Risk industry struggles with claims

Growing concern about fraudulent claims and difficulties with risk definitions keeping pace with medical science have been revealed in the latest survey of risk insurers by the Gerling Global Life group.

The annual survey, covering 15 risk companies and representing about 90 per cent of the market, found that nine per cent of claims in disability income products were fraudulent. It also found that 18 per cent of claims were terminated due to non-disclosure.

In the area of term claims, fraud was down to one per cent and the figure for terminating a claim due to non-disclosure was five per cent. Fraudulent claims in this area were often associated with individuals, who had not disclosed previous medical conditions such as depression or anxiety, committing suicide.

For Total and Permanent Disability (TPD) claims, the average estimate of fraudulent claims was three per cent, while termination due to non-disclosure was five per cent.

Gerling claims manager Irene Fletcher says claims for psychiatric, mental and anxiety disorders were the most problematic TPD claims.

“Other difficult claims are depression and chronic fatigue syndrome,” she says.

However, 93 per cent of risk companies surveyed by Gerling are using surveillance to ensure claims are genuine.

“The average proportion of claimants found, as a result of surveillance, to be working or not totally and permanently disabled, has remained steady at eight per cent,” a report based on the survey by Gerling states.

In regards to trauma claims, only two per cent were terminated because of fraud, although the figure for non-disclosure was higher at seven per cent.

Rejection of the claim for other reasons was averaging 12 per cent, according to the Gerling survey.

Fletcher says a growing area of contentious trauma claims was breast cancer.

“Policyholders are sometimes not disclosing the condition itself or an associated condition when taking out the policy and it is very difficult to prove subsequently the cancer or proven symptoms existed at the time of underwriting,” she says.

“We are finding women discover they have a lump in their breast, take out a policy and then go and see the doctor.”

Fletcher says lumps do not come up overnight, but it is hard to prove and as a result, risk companies are losing money on breast cancer claims.

Another difficult medical condition when dealing with claims is multiple sclerosis.

“The symptoms can appear quickly in some people and in others it develops slowly, which means the level of disability can vary, which can be costly to insurers if the policy definition is not clearly defined,” she says.

According to the risk companies surveyed, multiple sclerosis (43 per cent) is defined as the most difficult medical condition to handle for claims.

However, things are getting better, with 67 per cent of those participating in last year’s Gerling survey defining multiple sclerosis as a difficult medical condition.

In this year’s survey, major head trauma (36 per cent), and cancer, Alzheimer’s disease and loss of independent existence (all 21 per cent), were classed as the next most difficult conditions.

Fletcher says claims sometimes have to be paid out because the definitions in the policy were not exact enough.

“An example is when somebody has a stroke,” she says.

“There are varying degrees, but if the definition is poorly worded, sometimes a claim for a minor stroke is paid out.”

“Skin cancers are an area where the definition also has to be exact otherwise it comes down to interpretation.”

The Gerling survey found that 12 per cent of claims arose from poor policy wording, while nine per cent came from poor underwriting. Poor wording on application forms accounted for another nine per cent of claims.

All three areas have increased since last year’s survey, with 86 per cent of respondents this year believing the wording could be improved on claim forms.

“This indicates a level of dissatisfaction that leaves much room for improvement,” the report states.

Fletcher says the claims are becoming more complex in risk insurance due to medical and legal developments.

“Part of the complexity is due to how the definition of the medical condition is written and whether that has kept up-to-date with medical advances,” she says.

“For example, we now have better knowledge about heart attacks and when they have occurred.”

The survey found 39 per cent of TPD claims, 32 per cent of disability income and nine per cent of death claims to be complex.

The Gerling survey also looked at the time spent dealing with claims and found disability income claims took 65 per cent of the time of an assessor.

The next area of time consumption was spent on term claims (14 per cent) with trauma taking the least time (eight per cent).

According to the survey, the average assessor found they handled 69 disability income claim files per month, up nine on 2001 results, and 65 term, TPD and trauma claims, which were up from 62 in 2001.

“This increase needs to be noted by companies to determine whether it has resulted from improvements in practices and IT support or from greater pressure to increase productivity,” the Gerling report states.

“The latter needs to be scrutinised carefully so quality control is not compromised.”

One of the most difficult occupations to manage in regard to disability income claims was financial advisers.

Of those risk companies surveyed, 79 per cent mentioned the medical profession as the most difficult while financial advisers rated 71 per cent.

“The results for medical professionals and self-employed blue collar workers (29 per cent) has improved moderately during the last year, while financial advisers, accountants and self-employed working from home (71 per cent) have all deteriorated,” the report states.

The legal profession accounted for 50 per cent of mentions with pilots and farmers also seen as difficult occupations.