Claims and Underwriting Issues
for Income Protection
International Congress of Actuaries
Paris, France
June 1, 2006
Claims and Underwriting Issues
for Income Protection
Panelists
Alexander Roux
Munich Re of Africa
aroux@munichre.com
Edward Fabrizio
General Reinsurance Life Australia Ltd
efabrizio@genre.com
Daniel Skwire
Milliman, Inc. (U.S.A.)
dan.skwire@milliman.com
Risk Management
in Group Income Protection
Alexander Roux, FIA
Member of Operational Management
Corporate Actuarial
Munich Re of Africa
Variation in Claim Recoveries
Group Income Protection Policies
100 A/E
Deferred Period 26 w eeks
70
60
50
40
30
20
10
0
Office1
Office2
Office3
Office4
Chart from CMI Report 20, page 275
Office5
Office6
Reasons for the Variation
in Claims Recoveries
• Target Market
• Product Variation
• Maturity of Claims Book
• Risk Management: Underwriting
• Risk Management: Claims
Recovery Rates
in Isolation of Incidence Rates
• High Recovery Rates
Due to high incidence rates (?)
I.e. Poor claims assessment (?)
• Low Recovery Rates
Due to low incidence rates (?)
I.e. Good claims assessment (?)
Risk Management Tools
• Underwriting – Selection and Assessment
1.
Environmental Assessments
• Claims Assessment &
• Ongoing Claims Management
1.
2.
3.
4.
Forensic Assessments
Case Management
Early notification Period
Absence Management
Underwriting
Environmental Assessments
• Potential Value
– Practical difficulties
– Skills
– Time & Cost
• More Information vs. True Intervention
– Benchmarking – Assistance in pricing
– Interventions – Risk Management
Claims Management (1)
Forensic Assessments
• Limited Potential
Depends on:
- Quality of Initial Clinical Claims Assessment
- General Work Ethic
- Regulatory Environment
• Where did it Work?
- Buying out of existing claims books
- Messy by nature
Claims Management (2)
Case Management
• A Relatively New Tool
Definition:
In depth, “hands-on” approach to claimant with the aim of
ultimately achieving either good “medical management” of
claimant or rehabilitation. Medical Management is the
appropriate optimal treatment given the condition and the
compliance to that treatment.
• Level of Success Varied (thus far)
Depends on:
- Correct selection of cases that warrants in depth
“hands-on” approach
- Define at outset Period & Budget
(Discipline in avoiding overruns)
- Employer Co-operation - Redeployment
Claims Management (3)
Early Notification Period
• Potentially Valuable
-
Medical (physical impairment)
Intervention early enough – Reduce chances of later LTD
E.g. Avoiding hypertension from becoming a cerebrovascular
incident – leading to a chronic or terminal condition.
-
Psychological (non-physical impact)
Intervention early enough – Improves desire to recover
E.g. Facilitation of relationship between employer and
employee (out-of-sight is also out-of-mind)
Claims Management (4a)
Absence Management
• A Relatively New Tool
Definition (In the South African Employment Context):
The assessment of absence patterns due to the
utilization of sick leave by employees and the consequent
pro-active intervention mechanisms activated based on
these patterns
(A more sophisticated form of early notification period)
• Two common forms of Absence Management
1 Comprehensive Absence Management:
Identifies all the causes of unscheduled absence
(medical, psychological, social, and vocational factors)
2 Selective Absence Management:
Identify specific patterns only, where such patters serve as
an expected precursor to eventual LTD
Claims Management (4b)
Absence Management (continued)
Comprehensive Absence Management
-
-
Implementing a comprehensive program involves greater
strategic considerations than merely more affordable income
protection and;
Cost of a comprehensive program is likely to exceed any
potential discount to disability insurance
Hence introducing a comprehensive absence program attaching
to insurance can be like a tail wagging the dog
Selective Absence Management
-
Designed specifically to fit into an insurance product/concept
Primary aim is to reduce incidences of (eventual) LTD
Ignores patterns of absence not expected to lead to eventual LTD
Claims Management (4c)
Absence Management (continued)
What are absence patterns?
Sickness Absence Ratio
The number of days sick leave taken divided by potential
working days over a given period
Absence Frequency Ratio
Percentage of people taking sick leave, for a given time period
(compared to the allowable working days over that period)
Absentee Severity Ratio
Durations of sick leave (when taken) and the Implied severity
E.g. A single event of more than 7 consecutive days
Vs. Repeated periods of less than 5 days
Claims Management (4d)
Absence Management (continued)
Decision to Intervene
-
Based on Absence Data & Clinical Data Combined
Specific absence patterns should trigger need to acquire
clinical data
Cost of Intervention (e.g. Return to Work program)
vs. Cost of Benefit
Stumbling Blocks to Absence Management
-
Introduction of Absence Management with Employer
(with regard to definition of disability)
Poor Co-operation from HR (administration & suspicion)
Poor consequent claims experience (good information does not
automatically equate to a good intervention program)
Claims Management (4e)
Absence Management (continued)
Benefits of Absence Management
- Reduce LTD incidences
(but not recovery rate!)
- Can eliminate some of the subjectivity in the more
“manageable” causes of disability (psychological & spine)
Causes of subjectivity:
(a) Inconsistent approach to diagnosis among medical professionals,
medical reports and intervention & treatment being applied
(b) Subjectivity in description of symptoms and the degree of the
condition
Absence Management model can lead to a more consistent approach
to diagnoses, medical reports and the proposed interventions applied
Risk Management
Closing Remarks
Analyzing Claims Management Process
is about trying to make sense of
Qualitative Information
• Not actuaries’ strong point
• Essential for appropriate pricing of disability
income protection
?
Return To Work
Edward Fabrizio
Deputy General Manager and Chief Actuary
General Reinsurance Life Australia Ltd
Working is a realistic and positive option
• 90% of new claimants expect and want to work
• 2/3rds claimants have manageable conditions (such
as back pain, depression, cardiovascular) where
work should be realistic
• Work can improve health and well-being, and
prevent deterioration
• However, many are treated as their working lives are
at an end
• Obstacles to RTW are often non-health related, but
include confidence, skills, financial incentives,
availability of jobs
Department for Work and Pensions, British Government, November 2002: Pathways To Work
Potentially manageable conditions
predominate
In cap acity B en efit C aseload b y D iag n osis G rou p
M en tal D isord er
35%
In ju ry,P oison in g
6%
N ervou s S ystem
10%
M u scu lo-S keletal
22%
O th ers
16%
C ircu latory &
R esp iratory
S ystem
11%
Department for Work and Pensions, British Government, November 2002: Pathways To Work
Australian Snapshot….
• Significant utilisation of RTW strategies via
Rehabilitation and Case Management programs
• Supportive product features – rehab / retraining
benefits, partial disability benefits, recurrent
disability benefit
• Value of internal rehabilitation programs doubted
compared to external providers
• Claim professionals are generally not trained and
educated in RTW skills strategies in any
structured manner – varies by company
Product Features supporting RTW
•
•
•
•
•
•
•
Vocational Rehab and RTW Assistance Benefits
Partial Disability Benefits
Recurrent Disability Benefits
Work-site Modification Benefits
Work Incentive Benefit
Loss of Profit Benefits
Business Expense Policies
Align contract provisions and product design
with what we want to achieve – return to work
“Do it once, do it well…”
 Australian Life industry survey undertaken to examine
the current rehabilitation models and outcomes
 Rehabilitation was defined as the use of vocational and
occupational rehabilitation tools for the objective of
Return To Work
Black, M & Winterbottom, L; “Rehabilitation – Working Models and Sustainable
Outcomes.” Presented at the ALUCA Conference, 2004 Cairns, Australia.
Working Models
CENTRALISED
DECENTRALISED
> One person responsible for all
rehabilitation referrals
> Claim Professional
responsible for referrals
> Usually a Rehab Specialist
with qualifications and
experience in rehabilitation
> Usually limited experience
with rehabilitation, except for
on-the-job training
> Usually sole responsibility to
screen, manage, track and
measure all rehab outcomes
> Usually minimal responsibility
to track and measure all rehab
outcomes
> Macro Approach
> Micro Approach
Length of Rehabilitation Intervention and
RTW Rate
Decentralised
Centralised
14
90%
80%
12
70%
10
60%
Ave Length of
8
Rehab
Intervention
6
(months)
50%
RTW Rate
40%
30%
4
20%
2
10%
0
0%
2003
2004
2005
Rehabilitation Cost and Benefit
Decentralised
Centralised
$4,500
$14
$4,000
$12
$3,500
$10
$3,000
$8
Average Cost $2,500
of Rehab $2,000
$6
$1,500
$4
$1,000
$2
$500
$0
$0
2003
2004
2005
Reserve
Released (m)
Referrals
Decentralised
Centralised
400
160
350
140
300
120
250
100
No. Referrals
200
Made
80
150
60
100
40
50
20
0
0
2003
2004
2005
No. Referrals
Accepted
The Payoff Matrix
2003
2004
2005
No. of referrals to rehabilitation service
386
474
1219
No. of referrals accepted by service
266
240
839
Medical cause of referral
Muscoskel, Psych
Musco-skel
(back)
Muscoskel/injury
Claims duration at time of rehab referral
21.9
months
20.4
months
22.6
months
Average length of rehab intervention
7.4 months
8.9 months
6.8 months
RTW outcomes of rehabilitation intervention
RTW F/T
New Occ
RTW F/T
New Occ
RTW F/T
Same Occ
Overall RTW rates
53.8%
64.5%
49.2%
Average cost of rehabilitation – external &
internal
$1,854.66
$2,669.25
$1,814.40
Reserve Release
$4,276,235
$3,444,832
$5,376,173
Implications and considerations
 The Centralised Model :
* lower cost, and
* more conducive to achieving sustainable outcomes
 Return to Work Philosophy and Programs must become an
integrated part of the companies culture in order to control
claims costs
 RTW programs must incorporate an integrated approach with all
stakeholders with critical emphasis on date of injury/illness
reporting and early intervention responses
 Companies to be more stringent implementing / managing
rehabilitation, training claims staff, and analysing their results.
Rehabilitation risks becoming ineffective and a costly claims
tool without adequate program planning
Pathways to Work
A British Government initiative 2002
1
Early skilled intervention critical
2
Better specialist support including health focussed
rehabilitation
3
Making sure work clearly pays
4
Better support for people moving from incapacity benefit to
Job Seekers Allowance
5
GPs, healthcare professionals, employers, trade unions and
insurers all play important roles
Pilot Areas
• Six pilot areas ending 31 March 2006 to trial for
new claimants:
– New framework of work focused interviews
– Improved referral routes to disability employment
programs
– New work focused rehabilitation programs in
conjunction with NHS
• Early results = Pilot programme doubled RTW rates
within 5 months
More than just clinical intervention
• Behavioural intervention
(psychologists)
• Coping with health
conditions and
disabilities
(counsellors,
occupational therapists,
physiotherapists)
• Jobs/employability
training
(personal advisers)
It’s about putting the individual first
Employers
Other
Vendors
Physician
Physiotherapists
Multi-Discipline
Assessment Team
Chiropractor
s
Health Care
Vendors
Workers
Insurance
Case Manager
Occupational
Therapists
Shifting across the continents
Lessons for international markets proposed by
Pilot Programme included:
 Change attitude of medical practitioners on
RTW philosophy
 Educate about therapeutic benefits of work
 Educate employer on maintaining employees
on partial basis and use of incentives
 Shift insurers’ focus from medical to psychosocial rehabilitation
UK evolving as a life and health market and
philosophy to “creative solutions”
Barth RJ, Roth VS: “Health Benefits of Returning to Work.” Occ and Enviroment. Med. Report 17, 3 March 2003, p13-17.
“Work is a blessing not a curse.
Work supports good health.”
Multilife Disability Underwriting in the U.S.
Daniel D. Skwire, FSA
Principal and Consulting Actuary
Milliman, Inc.
Traditional Income Protection Products
Individual Products
Group Products
Monthly Indemnity
Benefit Type
% of Salary
More Generous
Benefit Level
Less Generous
Yes
Medical Underwriting
No
Yes
Portable if leave job
No
Individual
Policyholder
Employer
Yes
Guaranteed
Renewability
No
Yes (Usually)
Guaranteed Premiums
No
Multilife Disability Plans
Definition
Multilife plans involve the sale of individual
disability policies to 3 or more employees of
a common employer.
Multilife Disability Plans
“Multilife” does NOT mean:
• Group Insurance
• Professional Associations
Multilife Disability Plans
Objectives
• More flexible and generous coverage than group
insurance
• Lower morbidity than traditional individual
policies due to group risk selection
• Efficient administration through list billing and
simplified underwriting
Multilife Disability Plans
Key Features
•
•
•
•
Plan Design
Premium Rates
Underwriting
Administration
Multilife Disability Plans
Plan Design
Plan Type
Group
Individual
Stand-alone
None
Full Coverage
Carve-out
For Non-executives
For Executives
Combo or Top-Up
60% to $6,000/month
60% of salaries above
$10,000 per month
Reverse Combo
60% of salaries above
$5,000/month
Up to $3,000/month
Split-Funded
Two-year maximum
benefit
Two-year waiting
period and benefits
to age 65
Multilife Disability Plans
Premiums
•
•
•
•
•
Level issue-age rates with policy reserves
Unisex premiums to avoid discrimination
Discounts to reflect favorable experience
“List-billing” sends one bill to employer
Premiums paid by employer, employee, or both
Multilife Disability Plans
Underwriting Methods
•
Traditional: Full medical and financial underwriting
•
Guaranteed to Issue (GTI): Full underwriting,
including substandard actions, but coverage may
not be declined
•
Guaranteed Standard Issue (GSI): No medical
underwriting. All policies are issued on standard
basis.
Multilife Disability Plans
Typical Underwriting Methods
Case
Size
Participation
Rate
Underwriting
Method
3-20 Lives
0-100%
Traditional
20+ Lives
<25%
Traditional
20+ Lives
25-75%
Traditional, GTI, GSI
20+ Lives
>75%
Usually GSI
Multilife Disability Plans
Success Factors for GSI Underwriting
•
•
•
•
•
•
•
Favorable risk classes
Uniform plan chosen by employer
Pre-existing condition exclusion
Actively-at-work requirement
High participation rate
Low maximum amounts
Limited time periods
Multilife Disability Plans
Administration
•
•
•
•
•
•
Streamlined quote process using census data
Pre-filled applications
Documentation of underwriting offers
List-billing sends one bill to employer
Capture group-level data for experience analysis
Monitor participation rates
Multilife Disability Plans
Recent Experience by Market
Actual-to-Expected Claim Incidence
Class
Traditional
Multilife
Association
1
120%
96%
156%
2
72%
48%
101%
3
52%
46%
102%
4
76%
56%
92%
Total
105%
91%
151%
Source: Society of Actuaries, 1990-1999 Experience
Multilife Disability Experience
Recent Experience by Underwriting Method
Actual-to-Expected Claim Incidence
Occupations
Traditional
GSI
GTI
Medical
133%
101%
123%
Non-Medical
64%
61%
65%
Total
92%
77%
87%
Source: Society of Actuaries, 1990-1999 Experience
Multilife Disability Plans
Problem Areas
• Professional Associations: Lack of employer
involvement means little morbidity savings
• Unisex rates may attract cases with high female
content (female rates generally exceed male rates)
• Use of GSI underwriting on cases with low participation
• Poorly–designed GSI programs