Disablement claims top spot in insurance costs

Disability income accounts for the most number of claims being assessed, according to Harvest Partners’ latest market evaluation.

Overall, the total risk claim files for disability income has trended up over the last three years, while the total claim files for total and permanent disability (TPD) has trended down.

Looking at the claims environment for disability income, the Harvest Partners evaluation says occupation risk is clearly a major factor in risk management with the medical profession and financial advisers regarded as “difficult to manage” occupations, rating an 85 per cent response rate. Other high responses included self-employed people working from home and those working in the legal arena.

The evaluation also found that difficult medical conditions continued to provide a challenge, particularly psychiatric and chronic fatigue disorders, followed by pain disorders.

A worrying finding from the evaluation was that respondents reported a disappointing level of claims estimate, with 81 per cent recording a claim estimate occasionally or never.

“This is inconsistent with industry best practice and companies should be analysing internally to see how well they are performing,” the evaluation material says.

Looking at disability income claims, the analysis says that statistics on claims rejections are one of the most critical indicators of how well a company is fulfilling its responsibility to provide good stewardship of its portfolio.

“The market evaluation provides telling results in this regard, with the percentages translating into potentially millions of dollars in lost profits,” it says.

“The average rejection rate due to fraud is 44 across all respondents. Importantly, however, this figure is made up of two very different types of results; those who based responses on actual figures (9 per cent of respondents) reported an average rejection rate of one claim, while those based on estimates reported 48.4 claims,” it says.

“This large difference in results points strongly to the fact that some companies may feel they are doing better in this area than they really are,” the evaluation says.

“Overall, there seems to be an upward trend in claims terminated due to fraud,” it says.

“The results for rejection due to non-disclosure on the other hand show an average result of just over 82 claims, for the 23 per cent of companies using actual data. This compares with just over 32 claims for companies estimating the figure,” the analysis says.

Dealing with the use of claims management tools, the survey says that the use of key claims tools can have a profound impact on profitability, and that there has been a distinct improvement over previous years, with slightly less than two in three respondents developing profiles for potentially difficult claimants.

The survey also suggests that respondents have improved other elements of their procedures, with 85 per cent either always or most of the time asking for evidence of pre-application income where claims occur within three years of a policy coming into force.

“This is consistent with industry best practice,” it says.

However, it says if pre-application income was tested, there was a large variation between companies on the percentage of claimants found to have mis-stated their income, with a minimum of 3 per cent and a maximum of 60 per cent.

“Medical attendance reports (MAR) are another important claims management tool. For claims within three years of risk commencement, 85 per cent of respondents stated that they always or most times request an MAR, which is consistent with industry best practice,” the survey analysis says.

It says if an MAR is requested, an average of 15 per cent of claimants are found to have not disclosed a health problem on application.

“There was a large variation in responses, with scores between a minimum of 5 per cent and a maximum of 40 per cent,” it says.

“This year’s result represents an increase in the average proportion of claimants found to have non-disclosed a material health problem on the application compared with the previous year,” the analysis says.

It says visitation of claimants during their claim is a tool used by 78 per cent of respondents either frequently or most times, which is an improvement over last year’s results where there were none who nominated the most times category.

However, it says this good result is slightly offset by a reduction from 7 per cent to zero in the number of respondents who say they always visit claimants.

The reasons for requesting a factual interview are given in table 2.

The analysis says that there is a large variation in the percentage of claimants found to be not genuine as a result of a visitation with a minimum of zero and a maximum of 80 per cent.

“The maximum could be due to a highly selective process being used for visitations, with visitations only being used where it is known the claimant is not genuine or an unrealistic estimate is being used,” it says.