| October,
2004 HEALTH INSURANCE UNDERWRITER (N.A.H.U.)
If
I Were King……An open letter to disability
marketing, underwriting and claim vice presidents
By
Arthur L. Fries
Tom Petty, a singer who seems to have been around forever,
has a beautiful track on a CD titled Tom Petty Wildflowers.
The first verse:
It’s
good to be king
Just for a while
To be there in velvet
Yeah, to give them a smile
It’s good to get high
And never come down
It’s good to be king
Of your own little town
If
I were king, I would change the way individual disability
insurance is written, marketed, underwritten – and
the way claims are managed. Here is how I would do it.
The
Ideal Product
For starters, if I were king I would provide a basic monthly
benefit with an opportunity to add additional coverage,
on an annual basis, under an insurability option that
provides no more than double the base benefit. The insurability
option should end at age 50 and the cost of the same should
be built into the base premium. A credit could be superimposed
over the group LTD. No reductions in FIO (Future insurability
option) benefit at age 46—and certainly no FIO available
while you are on claim and collecting benefits.
I’d put in waiting periods of 30, 60 and 90 days
in the “blue collar” class and nothing less
than 90 days in the professional/executive classes. Benefits
payable to age 65 in ALL classes, with an appropriate
premium charge in the blue-collar class to cover the exposure
(a five-year payout might be offered to provide some premium
flexibility).
I’d insist on a two-year-occupation in the blue-collar
class and a five-year your-occupation definition in the
professional classes. Thereafter they would be “any
occupation related to education, training or experience”
–a better definition in the policy indicating what
this means so policyholders understand it.
The purpose of a disability contract should be to give
the claimant time to make economic adjustments. After
a two- or five-year period, the disabled individual can
make lifestyle changes, such as a smaller house or less-expensive
cars, and still survive economically.
Another thought might be to provide a to-age-65 your-occ
definition in the professional/executive classes but reduce
the monthly benefit by 50% after five years. Residual
(partial) disability should also be included, as should
loss of time, one or more duties and 100% of monthly benefit
paid if there is an 80% loss of earnings. Only a war clause
exclusion and incarceration should be included. The premium
can be guaranteed, and the renewability guaranteed as
well, to age 65. Coverage should not be continued past
age 65.
If I were king, I would keep the products simple. We don’t
need presumptive disability, fracture schedules, non-disabling
injury and all these frosting-on-the-cake benefits that
are rarely paid or the insured forgets they have, such
as NDI (non-disabling injury). Personally, I’m getting
tired of explaining the cosmetic and transplant donor
benefit again, another set of benefits that are rarely
utilized but thrown in because of a couple of court cases.
Why not just pay these claims as a matter of policy? I
would.
Go to jail, do not pass go, do not collect $200 or any
DI benefits! You betcha. An incarceration clause excluding
coverage is a must. I’d be psyched out, too, if
I was stuck in jail. Getting close to losing my license
and my patients/clients AND jail time on the horizon would
sure depress me and make me want to see my shrink. How
policies were ever issued without an incarceration clause
is beyond my comprehension. That would change.
I also think the practice of sending out letters to all
policyholders offering them another $500 or $1,000 per
month just by signing a form is like a dealer offering
drugs to an addict. The offer was scooped up by many policyholders
because it was a no-brainer that involved no underwriting.
Adding automatic increases such as 8% (with interest)
over a five-year period (with the opportunity for more)
made a $10,000 monthly benefit increase to $14,000 during
the first five years-with no questions asked!
Add to that an 8% COLA option (minimum) not related to
The CPI at compound interest and you really have my attention.
If I’m making more money, that insurability option
lets me buy up to double the base amount or more. A your-occ
definition with benefits payable for life is just too
much to provide in the way of promises.
There have been lots of bad decisions made by home-office
executives as a result of pressures to create more cash
flow without taking into consideration the future potential
consequences. All these “add on” benefits
created policies that were really too good to be true.
And how did management at the companies solve this problem?
They tried to make up for their mistakes on the back end
by looking for ways not pay claims rather than the other
way around.
One last thing: The pre-existing condition/prudent person
cause should apply from the date the applicant was born,
not two years or five years prior to the application.
The incontestability clause should mean something and,
if I were king, it would.
After a policy has been in force for two years, the policyholder
should be home free and the insurance company is stuck
with potential claims. A “fraud clause” should
not apply since that just defeats the intent of the incontestability
clause and creates ill will and legal complications at
claim time.
Marketing
The
proper training of agents and brokers today is almost
nonexistent. Many who sell insurance lack the confidence
to recommend disability insurance because of a lack of
understanding of policy language and how to sell the product
effectively. If I were king, that would change. Immediately.
Further, for some professional classifications in the
market, no product is available or is available but only
in a very restrictive form. There are only a handful of
insurance companies that are serious about selling individual
disability today, compared to a much larger number of
companies in the 70s and 80s.
All of this can be reversed by a change in industry thinking
that it is more creative and understands the KISS method
of selling. The fact is, there are many self-employed
individuals and those in small firms who would purchase
disability insurance if it was presented to them in a
way they could understand and appreciate. The concept
of insuring your ability to provide an income is not rocket
science.
Current individual DI contracts are too difficult to explain
and understand at the point of sale (by both the salesperson
and the prospect) and too difficult to handle from a claims-management
perspective. Companies should agree upon uniformity in
contract design and make it easier to purchase in terms
of the understandability factor. Some might refer to this
as commodity marketing.
If I were king, brokers and agents would be encouraged
to target various markets such as plumbers, electricians,
attorneys and physicians. Renewal commissions would be
increased to prior levels to encourage those who want
to sell DI to become experts and make a career of it.
Underwriting
If I were king, the goal of the home office would be to
maximize information retrieval up front. A tax return
or W-2 for the prior year should be mandatory. Medical
questions should be answered on all applications even
if a Part II (exam) is requested.
A copy service should be sent to all providers (physicians,
hospitals, etc.) to copy medical records so that the insurance
company gets a better picture of the risk they are being
asked to insure.
I’d come up with more innovative ways to surcharge
the premium or place waivers on the policy so that more
policies can be accepted. Rather than a flat decline for
many mental/alcohol/drug-related prospects, many policies
could be written with a waiver for those conditions that
present a concern to the underwriter.
At a future date, the prospect/policyholder should be
given the opportunity to have the waiver removed should
they become symptom free. A letter should be provided
with the policy to this effect. Further, a letter should
be sent to the insured from the home office at future
dates (maybe two years, five years, etc.)-requesting that
an application be completed with medical information (since
the date of the original application). This would give
the carrier the opportunity to secure updated medical
information and from a promotional standpoint, gaining
some points in the process.
Urine testing should be mandatory for all applicants when
the original application is completed as well as when
a request is made to remove a waiver or premium surcharge.
Good agents and brokers who write big DI cases on people
who make good money are not opposed to underwriting. Tell
us the rules of the game and we’ll play by them.
We understand what is at stake: a $10,000/month benefit
payment for 20 years is a lot of money. We know that.
We just want the underwriting done up front, not when
a claim is submitted.
Claims
Management
In my capacity as a disability claim consultant I have
provided advice to nearly 400 claimants over the past
eight years. These individuals have been primarily professionals-dentists,
physicians, chiropractors, attorneys, senior executives
and high producing salespeople. Benefits brought under
question have ranged from low of $100,000 for a nurse
to the high of $12,000,000 for an executive salesman.
I’d say the average claims was in the $2 million
to $3 million dollar range.
I can assure you, many of these individuals would not
be collecting on their disability policies had they not
sought outside, third-party advice regarding their claims.
Further, there is an ongoing apprehension on both their
part, as well as mine, as to how long their benefits will
continue to be paid based on prevalent claims-management
practices, still-evolving practices that are changing
promises once made into “we really didn’t
mean that” back then.
If I were king, things would change. For example, independent
medical evaluation and video surveillance on “solid”
disability claims are unreasonable and are not only obnoxious,
but they create bad public relations for the insurance
company or the claims administrator. If there is reason
to suspect fraud, go after it. But leave the innocent
alone.
The amount of bad publicity being circulated about the
industry and many DI carriers is alarming and seemingly
getting worse. Unless there are dramatic changes by carriers
in the areas of product design, marketing, underwriting,
claims-management techniques and sales training, I fear
there will no longer be a viable individual disability
marketplace and the product will continue to lose money
for the companies that underwrite it. Or, worse yet, as
in the health arena, the government may threaten to step
into the picture. Carriers must change their attitude
and realize that until there is a stronger partnership
between those who create the products and those who sell
them, the existing tension of “us vs. them”
will only worsen.
Frankly, after many years of selling professional level
DI and now in claims consulting, I’m not overly
optimistic about what I see on the horizon. Then again,
I am also very willing to be proven wrong.
_____________________________________________________________
A
longtime NAHU member, Art Fries is a disability claims
consultant. He was formerly a high-volume personal producer
of disability income coverage almost exclusively to attorneys.
He can be reached at 800-567-1911. For information abut
selecting a DI claims consultant, visit www.afries.com
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