Disability Insurance Claims: Top 5 Trends of 2021 and Outlook for 2022
As leaders in the professional disability insurance industry, our disability insurance attorneys are committed to keeping dentists, physicians, other attorneys and executives apprised of industry, regulatory, and legislative changes that may impact their ability to collect benefits under “own occupation” disability insurance policies.
In this post, we will be sharing some of the disability claims management trends we have noticed in 2021, discussing some recent surveys of private disability insurers that may explain these trends, and providing our disability insurance outlook for 2022.
For a broader discussion of the history of the disability industry and a discussion of common bad faith tactics and new policy provisions to be aware of, please visit our homepage.
Disability Industry Trends of 2021
Over the course of 2021, there has been a noticeable uptick in claims relating to a variety of factors, including COVID-19’s impact on healthcare practices, sales and operations (particularly dental practices); an uncertain economy with higher unemployment and lower interest rates; and a significant increase in physicians and dentists filing disability insurance claims based on mental/nervous conditions.
Additionally, from the disability insurance industry’s perspective, there are fewer individuals purchasing own-occupation policies, and policyholders are often selecting lower monthly indemnities if they do purchase policies.
The professional disability insurance industry is also facing additional sales obstacles, including aging producers (with younger producers focusing more on asset management), an aging distribution model, nonengaged advisors, and lack of knowledge and training for agents on newer policies.
Disability Claim Trends of 2021
Professionals, such as physicians, dentists, attorneys and executives, have historically pushed through disabling conditions longer than they should—a phenomenon called presenteeism. In the wake of COVID, however, this has changed.
Some dentist practices, in particular, have suffered financial strain due to COVID and related fallout, and many dentists facing COVID shutdowns and disabling conditions have simply decided to file disability claims. The same holds true for physicians. Our disability law firm is also seeing more claims for mental/nervous conditions than ever before.
Due to the financial pressures noted above, there has been a noticeable uptick in how aggressive insurance companies are being when investigating and administering own occupation disability claims.
Even if your claim was initially accepted for payment, that it not the end of the process as most disability insurance companies have decidedly changed their orientation to “claim duration,” which means a quick recovery and return to work. And companies are getting there through what they call “early intervention,” which means the development of information early in the claim, before the insured is represented, that will be helpful in securing a disability claim termination.
Additionally, starting in 2020, our law firm has also noticed that disabled physicians and dentists have started complaining more frequently that their purported “own-occupation” policies ended up not being what their agent described in terms of coverage/limitations. In the past, agents were held liable for even negligent misrepresentations, but the newer policies now contain language that protects the insurance companies and their agents from liability in this context.
While there are now countless different levels of “own-occupation” policies, nonengaged and/or poorly trained advisors are not explaining the nuances of each policy type to their clients, who are unfortunately being left with inadequate coverage if they ever become disabled.
The 5 Most Common Disability Claim Management Tactics in 2021
In the past, we have seen that insurers under financial pressure have simply wrongfully denied claims, and this still holds true to some extent. However, we are also seeing insurers engaging in other, more creative tactics to reduce the amounts they are paying out.
More specifically, we have noticed that:
1. Disability insurers are conducting more rescission reviews. “Rescission” is a legal principle that allows insurers to void a policy and avoid payment if there were any misstatements made in the policy application—typically in the health questionnaire portion. If an insurer seeks to rescind a policy, they will typically offer to refund your premiums, but in return require you to give up your policy and your disability claim. This is a complex area, and the rules regarding rescission vary in different jurisdictions. If you believe your insurer is conducting a rescission review, you should contact a disability insurance attorney immediately.
2. Disability insurers are approving claims, but refusing to pay benefit increases that the policyholder applied for. This is a similar tactic to the one above, but slightly different. Instead of using rescission to void the whole policy, the insurer seeks to void one or more increases to the base benefit of the policy. So, for example, if your initial benefit was $2,000 and you were later approved for an additional $8,000 in benefit increases, the insurer would approve the claim, but only pay $2,000/month instead of $10,000/month.
3. Disability insurers are seeking to invoke complex provisions to reduce or avoid payment. As we’ve discussed in prior posts, over the last several years disability insurers have made their policies more detailed and complex. New disability policies can contain complex formulas for calculating benefit offsets or partial disability benefits, and these formulas generally are based on the policyholder’s loss of income. However, different companies define “income” different ways in their policies, and these definitions can be vague or overly-generic. As a result, it is not uncommon for a physician or dentist to have income sources that are difficult to categorize under the express terms of the policy. In the past, insurers were more inclined to work something reasonable out in these circumstances; however, lately, they have been more inclined to try to take advantage of these gray areas and construe them in their own favor, to reduce or avoid payment.
4. Disability insurers are revisiting and reinvestigating claims that have been paying for years and years. We have also seen an increase in insurers targeting policyholders who have been on claim for years—particularly mental health claims and claims based on subjective symptoms, such as pain or numbness. The most common approach here is using their in-house doctors to conduct a paper review of the records that results in “uncertainties” about the “ongoing nature” of the disability, or the “scope of limitations.” The insurer then invokes the exam provision of the policy and sends the insured to a doctor of its choosing, who looks for any basis to claim improvement and find that the policyholder is no longer disabled.
5. Delaying claim decisions due to pending information requests. As noted above, some insurers have reduced their personnel at the same time more claims are being filed. Consequently, we are seeing that many claims are being delayed, particularly if the policyholder is not submitting correct documentation at the beginning of the claim. Many people expect the insurer to tell them what information is necessary, but under current circumstances, this is a recipe for going months without any benefits. It is much better to gather everything that is needed and produce it at the outset, to speed up the process and keep your claim from being sent to the back of the queue due to pending document requests.
Out of all of the companies, right now Unum is the company that is standing out as the most aggressive. Unum has been sanctioned in the past for its bad faith conduct, and is currently the disability insurer that comes up the most in our disability case alerts each week.
In the past, Unum has been the insurer that is most willing to take legal risk to avoid payment during times of financial strain. Consequently, we consider Unum to be a bellwether, of sorts, to gauge of how the industry is doing. If Unum is denying more claims and acting more aggressively, it may mean that the other insurers will follow suit in short order.
September 30, 2020 Milliman Survey
Several recent surveys of the major disability insurers may reveal why we are seeing the above trends.
For example, Milliman, a Seattle-based actuarial consulting firm, recently released an annual survey of the U.S. individual disability income (IDI) insurance market for the last five calendar years. Milligan surveyed 15 of the largest private disability insurers, including Ameritas, Guardian, MassMutual, MetLife, Mutual of Omaha, Principal, Standard and Unum. At the time, these insurers accounted for about 90% of the IDI market.
The report is quite comprehensive, but we found the following findings to be the most noteworthy.
- Overall, the new number of individual disability policies sold in the United States fell to 6.6% (to 270,000).
- The report showed that new annualized premiums from new policy sales increased 0.4%, to $402 million.
- Four companies issued over 40% of their new IDI annualized premium in 2019 to doctors and surgeons.
- In terms of the products offered by 14 companies (either in the policies themselves or as riders), 11 of them offered pure own occupation policies; however, only 8 offered pure own occupation policies for doctors.
- On average, 14 IDI companies ranked their satisfaction as 3.8 (out of 5) for profitability and 3.1 (out of 5) for sales results for 2020.
- The insurers identified unfavorable trends in the IDI market, including several around COVID-19, such as uncertainty surrounding COVID-19 and the economy (including lower interest rates and unemployment), the impact on sales, pandemic operational difficulties, and expected increase in lapses due to COVID-19.
- Other unfavorable trends identified by disability insurers included a 200% increase in claim notices resulting from COVID-19 and risk of disability due to potential exposure to COVID-19, low claim terminations, increasing prevalence in mental/nervous claims, and claim notices that have no premise of sickness or injury (rather claimed economic disability).
- According to this survey, the long-term financial health of the IDI market also faces several obstacles, including an aging distribution with inadequate succession planning, aging producers (with younger producers focusing on asset management), an aging distribution model, nonengaged advisors, and lack of knowledge and lack of training for agents.
GenRe, a Berkshire Hathaway reinsurance company, also recently released a report that looked at the 2020 Individual Disability market. While this study looked at sales trends, it also confirmed that disability insurance remains a multi-billion dollar industry.
This study looked at Non-Cancelable, Guaranteed Renewable, Buy-Sell, and Guaranteed Standard Issue product lines for 2019 and 2020. Sixteen carriers (including Ameritas, Guardian, MassMutual, MetLife, Mutual of Omaha, Northwestern Mutual, Principal, Standard, and Unum) participated in the study. These 16 companies represent $5 billion of in-force premiums.
This study showed that the number of new policies sold by these insurers in 2020 fell 10.8% (to 245,851) and that premiums for the new policies fell about 7% (to $398.9 million). The benefit amounts for new policies totaled $1.6 billion.
Insurers reported that COVID-19 was responsible for the drop in new sales—in part because producers struggled to close sales without being able to meet clients face to face.
Despite the drop in new sales, the number of insureds letting their in-force policies lapse decreased—likely due to the increased financial uncertainty from COVID. As a result, insurers still realized a net-increase from prior years to the total number of people covered by individual disability insurance by about 1.2% (3.1 million people). Premiums for these in-force policies increased 1.3%, to $5 billion. Benefit amounts for in-force policies totaled $19.6 billion.
Non-Cancelable policies, which are policies that must be kept in force with the same terms and premiums as long as the policyholder makes timely premium payments, represented $4.3 billion (85%) of total in-force premium. Medical and 4A and above occupations accounted for 93% of non-cancelable new premium. Guaranteed Renewable, where the insurer has the ability to increase premiums, in-force premium was up by 3%, or to $701.3 million.
Outlook for 2022
Based on our recent experience and the surveys discussed above, it is clear that many of the major disability insurance companies are under financial strain right now. The volume of claims being filed appears to be going up, due to COVID, and the companies are not selling as many policies as they have in the past. Consequently, we expect that the disability claim trends we are seeing will continue into 2022.
If you feel that your insurer is delaying payment, or has wrongfully reduced your benefit, please feel free to contact one of our disability attorneys directly, for a free consultation.
Allison Bell, COVID-19 Hangs Over Individual Disability Market: Milliman, Think Advisor, Nov. 30, 2021, https://www.thinkadvisor.com/2021/11/30/covid-19-hangs-over-individual-disability-market-milliman/
Roberta W. Beal, FSA, MAAA and Tasha S. Khan, FSA, MAAA, Milliman Report: 2020 Annual Survey of the U.S. Individual Disability Income Market, Sept. 2020
Allison Bell, More People Have Individual Disability Insurance: Gen Re, ThinkAdvisor, May 13, 2021, https://www.thinkadvisor.com/2021/05/13/more-people-have-individual-disability-insurance-gen-re/
Gen Re, U.S. Individual Disability Market Survey, Summary Report – 2020 Results, 2021