Most people would tend to think that the medical merits of any disability claim depends on the seriousness, or nature of the impairment. But, disability insurers are NOT Social Security, for example, that sets presumptive as a standard for approval timing. In fact, everything that goes on with a disability claim has to do with its “financial reserve” and the impact it has on profitability.
What goes on behind the scenes internally is a completely different set of management actions that have nothing to do with impairments, “good faith and fair dealing” or fiduciary duty. “When” claims are approved or denied is always determined by the effect of financial reserve gains or losses on profitability. Disability insurers may not remember your name, but will always recall the dollar amount of the financial reserve associated with your claim.
But, shhhh…it’s a secret. Financial reserve figures are kept away from claims handlers to avoid accusations that handlers go after “the biggest bang for the buck.” Although claims managers do exactly that, claims handlers representing the lowest rung of the claims review ladder are kept dumb regarding financial reserves. In today’s world, most claims handlers have no idea what a financial reserve is anyway.
So, here are the facts. For most insurers actual claims decisions are made by the claims managers, who at the same time do have access to spreadsheets listing financial reserves. If a claim is approved it is called a financial gain, which is a loss situation. Financial gains are always matched against losses to minimize overall profitability loss. If a claim is denied, it is referred to as a financial loss, and great care needs to be taken that the reserve isn’t opened and closed in the same month producing a “wash”.
For example, if a claim financial reserve is opened on Jan 1, it shouldn’t be denied, or closed out on the payment system until Feb 1. This produces a reduction of financial reserve and big hit to profitability. If it were closed sometime in January, it would be considered a “wash”. It could also mean that although management knew it was going to deny the claim, it won’t inform the insured about it for another month. The main job of a claims manager is to manipulate the timing of claim decisions to create the illusion of profitability.Playing Twister with financial reserves indicates a manager’s talent, and they are well paid for their efforts.
<p class="just"When I write about these things there are some who say, "What do we need to know about this for?" My answer is because insureds actually believe their claims decisions and the timing of notification depend only on medical conditions, and that simply is not true. Insurance companies do not care about you, or your medical condition, but only about how to produce a show of profitability.
There is a great deal more that comes into this, most of which I won’t mention in this article. But, the VP of claims may be extremely interested in the LARs (Lability Acceptance Rates). Most disability premium is determined at a 60% payout rate. This means when the company “pays out” greater than 60% of claims, they have a loss. Executive management goes ballistic when the LAR exceeds 60% and the message goes out, “Deny more claims!”
When Unum declared a 90% payout rate back in 2004 everyone knew it was a lie. If that were really true, stockholders should have run for cover. Therefore, LAR, or the Liability Acceptance Rate is also used to manage claims – again, not having anything to do with you.
So now you know why it took so long for your claims to be approved or denied. Although decisions had been made earlier, your claim was waiting to be netted against the right set of financial reserves that produces a neat picture of profitability.
