Increasing claims management costs are likely to result in more Australian life insurers following the US model of pre-acceptance medical tests, according to the latest Gerling Market Evaluation for Individual Risk Products.
The Gerling research, gathered in the evaluation via a survey, has pointed to continuing problems for insurers in both underwriting and claims. It said these problems were associated with claims management, the poor wording of both applications and policies and the need to deal with more sophisticated claimants.
The suggested move to a more proactive claims management regime has come against the background of the survey’s finding that particular occupations and medical conditions are making it difficult for companies to underwrite products and then manage them at claim time.
In an important finding, the survey reported that 100 per cent of respondents had said they found certain occupations difficult to underwrite, an increase from 85 per cent in last year’s survey.
The most common occupations nominated as being difficult to assess were:
n the entertainment industry — 67 per cent
n contractors — 60 per cent
n consultants — 53 per cent
n people working from home — 47 per cent
n blue collar workers — 27 per cent
Reflecting this trend, the evaluation showed that where Total and Permanent Disability claims were concerned, self-employed professionals at 83 per cent had overtaken blue collar occupations as the most difficult to deal with.
At the same time, the survey recorded that 100 per cent of respondents, also up from 85 per cent, were finding certain medical conditions more difficult to assess for underwriting purposes.
Psychiatric/mental/anxiety disorders were nominated by 87 per cent as the most common medical conditions that were difficult to assess, while chronic fatigue was judged difficult to underwrite by 53 per cent of respondents. Subjective conditions and hepatitis and abnormal blood test results were also regarded as difficult by 40 and 33 per cent respectively.
Gerling underwriting services manager Lyn Franks says the findings suggested there was a direct correlation between difficult occupations and medical conditions when it came to both underwriting business and claims management.
“Companies should establish a ‘high risk’ profiling tool to assist them in better managing these risks,” she says.
The evaluation found that disability income claims continued to challenge the industry also because of the combined impact of the so-called difficult occupations and medical conditions.
According to the findings, 93 per cent of respondents believed there were specific occupations that were more difficult to manage when it came to dealing with disability income claims.
These occupations were:
n the medical profession — 85 per cent
n self-employed working from home — 62 per cent
n financial advisers and legal — 54 per cent
n self-employed blue collar —39 per cent
n accountants — 23 per cent
At the same time, the number of respondents who believe there were specific medical conditions that were more difficult to manage in regards to a disability claim was the same at 93 per cent.
The conditions were also similar to those causing problems for underwriters, with psychiatric/mental/anxiety conditions being agreed upon by all respondents as a problem area, followed by chronic fatigue (85 per cent), back disorders (62 per cent) and cardiac disorders (12 per cent).
However the survey results do point out that the prevalence of the first three conditions might be tied into the subjective nature of the conditions.
Gerling’s general manager Brian Sussman says the Australian life industry has been progressively shifting towards the US practice model in information gathering for medical underwriting purposes after having been deeply-rooted in the traditional system.
The traditional system saw clients directed towards pre-acceptance medical testing by their doctors, whereas the US model was based on accessing blood tests, paramedical examinations and private medical attendants reports. The new model provides financial and convenience benefits to customers, advisers and insurers alike.
It was possible that some changes to claims management procedures would be imposed as companies identified high-risk client types and implemented a more rigorous claims assessment process, according to Sussman.
He says profitability was undoubtedly the key driver, and this had become increasingly obvious in the post-1995 environment where lines of business were more closely analysed and there was less scope for cross-subsidisation.
Claims manager Simon Stanton says where the company/adviser relationship is concerned, it is clear companies have to become more service-oriented and provide the appropriate packages for advisers to sell.
The difficulties presented by particular occupations and medical conditions manifested themselves in the evaluation’s findings on the time required for claims assessment, with disability income cases representing 50 per cent of the workload and taking 60 per cent of the time.
This was despite the fact that disability income claims were regarded as being less complex than total and permanent disability (TPD) claims.
Stanton says companies needed to review current resource commitments to claims if they were to counter the current disability income problems and the emerging trends with other individual benefits.
The survey’s findings also suggested that companies could save themselves both time and money if they adopted a more consultative approach towards the wording of both their policies and applications.
This was indicated by the fact that respondents believed that poor or inadequate policy wording was responsible for 11 per cent of claims, whereas within the respondent group claims managers saw this as a larger problem and believed that poor or inadequate wording was responsible for 18 per cent of claims.
The survey also found that 87 per cent of respondents believed that policy wording could be improved to assist in managing difficult claims.
“The result was similar to last year and remains an opportunity for improvement. Results on this area were consistent across all functional areas surveyed,” the evaluation says.
The evaluation revealed that 8 per cent of claims were felt to be the result of poor application wording. Claims managers more than underwriters saw this has a direct link to poor experience.
“This may reflect the higher degree of involvement by underwriting in the drafting of application wording and the requirement for the claims to manage the claims that arise.”
The survey also revealed that, of the life companies surveyed, 88 per cent believed their application forms could be improved, while 84 per cent believed that claim forms could be improved. This was up from 54 per cent last year.
“The average estimate of fraudulent or non-genuine claims was 16 per cent. While this was only a slight increase on last year, it represents a cause for some concern and a major opportunity for improvement.”
Companies were increasingly focused on substantiation of income at time of claim. The survey showed that nearly four-fifths of claim managers had reported that evidence of pre-application income was always asked for, more than double last year’s result.
As well, there was a massive increase in companies requesting private medical attendants reports (PMAR) at claim time with 71 per cent of respondents stating it was always requested, up from 27 per cent the previous year.
“This result reinforces the movement towards best practice claims management,” the report says.
Sussman says it was pleasing that many of the best practice issues identified by Gerling during last year’s private briefing meetings had now been addressed.
“Some of the major areas where changes have occurred include the review of active claims, the profiling of difficult claimants, always requesting pre-application income and always requesting PMARs where the policy has been in force less than three years,” he says.
