more a denial will contribute to profit, hence “biggest bang for the buck.” Or, said yet another way, the higher a monthly benefit is, the higher the financial reserve, and the more a claim denial will contribute to profit. Get it now?
What does it mean then when I say a claim is being targeted? Anytime claims are identified as potential denials, or contributions to profit, the claim is said to be targeted. These claims receive the lion’s share of risk management activity and never seem to be left alone. Again, claim denial via “the biggest bang for the buck.” This seems to indicate that those insureds with the highest monthly benefits receive the worst red-flag level of risk management activity in order to deny claims for the most impact to profit. After all, why spend your time trying to deny a claim with a $800/month benefit when you can go after a much bigger buck? Insurance companies have really got this down.
Most insureds internalize their disability, (which is normal), and want to assume that the most important consideration of their disability status is “medical information.” One of the most important things for all insureds to realize up front is that no insurance company cares about you, your disability, or life, except how it could be used to deny your claim. Once you really understand this basic principle about disability claims, you may be able to better support your claim.
This discussion of financial reserves is by no means the tell all about the subject, but it should give you a better idea of how insurance companies view claims.
If you would like more information, or would like to learn more about how to become a client, please feel free to give me a call or visit my website at:
http://www.disabilityclaimssolutions.com
