by Justin Leader
justindleader@gmail.com
Credibility is the “believe”-ability that past experience will predict future liability. That is a mouth full but then again we are talking complexities such as those found in underwriting and actuarial science. In today’s common employer sponsored benefits offering Disability insurance is a staple. Disability or Disability Income (DI) insurance is more often referred to as paycheck insurance. This protection covers an employee should they suffer a disability thus limiting their ability to complete the core functions of their work. A recent statistic from the US Bureau of Labor Statistics as well as National Treasury Employees Union states that in the United States a disabling accident occurs on average once every second. In fact, nearly 18.5% of Americans are currently living with a Disability, and 1 out of every 4 persons in the US workforce will suffer a disabling injury before retirement.
The first thing that comes to mind for me is the amount of data that is represented in those figures. That is just the average, mind you as some employers will have worse experience while others fall well below average due to the demographics of the population itself as well as risk reduction plans in place, ie: return to work. Understanding that most brokers, consultants and employers are laser focused on Medical coverage, claims and the PPACA often I see that many miss an opportunity in a competitive and thorough analysis of an organization’s disability benefits and experience. How are you using your data? My focus and specialization regarding “ancillary” coverages has taught me that most leave quite a bit of this data on the table not utilizing it for a greater purpose.
There are many factors involved in understanding and effectively rating disability coverage for an organization. Lets go beyond manual rating and SIC codes here. Keep in mind that most plans I work with have at a minimum a few hundred employees if not thousands. That being said, here is a fact I use when speaking with my peers. If you have a 3000 life group, with 3 years of disability experience, this experience is still only 75% credible. Mind you this figure was passed to me from an underwriter at the national accounts level for a major disability carrier. I can imagine that I will also receive some “flak” from the actuaries in the room for that statistic. That 25% left to uncertainty is huge when it comes to rate negotiation. Not to mention most insurers are updating their credibility methodology every 5 years based on their own book of business as well as market trends. Not just disability market trends but economic market trends as well. Think reserving.
I have seen a shift already in my career among very strong disability carriers falling off and producing some frankly horrible rates for employers. The scary thing is, employers needlessly continue to pay those rates! Even beyond the many mistakes we find at the national account level sometimes smaller employers are impacted substantially as well. I recently co-brokered a case involving a manufacturer with a few hundred lives. Upon a thorough review and analysis we discovered that they were overpaying for their disability coverage by more than 50%!! In my opinion there is really no department out there that should be missing these opportunities to save money let alone the potential to reallocate that savings into other areas like technology or the rising cost of medical. I recently did a 3 location lunch and learn series as a speaker with Benefitfocus (NASDAQ: BNFT) between New York and Philadelphia on “Finding Funds to Fuel Technology”. This is one of the avenues to do just that.
A competitive and thorough analysis should focus on the facts regarding claims experience. Primarily are there outliers in that data which should be removed? Often we find claims that should not be included for future rating. Out of the claims that have been paid, do they tell a story regarding the organization and problem areas that can be identified and treated accordingly? Are there duplicate claims? Believe it or not, we have found claims counted sometimes 2 or 3 times in an experience run.
I would like to think that part of our duty as brokers, consultants and benefits professionals is to paint a realistic picture, call it “storytelling”, of what is happening regarding the abundance or in some cases lack of data that is available. It should be our obligation to not only justify the expense of each line of coverage to protect our clients and the employees that depend on them as well as the insurers from catastrophe. Yes, you heard me, protect the insurers as well. Call it a full circle mitigation of risk as well as maintenance of integrity among needed partners. There are a multitude of factors beyond the few mentioned here that one must consider in a thorough disability audit. My purpose in this article and hope is that you will go back well before renewal and revisit the prices you are paying for the coverage, the data that is available to you, the management of claims and return to work programs, but most importantly of all, the story you are telling.