2011 ALUCA TurksLegal Scholarship
1st Runner up
Managing group disability income claims Young Goh | TAL
Growing and expanding market share in the Group Insurance space is currently a priority for many Insurers. Despite strong interest in this area, traditionally these claims have been a little more difficult to manage when compared to the management of Individual Disability Income claims. Â Comment on whether you agree/disagree with this statement and explore the factors which hinder and/or help the claims management process with this product. Provide your opinion as to how to effectively manage group claims to achieve a positive outcome for all parties concerned including: the member; employer; fund, insurer and the reinsurer.
1. Introduction The group market has grown significantly in the last few years and at a faster rate than individual lump sum and retail disability income (DI) insurance since 20051. Whilst opportunities are still ripe for both lump sum and disability income, it in the disability income space where the opportunities are greater. According to the RWA Underinsurance 2011 report, only 6% of Australians have disability income insurance2, with only 24% of insurable income protected. This compares to 67% for lump sum3. For insurers looking to expand their market share in the group insurance space, disability income truly does represent the area of opportunity today. There are three sections to the rest of this paper. The first section looks at group vs. retail and considers some of the aspects that make managing group claims slightly more difficult than individual claims.
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The next section begins to explore claims management, particularly from a disability income perspective. The overall elements of claims management are considered with mental illness highlighted as an area of special challenge. Finally, we turn to what positive outcomes from the perspective of members, employers, funds, insurers, reinsurers and the government might look like and how they might be achieved. A caveat – there is no way a paper of this length could exhaustively discuss claims management of disability income insurance. If I can but bring the key elements to the forefront for discussion, I will feel that I have succeeded in my goal.
2. Are Group Disability Income Claims More Difficult to Manage than Individual ones? I believe the answer is ‘yes’ for the following reasons: a. The insurer is less likely to have direct contact with the claimant in group (contact is via the fund or employer), making claims assessment and ongoing management more difficult. b. Low member awareness resulting in longer notification delays, with reduced opportunities for claims management/intervention in the critical early stages. c. The likelihood that group claimants are lower income and less motivated to recover than individual members d. Funds and employers may exert pressure on insurers to admit claims
2.1 Insurer Access to Member In my research on this topic by way of conversations with claims case managers with retail and group experience, the factor that was most cited as making group claims management more difficult was the lack of direct communication with the member, with communication going via the fund or employer. In retail, similar difficulties could arise where the advisor interposed themselves between the insurer and claimant. This impact of this impedance to communication – slower assessment times, difficulty in intervention and ongoing management, resulting in a deterioration of the overall claims experience and slower recover rates.
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2.2 Member Awareness Group disability income is most often provided through default arrangements, whether via stand-alone employer arrangements or group arrangements within industry funds/master trusts. Whilst default arrangements are positive in terms of addressing underinsurance, the downside with default cover is that the member may not be aware of their cover, sometimes forever and sometimes not for a long time after the actual claim. The end results are longer notification delays and delays in the application of intervention and rehabilitation strategies resulting in lower recovery rates.
2.3 Member Profile Group disability income insurance is more likely to cover members from the lower socioeconomic classes who could possibly be less motivated to recover than individual members, due to the diminishing marginal utility as pre-disability income rises. Retail, on the other hand, will more likely cover more sophisticated individuals from higher socio-economic classes, as well as more of those who are self-employed segment. The selfemployed present both positive and negative aspects from a claims management perspective. On the one hand, they might be more motivated to recover. On the other, those whose businesses are not doing so well have an incentive to claim and to stay on claim. Retail disability income protection is more likely to be outside super (there is an additional tax incentive) whereas the majority of group is likely to be provided through super via master trust/ industry fund arrangements (expect for stand-alone employer arrangements). This is relevant insofar as it impacts access between the claimant and insurer, which is covered in 3.1 above.
2.4 Product Features Group products are simpler. For the majority of cases, they offer more value for money than individual policies.
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3. Effective Claims Management for Disability Income Insurance We now look at the claims management process itself, its particular significance for disability income insurance, and essential ingredients for such a process to be effective.
3.1 The Significance of Claims Management for Disability Income Insurance There will always be more claim numbers for disability income vs. lump sum due to higher incidence rates. This gap in claimant numbers will likely expand as disability income is increasingly offered through the default arrangements of super funds over coming years i.e. the number of disability income claimants will overwhelm lump sum. It is their claims experience, whether positive or negative, and their voice that will hold most significance, on the brand of the insurer. From a financial perspective, whenever a disability income claim is incurred, financial reserves are set aside to meet the expected cost of the claim till termination. These are known as Open Claim Reserves and can be quite significant, particularly long term (i.e. to age 65) disability income claims. Whenever these long term claims are successfully managed to terminate before expected, there is a release of these un-needed claims reserves, with a positive financial impact for the insurer. Conversely, when claims run longer than expected, there is a negative financial impact on the insurer. In other words, an effective claims management strategy is integral to both: •
Cost containment, as quicker recovery times lead to lower claims costs thus keeping prices competitive
•
Positive advocacy of claimants resulting from their experience of the claims management process.
The insurer seeking to expand needs to offer a compelling proposition in their products, service and price. Claims management is integral to this.
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3.2 Elements of The ‘Ideal’ Claims Management Process Effective claims management can only be delivered through the successful interaction of the following key elements4: •
Philosophy (having the right claims management philosophy)
•
Product
•
People
•
Processes
•
Platform (technology)
•
Network of collaborative Partnerships
3.2.1 Philosophy Effective claims management starts by having the right philosophy on claims management and disability. “A problem clearly stated is a problem half solved.”5 Claims can either be proactively managed with the expectation of recovery or merely administered, with each philosophy achieving quite different outcomes. Assumptions color perceptions and so starting with the right assumptions is key. TPD is a case in point. The very definition of TPD can condition the claimant that they are totally and permanently disabled which can often lead to expectations that they will never recover.
3.2.2 Product Philosophy should find its expression in product design, which is the next key element in effective claims management. Product design impacts both assessment and ongoing management. Where the product design is clear, claims assessments are less ambiguous and more efficient. Conversely, inefficiency in the assessment stage can often be blamed on poor design. Likewise, design impacts claim recovery times. A simple example of poor design is to offer a replacement ratio of 100%. With this sort of design and lack of financial incentive to return to work, it will hardly matter how ‘effective’ the rest of the claims management process is – recovery times will be poor, for obvious reasons.
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3.2.3 People Since rightly skilled, structured and motivated people are always key, this point seems to be a clichÊ. The point I wish to highlight though is to recognize the diversity of skill set that is required by claims managers across the stages of assessment and on-going management. Claims assessment requires one set of skills – for e.g. in terms of evaluating evidence vs. eligibility criteria; on-going management requiring other skills such as customer service, coaching and project management. Given the diversity of skills required in the one role, perhaps revisiting the current model and splitting the roles between the assessment and management phases would result in a more efficient process. There is also a growing recognition for the claims team to have access to the expert help of specialists as needed (for various claim causes). The management of mental disability claims is an example that comes readily to mind.
3.2.4 Processes Scalability of process needs to be looked at since the combination of the higher incidence of disability income (vs. death and/or TPD claims) coupled with the increase in disability income insurance (as more and more default arrangements are introduced over the coming years following the likes of Australian Super and REST) is expected to produce a ramp-up in disability income claims over the next few years. Insurers who wish to compete effectively need to offer economies of scale and this will only be achievable if they have processes that can offer operational leverage because of their scalability. Another development that is gaining some traction is the removal of communication layers between the claimant and insurer (for e.g. the super fund administrator). For some industry funds (e.g. Catholic Super), this has dramatically improved the flow of information between insurer and claimant leading to earlier notification, reduced assessment times and improved claims management by allowing the insurer to get in as early as possible. This sort of change has only happened through trustee engagement education and transparency.
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3.2.5 Platform (technology) A challenge for the industry is that many insurers are still utilizing legacy systems with technology designed for a paper-based era and for processes that have long since evolved. Paper-based claim files do not make for good workflow and collaboration. For insurers such as TAL, having leading technology has been a differentiator.
3.2.6 Partnerships Where the disability is less severe, returning a person with disability to work may be relatively straightforward. In other more complex disability claims, the co-operation of the parties external to the insurer, reinsurer and fund/employer such as rehabilitation providers and medico-legal firms with their respective specialist skills are required. Effective claims management in these cases can only be achieved through the establishment and orchestration of such partnership networks for maximum collaboration. I wish to conclude this section by drawing attention to a particular category of complex disability claims, mental illness.
3.3 A Particular Challenge – Mental Illness Mental illness afflicts more Australians than all other health disorders except for cancer and heart disease.6 Almost half the nation’s population (45%) will experience a mental health disorder at some point in their life7with one in five experiencing some form of mental illness in any given year8. Approximately 30% of all disability claims are related to mental illness. Apart from being harder to assess, mental disability claims tend to have longer recovery times because of the deep-rooted nature of psychosis. For reasons such as this, some insurers in the US have set up separate teams to specifically look after mental claims.9
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4. Effective Claims Management – Specific Stakeholder Perspectives Finally, we consider what would effective claims management look like from the perspective of the different parties? The following table attempts to summarize what constitutes a positive outcome for the various parties:
Party Is this a factor in a positive claims outcome for the party?
Member
Employer
Fund
Insurer
Reinsurer
Timely assessment and payment of claims
Yes
Yes
Yes
Yes
Yes
Being kept in the loop on a timely basis
Yes
Yes
Yes
Yes
Yes
The management of claims to maximize speed of recovery
Yes
Yes
Yes
Yes
Yes
Ease of making a claim
Yes
Yes
Yes
Yes
Yes
Being supported during the claim
Yes
No
No
No10
No
Capture of salient, relevant data and statistics in order to enable accurate pricing of the product
No11
No12
Yes
Yes, though relies on insurer
Having direct access to the member
Yes
No
Yes
N/A
13
No
No
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4.1 The Member The member is principally concerned with being assessed fairly and efficiently, and being paid in a timely, efficient manner. They want the claims process to be as easy as possible, without filling out complex and confusing forms. Being treated in a professional but compassionate manner during their period of claim and receiving professional help toward recovery will improve their perception of their claims experience.
4.2 The Employer / the Fund From the perspective of the Employer and the Fund, positive claim outcomes are measured by the experience of their employees and members. However, both Employers and Funds have a vested interest in effective claims management in order to improve claimant recovery times as this ultimately flows back through as lower costs and premiums. They have a part to play by supporting/facilitating all efforts to improve the interaction between the member and insurer. If they wish to remain the intermediary between insurer and claimant, then they have a part in capturing/transmitting the information accurately and efficiently as possible. They also have a part in closing the underinsurance gap with regards to disability income insurance by either effecting a stand-alone arrangement outside super or intentional choice of super that provides default disability income insurance. Employers through proactive OHS strategy can reduce the incidence of on and off duty claims, lowering disability income costs and improving productivity.
4.3 The Insurer / Reinsurer As the underwriters of the insurance risk, insurers and reinsurers want to write sustainable business that provides an adequate return on the capital that is required to write the business. To do this, the insurer needs to ensure that claimants have a positive experience as this will have a direct impact on their brand in the market place, amongst current and potential clients.
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4.5 The Government Finally, there is the government, who through their various agencies such as Centre link, the State based accident and worker’s compensation schemes and other arrangements which support carers of persons with disability. The current system is currently described as fragmented, with significant gaps, inequities and inefficiencies.14 There is value to be extracted from making more efficient (such as removing overlaps and gaps) the interaction between the public and private systems which would lead to cost savings to both and improve the overall client experience but this topic is beyond the scope of this paper.
5. Conclusion Disability income insurance represents the next major growth segment within the Australian group marketplace. Australian’s remain underinsured in general, and most in the area of disability income, especially amongst women. This paper has suggested a possible grid for understanding the elements of effective claims management in terms of the philosophy, product design, people, process, platform and partnerships, which is delivered via claims management and experienced by the claimant. Given the complexities involved, the above challenge of getting claims management right is far from trivial. Yet, embedded within this challenge lies the rewards to be reaped by the insurers who will lead the race in being most effective and efficient in delivering this. And doing so, they have the opportunity to capture the market.
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Endnotes 1. The Life Insurance Industry Report, Plan for Life, October 2009, tables 4.2.4, 4.2.5 and 4.2.8. 2. AXA research (http://www.xlife.com.au/income-protection/guides/other/insurance-forwomen/) 3. Rice Warner “Underinsurance in Australia” 2011 Research Report, Table 1, Underinsurance. 4. These particular names are my suggestion only, and have been chosen to start with ‘P’ as a mnemonic. 5. Dorothea Brande, US writer (1893 – 1948) 6. The Coalitions Real Action Plan for Better Mental Health 7. Australian Institute of Health and Welfare. (2010). Australia’s Health 2010. Canberra: Australian Institute of Health and Welfare 8. Mental Health Council of Australia (2010). Mental Health Fact Sheet. 9. GSC – US Experience. Presentation at RGA Technical Breakfast , Luce Giroux (2011). 10. Whilst being supported on claim is more an outcome from the claimant or member’s perspective, their claims experience will eventually impact the level of their advocacy for the insurer and its brand. 11. Not an apparently obvious outcome although yes in that data capture will ultimately translate into the price charged (insurance premium paid). 12. As per 11 above. 13. As per 11 above. 14. Institute of Actuaries Submission to the National Disability Commission, 25 Aug 10, page 3.
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