24 / CLAIMS MANAGEMENT FEATURE LIFE CLAIMS MANAGEMENT INSIGHTS FROM GENERAL INSURANCE The life insurance industry is facing the challenge of a deteriorating claims experience and while there is no single solution, there are a number of considerations that may prove beneficial for claims outcomes. Raj Kanhai shares some insights from the general insurance sector and discusses how these practices might improve outcomes in life claims management.
25 / CLAIMS MANAGEMENT Raj Kanhai, BEc/LLB, LLM, Grad Dip App Fin, Senior Consultant, Finity Consulting. The life insurance industry has faced increasing challenges over the last few years. In examining the causative factors leading to a deteriorating claims experience, the industry has posited various explanations. These include greater lawyer involvement, increased member awareness, growing mental health problems in the community, and the tightening of many workers compensation benefits, as well as the general economic environment, including job insecurity and corporate downsizing. Recent claims deterioration has followed a period in the industry that saw claims definitions and benefits expand while underwriting rules, including eligibility terms and underwriting limits, were relaxed. Consumers have become increasingly aware of the significant benefits offered under group life policies through superannuation funds, without evidence of members medical status. The Australian Prudential Regulation Authority (APRA) has observed that the expansion in benefits with higher risk tolerances in this period all too often went through without appropriate adjustments to prices; in fact, prices were seen to regularly reduce. 1 Over the past couple of years, the industry has sought to reverse its declining financial position by increasing premiums, in both the individual and group risk portfolio, with prices for very large schemes hardening substantially. 2 There has been much activity in response to the challenges faced by the industry with respect to pricing and product design as well as improving member data quality. This article will focus on claims management and offers some insights from the general insurance sector that can be applied to potentially improve outcomes. Recent claims deterioration has followed a period in the industry that saw claims definitions and benefits expand while underwriting rules, including eligibility terms and underwriting limits, were relaxed. Early claims notification and early intervention Early notification is critical for income protection (IP) and, to some extent, total and permanent disability (TPD) claims management in order to maximise return to work chances. A telling comparison can be made between many workers compensation regimes and the life industry. If, for example, I have a workplace injury and make a workers compensation claim, then in order to access weekly benefits and medical expenses, it is in my interests to lodge a claim as soon as possible. Furthermore, pursuant to the provisional liability sections of most workers compensation legislation, I will have access to early treatment, rehabilitation and weekly benefit payments within days or weeks of claim notification. My workers compensation claims manager will most likely devise an injury management plan and involve my treating doctor and employer in coordinating return to work efforts, if appropriate. On the other hand, if I have an IP policy, I will probably not notify my insurer until the waiting period is over, which for life policies can range from 14 days up to 720 days. During that time off work, any remaining connection with my employer and any residual capacity to return to work will almost certainly be diminished. One large insurer that operates in both the life insurance and workers compensation markets reports that for a particular industrial services client with a large blue-collar workforce, the average notification period for workers compensation claims was four days; for life IP claims, it was 48 days. 3 The outlier notification period was 16 days for workers compensation as opposed to 212 days for IP. Why is this difference in timing critical? Essentially because research studies paint a consistent and compelling case for early intervention to maximise return to work chances. In the case of physical injury and disability, one Australian study found that if a person is off work for: 20 days, the chance of ever getting back to work is 70 per cent 45 days, the chance of ever getting back to work is 50 per cent 70 days, the chance of ever getting back to work is 35 per cent. 4
26 / CLAIMS MANAGEMENT Effective triaging and segmentation of claims based upon risk and complexity means that more difficult claims can be allocated to injury management and claims staff with the requisite set of skills and expertise. For life insurers, managing claims towards better outcomes, such as facilitating earlier return to work and minimising income and disability payments, is therefore very reliant upon early notification and intervention processes and procedures. We now turn to the sorts of intervention that are appropriate for managing such claims by triaging and segmenting them using a biopsycho-social model. Effective triaging and segmentation of claims based on risk: bio-psycho-social factors The bio-psycho-social (BPS) model is an approach to understanding health that suggests that biological, psychological and social factors all have an important role to play in a person s overall health and must all be considered in the context of disease or illness. 5 The BPS approach can be used to effectively risk rate claims for appropriate intervention. In terms of claims management, the BPS approach can lead to better outcomes as it focuses on treating injured and disabled people holistically. Intervention can be targeted to ensure a person s physical, psychological, social, economic and environmental issues are addressed, so that recovery and return to work can be sustainable. Effective triaging and segmentation of claims based upon risk and complexity means that more difficult claims can be allocated to injury management and claims staff with the requisite set of skills and expertise. Claims rules engines can effectively be used to segment straightforward risks for streamlined assessment, whereas targeted intervention efforts can be implemented for claims with risk of prolonged recovery. For instance, 70 to 90 per cent of the total costs relating to back pain claims relate to only five to 10 per cent of the longer duration claims 6, so early identification and targeted intervention for this cohort would be called for. Such intervention could include telephone case management, utilising the services of a rehabilitation provider and occupational specialist, as well as face-to-face case conferences involving the claimant, treating doctor and the employer, if appropriate, in order to minimise claim duration. Segmenting claims using a risk approach can be implemented by using one of several validated BPS assessment tools. This can identify psychosocial risk factors associated with prolonged disability and incapacity. Moreover, for those claims with additional risk factors, it is critical that the employer be engaged early. In such cases (and also in the case of high-risk self-employed insureds), it is also important to provide timely access to appropriate rehabilitation and vocational assistance. It must be highlighted, however, that such intervention is arguably a lot more difficult to implement than in, say, a workers compensation setting. Workers compensation schemes benefit from fast, direct access to employers as well as legislatively imposed return to work obligations. This can be regarded as the first line of defence in managing workers compensation claims. The second line is claim denial including work capacity assessments. In order to maximise return to work success, any intervention strategies would invariably need to include the insured s general practitioner (GP). There is solid evidence in the compensation and disability sectors that points to GPs being instrumental in facilitating earlier and better return to work outcomes. 7 As such, tripartite discussions involving the insurer representative, treating doctor and insured early in the life of a claim might assist in ascertaining risk factors and barriers to return to work, align expectations and aid in developing tailored interventions for improved health recovery. In a growing number of IP and TPD cases it may well be that psychological intervention would also be required to facilitate recovery. The growth of mental illness claims has been cited as a major contributor to deteriorating IP and TPD claims experience for life insurers, so it is worth examining what makes these claims different and what might be done about managing this cohort. Mental illness and disability: what is different about managing these claims? Mental health claims are now one of the top three causes of disablement claims in the life industry, with group insurers reportedly paying out more than $160 million per annum for IP and TPD claims where the primary cause of claim is mental illness alone. 8 This is perhaps unsurprising as it mirrors national health statistics, which place mental health issues third after heart disease and cancers. Alarmingly, stress-related illnesses are predicted to be the leading cause of global disease by 2020. 9 The rise in psychological claims can be attributed to changing societal attitudes, with less stigma now attached to mental illness, as well as more liberal diagnostic practices. Recently, the publication of the latest edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM-5) has arguably led to the lowering of diagnostic thresholds so that a major depressive disorder can now be diagnosed even during the acute phase of normal grief or bereavement. On one view, 10 per cent of life policyholders who weren t previously eligible for claim are now eligible. 10 Pertinently for IP and TPD claims, studies have shown that psychological and cognitive barriers rank as the primary factors preventing return to work. 11 Australian workers compensation statistics also show that mental injury claims are costlier than physical injury claims and that the median mental stress claim results in 10 times longer off work than the median across all claims. 12
A significant amount of recent literature extols the virtues of the (mental) health benefits of work. One of the challenges for the insurance industry is to educate and influence stakeholders, including GPs, who may adopt a conservative and guarded view about working when diagnosed with a mental illness. 13 Another challenge for the insurance industry is that there is possibly a dearth of appropriately qualified and experienced personnel who possess a nuanced understanding of mental illness and are therefore able to appropriately manage such claims. Dealing with these often-complex claims requires more than a technical, administrative focus. In addition to assessing skills, claims staff who have superior soft skills communication, empathy, influencing and customer service will invariably produce better outcomes for the insured (and the insurer s bottom line). It is positive to note that in 2013, the Financial Services Council issued Standard 21, aimed at educating life insurance professionals (including claims staff) with respect to the causes, signs and symptoms of common mental health conditions, as well as developing communication skills for interacting with consumers who may have mental health concerns. This is commendable, particularly considering the claims process itself has been known to cause claimants stress, dissatisfaction and adverse health outcomes. 14 Managing psychological claims with sensitivity and empathy does not call for the abandonment of forensic skill, however. For example, recently the NSW Supreme Court relied upon the opinion of an independent expert psychologist who had administered various psychometric tests to diagnose malingering, in preference to the life insured s treating psychiatrist s diagnosis. In Zahr v TAL Life Limited, Pembroke J found for the insurer, stating that: [I]t is now widely recognised that, where a claimant seeks a financial reward on the basis of the diagnosis that his or her account is designed to elicit, the opinion formed by a medical practitioner, even by a highly trained psychiatrist, on the basis of the claimant s self-serving account given in a clinical interview, may be problematic. 15 This decision may encourage life insurers to test the veracity of some psychological claims by using independent psychometric testing results. Increased lawyer involvement Another challenge for the life industry has been the increased involvement of lawyers in the claims process. The problem is compounded by the fact there is insufficient data to properly guide decision making in this area. The general insurance industry, particularly in statutory compensation, has made efforts to capture granular data to better understand litigation drivers and plaintiff lawyer involvement. While it is certainly true that legal representation has increased in life claims, without better data, the nature and size of the issue and therefore possible solutions will be harder to determine. The life industry has observed that lawyers are involved at earlier stages of the claims process, and often at the notification stage. Moreover, the industry reports that it is not unusual for TPD claims to be notified by lawyers many years after the event. 16 In some instances, the legal firm may have already been instructed by the claimant in relation to another matter, such as a workers compensation claim. Furthermore, increased lawyer advertising and marketing campaigns, together with no-win/no-fee arrangements and no-obligation free initial assessments can make it appealing for a policyholder to seek out a purported champion for their cause. Lawyers are becoming increasingly proactive in assisting policyholders to understand their potential benefits. Ironically, legal fees are not ordinarily paid as entitlements under a policy, so costs can very easily erode benefits payable. Lawyers seek to overcome this hurdle by litigating early in the process (so as to potentially recover costs and interest), which can further add to claims cost and duration. From a claims management perspective, adopting a customer-centric approach might go some way towards stemming the litigious tide. Simplifying and de-mystifying the claims process by providing information in plain language, streamlining procedures and minimising duplication and unnecessary delay can reduce the levels of frustration felt by claimants. Timely and effective communication is also vital in keeping the insured properly informed about the progress of their claim. This is especially important as the person may be suffering from stress and financial hardship by virtue of being rendered incapacitated or disabled.
28 / CLAIMS MANAGEMENT... it would be naive to suggest that customer service strategies alone would ameliorate litigation trends, but combined with other initiatives, they could make some positive impact. The insurance industry generally has long endured a public relations challenge in Australia, characterised by a lack of trust and transparency. While there has been much focus in this area, clearly there remains some work to do to bolster public perception. Specifically in claims management, a more customer-centric focus across all industry sectors comprising more holistic customer engagement and support is important. Certainly, it would be naive to suggest that customer service strategies alone would ameliorate litigation trends, but combined with other initiatives, they could make some positive impact. Life claims managers would do well to implement appropriate strategies to manage claims involving lawyers by adopting a precedent management system approach that is, strategically managing legal information and knowledge. Insurers should analyse the tactics of particular firms, adopt robust dispute resolution strategies and have optimal in-house and external (panel) legal capabilities to match the increasingly sophisticated plaintiff lawyer market. Systems, data and information: the right measure An entire article could be dedicated to the topic of improving insurance systems and enhancing data capabilities. The life industry has generally acknowledged that data collection and analysis has been substandard and has failed to equip insurers in dealing with its recent challenges. 17 Certainly, several life insurers are replacing legacy systems with more modern claims IT platforms, incorporating claims workflow and reporting tools. It is vital the industry embarks upon routinely capturing additional and more granular data. As discussed in the preceding section, collecting data with respect to lawyer involvement would inform insurers as to the appropriate strategies to implement in dispute resolution, for example. Enhanced data and information management are key enablers to ensuring that proper resource allocation takes place and performance is monitored and measured. Over the years, the general insurance sector has moved towards holistically measuring claims performance by focusing on the effectiveness of claims outcomes in addition to monitoring the efficiency of the process. Initiatives such as performance benchmarking and programs seeking to address the root causes of claims leakage have been implemented by various companies seeking to gain a competitive advantage in claims. In light of recent adverse claims experience, life companies have embarked upon similar measures with a view to reversing the adverse trend and towards building resilient and sustainable claims operating models that deliver better outcomes for customers and insurers alike. To this end, the importance of data collection and effective performance measurement cannot be overstated. Using data to get to the root causes of the problem, the industry will need to implement changes by simultaneously addressing systems, processes and product design issues. To conclude: a holistic approach to claims management The key premise of this article is that there is no single panacea to address the issues being confronted by life companies in claims management. In order to truly maximise the chances of successful claims outcomes, the industry will need to take a multi faceted, data-driven approach by implementing practices that encourage early notification, instituting targeted rehabilitation intervention and adopting appropriate customer service and dispute resolution strategies. Notes 1 APRA, Insight, Issue 3, 2013, p.37. 2 APRA, op. cit., p.42. 3 Suncorp Insurance, C Johnson, ANZIIF Annual Group Life Seminar presentation, 26 June 2014, Sydney, reproduced with permission. 4 D Johnson & T Fry, Factors Affecting Return to Work after Injury: A study for the Victorian Workcover Authority, Melbourne Institute of Applied Economic and Social Research, 2002. 5 JW Santrock, A Topical Approach to Human Life-span Development, 3rd ed, St. Louis, MO: McGraw-Hill, 2007. 6 K Cohen, Transforming Underwriting and Claims Management Practices, FSC Deloitte Future Leaders Award, 2012. 7 D Mazza et al, FIT to Work: General Practitioners Facilitating Injured Workers Return to Work, Monash University Institute for Safety, Compensation and Recovery Research, 2013. 8 SuperFriend research cited in S Strickland, A critical equation: balancing Australian worker health and company wealth, AIA Australia, August 2013, p.7. 9 Cost of Workplace Stress Report, Medibank, 2008, cited in S Strickland, supra. 10 D Samuell, Medical Director, Corporate Health Services, in R Liew & L Yeow, Life insurers hit by mental health claims, Australian Financial Review, 29 June 2013. 11 M Aylward, Health and Work: the Moral Obligation, Centre of Psychological And Disability Practitioners, Cardiff University, 2012. 12 Safe Work Australia, The Incidence of Accepted Workers Compensation Claims for Mental Stress in Australia, 2013. 13 A McInerney & D Gregory, Stress and mental injuries how to compensate?, Actuaries Institute Injury Schemes Seminar, 2013. 14 The Royal Australasian College of Physicians, Compensable Injuries and Health Outcomes, Sydney, 2001. 15 Zahr v TAL Life Limited (2014) NSWSC 358. 16 See for example, R Whittle & C Machin, Top 3 Key Legal/Risk Management Trends Facing Underwriting and Claims Today and Tomorrow, presentation to Mini Aluca, 4 September 2013. 17 See APRA, Insight, Issue 3, 2013, highlighting issues in the quality and management of data. In order to truly maximise the chances of successful claims outcomes, the industry will need to take a multi faceted, data-driven approach...