In the last decade I’ve written many posts and articles using the term “risk management” when describing insurance internal strategies used by insurers to process claims. It occurred to me recently that perhaps there are some readers who hop-skip over the term, but really haven’t a clue as to what it means.
As most of you know, the sale of insurance is profitable because of the concept of risk and the “law of large numbers” which presumes the more policies sold the less claims will need to be paid thereby producing profit. “Risk” as it pertains to disability insurance is the uncertainty as to the occurrence or probability a disability insurer will have to pay a claim. The worst possible event that could happen would be for an insurer to pay a claim for the maximum duration as indicated in the policy. Therefore, all insurers have internal processes to prevent paying claims greater than the percentage of payout underwriting. For example, Unum used to underwrite its LTD policies at a payout rate of 60%. If 70% of claims are eventually paid, the company is in the red.
“Risk management” can be defined as the sum total of all internal strategies deliberately enacted by disability insurers to lower the number of claims it actually pays and in so doing, increase its profitability to limitless levels.
Disability insurers learned very early in the development of insurance sickness products that “adverse risk” can be profitably managed simply by including strategies within the internal claims process that produces credible documentation making any claim denial “look good.” Risk management strategies have been improved over time to the point of “hiding in plain sight” making identification nearly impossible by regulators outside of the claims process.
Subsequently, disability insurers jumped into the game of managing risk by overhauling their internal claims review processes to include specific strategies to lower the natural progression of “the law of large numbers” and probability of paying too many claims. While in the past insurers assumed the risk of losses, that same risk has now been transferred to buyers of disability insurance products who risk not getting paid at all.
Disability insurers now report profits in the billions by virtue of their expertise in locating and documenting vulnerable claim files sufficient to support non-payment of benefits. The “illusion” of credibility created by disability insurers escapes the eyes of on looking regulators who frequently miss the deception.
What does all this mean to insureds with disability claims? Insureds and claimants should clearly understand that all disability insurers have internal strategies to reduce the number of claims actually paid in order to obtain higher and higher levels of profitability. Actions taken to pay less claims is called “risk management.” Surprisingly, there are no claims representatives anywhere who will admit they “risk manage” claims, but when I invariably drop the term on occasion, everyone knows what I’m talking about.
Exactly when individual claims fall into the “non-compensable barrel” to be risk managed is uncertain, but we know the following claim characteristics are identifiers of targeted claims with the most risk of being denied. (You may recall one of Unum’s terminated employees told us his manager gave him IMT sheets listing claims on a targeted list scheduled for denial.)
Claims frequently targeted for “risk management” are the following:
- Claims with monthly benefits in excess of $2,000. (In today’s environment it’s probably less than that.)
- Alleged self-reported and/or impairments without “objective evidence” as support. Examples are FMS, CFS, Lyme disease etc.
- DI claims with Lifetime benefits and/or in combination with COLA. These claims have higher financial reserves.
- Identified “red flags” are obvious from the record.
- Claims beyond 24 months as in the “any occupation” period.
- Claims reported by physicians who do not write medical restrictions and limitations well, or who do not stand their ground as to their medical diagnoses or recommendations.
The sum total of the six categories just mentioned comprise approximately 60% of claims that actually receive the lion’s share of “risk management” cost invested by insurers to deny claims in ways to appear credible to any regulator or investor.
Insurance companies typically invest dollars for internal resources and employee credentials in an effort to generate the most documentation for the buck that can be relied upon to support claims terminations.
Activities such as RN, physician and vocational reviews, team and multidisciplinary round tables, manager and financial reviews, surveillance, field visits and SSDI records requests all constitute the majority of departments with their own unique strategies and protocols for documenting “alleged” non-payable claims. Some companies outsource these activities to cheap, low-cost resources in order to lower costs.
The important question is, however, what can insureds do when the circumstance of the claim indicate it is targeted and is “risk managed.”
First of all, insureds need to get over the idea disability insurers act in their own best interests. Insurers do not act in anyone’s interest other than their own. Once insureds clearly “get it” he/she can take the necessary steps to support the claim and defend policy provisions.
Second, insureds should guard against fear and stop being intimidated. Disability insurers sell the idea of “fear” and devise phone agenda for the intended purpose of causing insureds to blindly accept any idea, request or action demanded by them. In my experience fear works, and insureds can be easily convinced to do almost anything to keep those monthly benefits coming. As long as insureds allow disability insurers to instill fear in to the claims process, the insurance company can do anything it wants, even deny claims without legitimate cause.
Third, insureds need to stop talking. A unknowing insured can actually “talk themselves into a claim denial” by sharing the story of their lives and all the good sentiment that goes along with it. Attempts to convince claims handlers claims are genuine are futile. Always ask for communication in writing because it’s just smart business practice. If the claim should go to litigation in the future, it is best to have your point of view clearly documented in the record by you and not the insurer. Never allow a disability insurer to have a consensus about anything.
Finally, insureds need to have more open and frank conversations with their doctors about communicating with insurer physicians who make calls to intimidate treating physicians into agreeing with “denial agenda.” Doc-to-doc calls shouldn’t really happen. Treating physicians have the right to ask for questions in writing and to show their responses to patients prior to sending back to the insurance company. In truth, treating physicians prefer not to have to deal with “pesky” insurance docs looking for buy-ins to deny claims.
Insureds and claimants should speak directly to physicians about the possibility of insurance phone contact and decisions should be mutually made in advance as to how the calls will be handled. Preferably, there should not be any surprises coming from a physician or his/her office.
“Risk management” is never of benefit to insureds. The term is used to describe a process whereby disability insurers intentionally try to deny claims that legitimately should be paid for profit. Being smart about the claims review process is an important first step to understanding why insurers do what they do. Remember, insurers presume lay persons are ignorant of the process, and as a result they can harass and demand actions that are out-of-contract.
Disability insurance, at least in the application stage, is never what insureds believe it to be. It’s time for insureds and claimants to take all of the necessary steps to learn what the product is, and how the claims process works.
Amen!