One of the most frequent questions I hear from disability insurance clients is “Why are they doing this to me?” Why are they denying my claim? Why are they asking for the same item even though I’ve sent it 20 times? Why do they keep insisting that they have not received the information my doctor assures me she sent? Why don’t accept the information and opinion provided by my treating physicians?
There are reasons for the insurance company’s actions. They’re not good reasons, but they are explainable.
It’s a Contract
Your insurance benefits are a contract. If you get them through work, it’s a contract that the insurer has with your employer. If you obtained the policy directly, it’s a contract with you. Insureds view their insurance policy as a way to make sure that they’ll have what they need if a disaster strikes. Few people ever read their disability insurance policy before needing it.
If your insurance is through a group policy, it was negotiated by your employer or group. The more coverage it includes, the more the premiums cost. Insurance is also a product, and includes a sales process. The insurance sales people are incentivized to make the sale, and so are happy to offer lower-priced products because the employer wants to save money. One of the easiest ways for the employer to save money is to agree to exclusions and limitations in the coverage. Where most of their employees never use their disability insurance, it is an easy place for an employer to skimp, as opposed to something like health insurance, where exclusions and limitations are more thoroughly reviewed by employees.
The language in a group policy is negotiated between the group representative, and the salesperson. Smaller employers will have little say in the specifics of the language, while very large employers may be able to have significant ability to make custom changes. But it’s not the salesperson who then administers the agreed-upon language, it’s claims handlers who know nothing about the discussions that went into the negotiations. They also do not care what the employer was trying to provide, they only care about interpreting the language as narrowly as possible to benefit the insurer.
An insured views the insurance company as being there to help them. The insurer views the insured as someone for whom they are contractually obligated to provide specific discrete services, if and only if the insured can demonstrate the obligation under the contract. This is the first major disconnect between the insurer and the insured – they have very different understandings of their relationship.
Insurance Is a Business
Insurance is a business. Insurers usually answer to shareholders, who simply want to see increasing profits. There are three ways for insurers to provide increasing profits: 1) increase revenues, 2) decrease amounts paid in claims, and 3) cut internal costs.
Let’s look briefly at the net profit numbers of some of the larger disability insurance companies, using the website www.macrotrends.net for the information to ensure each company is compared based on the same data.
The majority of the listed companies at least doubled their net profit in the last 8 years. How did they do that?
- Increase Revenues
They increased their revenues. Some of that may be through mergers and acquisitions of other insurance company books of business, as Lincoln purchased Liberty Life’s disability business in 2018. Some of it was through aggressive marketing of group policies – and that marketing included offering numerous ways to reduce premium cost for interested employers.
- Decrease Claim Payments
They decreased how much they paid in claims. Insurance companies track a “loss ratio” – this is the amount they bring in through premiums, compared to how much they pay out in claims. If they spend every dollar they bring in on claims, the ratio is 1. If they spend $8 on claims and bring in $10 in premiums, the loss ratio is 80%. The lower the percentage, the less the insurer pays out in claims. Using Principal Insurance as an example, their 2022 loss ratio was 60%. In 2014, they estimated their loss ratio to be 70%. So they have found ways to cut claim payments by about 10% in the past 8 years.Insurers have several ways to do this. The most obvious, of course, is to simply deny more claims over time, regardless of their validity. But there are other, less overt ways for them to lower their payments to insureds. Over the past decade, disability insurance companies have embraced new exclusions and limitations in the policies they sell. It has been the norm for over a decade to place a two-year limitation on “mental illness” claims. In the past, insurers would argue that this limitation extended to chronic fatigue, headaches, fibromyalgia, and autoimmune diseases that could not be quickly diagnosed with a clear test or x-ray.As science has confirmed that these are physical illnesses and not “mental” illness, and therefore the “mental illness” limitation does not apply to them, insurers have found other ways to avoid paying. More and more policies include some version of a “self-reported symptom” limitation in their language. This is similar to the mental health limitation, except it applies to any claim where the symptoms are based on the insured’s subjective reporting and cannot be easily viewed in medical testing. “Self-reported” symptoms typically include pain of any sort, and/or fatigue – which of course are the two bases of any disability. Courts are suspicious of this limitation and tend to decline to apply it when there is a documented physical basis for, or evidence of, the pain or fatigue. A good attorney will be able to work with an insured to identify tests that do provide such documentation.According to the Social Security Administration, chronic idiopathic pain disorders, or musculoskeletal pain claims that appear disproportionate to the medical condition, account for 25-35% of disability claims nationally. Low back pain is the most common, but this category includes fibromyalgia, complex regional pain syndrome, carpal tunnel syndrome, and temporomandibular joint disorder. (See Psychological Testing in the Service of Disability Determination, Committee on Psychological Testing, Including Validity Testing, for Social Security Administration Disability Determinations; Board on the Health of Select Populations; Institute of Medicine, Washington (DC): National Academies Press (US); 2015 Jun 29, Chpt. 4, https://www.ncbi.nlm.nih.gov/books/NBK305237/.) By trying to limit such claims to two years, insurers can hugely reduce their claim payments.Insurers also focus on mental health issues that people with physical disabilities may have, and use concurrent mental health treatment as an inappropriate basis to deny or terminate benefits. According to the CDC, 64.1% of adults with disabilities report adverse mental health symptoms or substance abuse. https://www.cdc.gov/mmwr/volumes/70/wr/mm7034a3.htm Yet the language used by many insurance policies- limiting benefits to two years for any disability “due to or contributed to by” mental illness. While courts have confirmed that the mental health limitation should only be considered when the physical disability is not alone sufficient for a finding of disability, all too often disability claims adjusters ignore that fact.Some insurance policies require “objective evidence” of disability in order to find an insured disabled. This effectively excludes all disabilities that cannot be documented by a test. While courts disapprove of such language, it remains in many policies, and even when it is not in the policy, disability claims adjusters often are still instructed to deny claims that lack what the insurer decides is sufficiently “objective” evidence.These limitations enable insurance companies to avoid paying a large amount of the valid claims they receive. Insurers also pay outside doctors to review the treating physician’s opinion, and those outside doctors usually dispute the opinion, with very little basis. While the outside physician is supposed to be a neutral third party, their opinions are obtained through third party companies that solely find doctors to opine for insurance companies. Those third party companies are not used again when too many of their selected doctors approve claims. Moreover, most doctors who participate in such reviews tend to have time to do so because they do not have a full medical practice – often because they have retired, or have experienced too many malpractice claims to afford to continue their practice. Many are licensed in numerous states because the bulk of their income is from insurance file reviews and they want to expand their reach for insurers as much as possible.
When you make a claim for disability and feel as though the insurance company is not helping and may actually be hindering your claim – you are not wrong. The insurer is well aware that insureds, sick and in pain, are less likely to pursue a claim in the face of obstacles. This is why those obstacles exist. (A similar issue is seen in Social Security cases, where 65% of claims are initially denied, but of those denials that are appealed, 53% are eventually approved.) Insurers expect that claimants will give up, it is part of their business model.
- Cut Internal Costs
In addition to avoiding or limiting claims payments, insurance companies meet shareholder expectations by severely cutting back on operating expenses – namely, staff. Claims centers are located in some of the least expensive parts of the country, lowering the wages that need to be paid. Most claims adjusters have only a high school diploma. They are given 100-200 claim files to manage at once. They do not have medical training and often their claims handling training is “on the job.” The claims they manage are often nationwide- your claims adjuster may not know the laws specific to your state that govern your claim. Despite all of this, the claims handler makes the ultimate decision on whether to approve or deny disability insurance claims.Let’s look at Principal Insurance again. According to their financials, from 2014 to 2022 they increased their premium revenue from $10 billion in 2014 to $17 billion in 2022. But in the same time period, their staffing only increased from 14,873 to 19,300. Their revenue from premiums increased 70%, but they only increased the staffing to manage the related work by 30%.This is part of the problem insureds face when trying to make an insurance claim. Their claims handlers are overworked and undertrained, and are being asked to manage consistently increasing levels of work.Insurers also compensate their claims handlers based on the handler’s own metrics and contributions to the insurance company. The primary metric reviewed is the loss ratio -sometimes for the company as a whole, and sometimes for the individual claims handler. Where the loss ratio is literally the amount of premium brought in compared to claims payments made, claims handlers are very overtly incentivized to deny claims.
Conclusion: It’s Not You, It’s Them
If you are an insured making a disability claim, and you feel like the insurance company is against you, there is a reason for that. The entire basis of the insurer/insured relationship is viewed differently by each of you. Your insurance company seeks to do the least possible for you that it can legally do under the contract. At every level in the insurance company, employees are pressured to reduce costs, especially claims payments. They seek to find any “reasonable” basis to deny your claim. If you obtain your insurance through a group policy, the disconnect is even worse – your personal dissatisfaction with their service is unlikely to cost the insurer a customer – the group is the customer, not individually. Your insurance company views you as an adversary. Once insureds understand this, the need to have an attorney on the insured’s side becomes much easier to appreciate.