Tag Archives: long-term disability

Long-Term Disability in the Time of COVID-19

Through creative destruction, weak businesses shrink and stronger ones expand. The ripple effect of all that disruption often washes ashore at group long-term disability (LTD) insurers, where disability claim costs tend to increase during recessions — new claim submissions rise while claim recoveries fall.

Sadly, studying the effect of past downturns on group LTD isn’t entirely straightforward. Every economic decline comes with a unique context — a tangle of related causes and effects, all of which can affect LTD claims in different ways. And because the economic shock of 2020 was created by a global pandemic and not a financial crash or inflation scare, COVID-19’s implications are especially difficult to unwind.

Disability carriers still need to try.

Understanding the Three R’s…

The three R’s are a good place to start. I’m not referring to reading, writing and ‘rithmetic but to the three rates that drive LTD experience: incidence rates (new claims), termination rates (closed claims) and interest rates. When it comes to these R’s, carriers should avoid the temptation to look too intently at the past for clues to the future.

To understand why, consider the lessons of the Great Recession of 2008. This decline was caused by a financial contagion — a liquidity crisis brought on by subprime lending. This led to a contraction in most sectors while the typically recession-resistant “HUGE” sectors (healthcare, utilities, government and education), in fact, grew. New claim submissions initially dipped as employees deferred claims in a bid to cling to employment or lost jobs too abruptly to file claims.

Eventually, however, new LTD claims rose and remained elevated for years before returning to pre-recession levels. Claim termination rates, too, deteriorated during the recession but rebounded quickly during the recovery. Lastly, an increase in asset defaults and lower portfolio yields strained the income statement of LTD insurers.

… and a K

But this is not 2008. Fast forward to today, and it’s clear that, as former U.S. Federal Reserve Governor Kevin Warsh put it, “If you’ve seen one financial crisis, you’ve seen one financial crisis.” Every recession is unique, and the pandemic-driven decline is particularly unprecedented. In fact, the form this recession may be taking has joined a growing alphabet soup of economic terms. Readers may be familiar with the optimistic V-shaped recovery pattern as well as the pessimistic L-shaped, with U- , W- , and Z-shapes falling somewhere in between. Economists are now introducing the notion that the post-pandemic recovery could look more K-shaped. Think of the vertical line of the K as the starting point from which different parts of the economy diverge: Some sectors grow while others decline. The market has been bullish on companies that support the “quarantine lifestyle” but was less kind to smaller companies as well as those situated in the travel and hospitality industries.

Given a K-shaped recovery scenario, group LTD carriers may ask themselves how much of the business mix is in the upper versus the lower arm of the K. If most of a block is focused on high technology and well-capitalized firms, it makes little sense to adopt overly conservative underwriting or pricing adjustments. But it may be prudent to keep a more watchful eye on business blocks with significant exposure to “lower arm” economic sectors.

See also: 9 Months on: COVID and Workers’ Comp

Recession-resistant sectors are not necessarily pandemic-resistant.

This new K shape is already challenging long-held expectations about which industries represent good disability risks. The previous notion that certain industries are resilient in recessions is now being turned on its head. That’s because recession-resistant sectors are not necessarily pandemic-resistant. For example, unemployment rates during the 2020 COVID-19 pandemic followed a pattern never seen before, sharply spiking during spring lockdowns — and causing job losses in every single sector of the economy.

Morbidity Bersus Mortality

It is easy to see the effects of this pandemic on group life insurance: COVID-19 has a direct and immediate impact on mortality rates. However, the effects on group LTD are much more opaque, as the morbidity impact is largely indirect and delayed. Mortality risk and morbidity risk may have polar-opposite reactions to COVID-19, both in terms of timing and direct linkage, but that is not to say that the financial impact will be wildly different. There are many “pandemic headwinds” facing group LTD carriers, and it’s just a matter of time before these trends crystallize.

For example, the pandemic has strained hospital systems worldwide, leading to deferred preventative care and interrupted treatments that could result not only in a wave of deferred claims, but also sicker insured individuals. Prolonged lockdowns, reports of rising burnout levels among essential workers, particularly in healthcare, and the long-term loss of employment will likely contribute to additional mental and nervous claims. In addition, some survivors of COVID-19 — even those who had mild versions of the disease — continue to report a debilitating constellation of symptoms long after their initial recovery. Called post-COVID-19 syndrome or “long COVID-19,” this condition has generated growing concern among public health providers and disability insurers and is being researched. In RGA-led industry surveys, many disability carrier participants report significant concern over the pandemic’s potential to reduce recovery and return-to-work rates among the long-term disabled.

And while much about the first pandemic recession is new, one fact remains the same in every downturn: The longer economic problems persist, the greater the risk that long-term disability claims experience will worsen.

Keeping Perspective

While these headwinds are troubling, it is important to keep risks in perspective. For example, not all deferred healthcare signals an increased risk of short- or long-term disability claims. Also, mental health is fluid, and sources such as the mental health index Total Brain show that if the conditions contributing to symptoms of depression and anxiety are relieved — such as through the end of a pandemic or recession — the additional likelihood of psychiatric disability claims is mitigated. This is good news in light of the current thinking from economists that the recession may technically already be over and the recovery begun. If so, the recession would be the shortest in U.S. history.

Similarly, elimination periods (EP) should mitigate much of the direct effect of the pandemic on disability claims as a 90-180 EP usually lasts longer than a coronavirus case. Even a diagnosis of long-COVID-19 may not necessarily result in long-term disability. The “long” in long-COVID-19 is in comparison with a typical flu duration of three to four weeks, not the “long” that we infer with long-term disability claims. While most long-COVID-19 cases at present have durations measured in months, it is also too early to truly understand the long-term health consequences of this disease. Said differently, a tidal wave of COVID-19 LTD claims does not appear to be on the horizon, but continuing research points to a few ripples headed our way.

Pressures brought by the pandemic also have led to some unexpected positive developments. Recovery from some disabilities may be made easier by work-from-home measures, just as lockdowns led to faster consumer acceptance of wellness and digital health technologies. Telehealth, for example, has proven to be a very viable and cost-effective alternative to in-person doctor visits. Public health mandates like social distancing and mask-wearing also appear to be suppressing the spread of other infectious diseases such as the seasonal flu. The blisteringly fast pace of COVID-19 vaccine development has opened our eyes to what is possible in virology and paved the way for faster advances in vaccine science.

See also: What Digital Can Do for Disability Claims

The discovery and rollout of vaccines offer hope that an end to the pandemic portion of the crisis is near, but the effects of this recession on disability claims may linger.

COVID-19 May Mean Big Changes for LTD

Twenty-six million Americans are out of work, among them a large share of people who can no longer afford to put off applying for disability insurance. Where previously they may have been able to continue working for an accommodating employer or solely rely on their spouse’s income, today, there’s a good chance that’s not so. 

We have seen this happen with disability insurance in just about every recession in our nation’s history, so this shouldn’t come as a complete surprise. However, this downturn isn’t like most. Caused by a global health crisis, the current decline may bring additional changes to the long-term disability (LTD) industry that require strategic alternatives during an evolving economic environment. 

Consider all the cancer screenings that are on hold for two to three months or more. With progressive diseases or conditions like cancer, early detection is key. So, with these nonessential but still incredibly important appointments getting delayed, this means that, when forms of cancer are eventually detected, many could be in advanced stages with limited treatment options. 

This pandemic might also influence people’s thinking about both short-term and long-term disability insurance, including the possibility of more unexpected diseases like COVID-19. Reporting about the current pandemic already refer to prior outbreaks, such as SARS, MERS and the swine flu. These illnesses have been flagged by some researchers as more likely over the coming decades due to climate and environmental changes. As a result, employers and their employees might see even more value in disability protection.

See also: The Messaging Battle on COVID-19: Are Insurers Losing?  

Not only are LTD carriers in a position to see claims rise, they’re also in a position to see an uptick in business inquiries. This can be a positive, but things could quickly get out of control without the right insights and support. According to recent analysis by the Integrated Benefits Institute, costs for sick leave related to COVID-19 may be in the range of $6.1 billion to $23 billion in 2020, and short-term disability claims could go into the millions of workers affected.

To ensure success, LTD carriers are going to have to pay close attention to how much money is being paid in disability claims versus the rate of purchase by employers and their workers; the latter ideally outweighing the former. Third-party service providers may be able to help identify new developments. It can be hard to see emerging trends when you’re in the middle of them. Independent resources may have access and information to spot potentially significant marketplace trends— like COVID-19 survivors reporting long-term health issues—in their early days. 

Early analysis by medical professionals is finding multiple potential long-term health effects from the coronavirus, including conditions that fall under categories of long-term disability such as stroke among individuals under 50, long-lasting lung damage and damage to the heart, kidneys and brain. Research and medical studies are continuously advancing as the virus spreads. 

These developments signal the value and importance of accessing existing benefits such as Social Security Disability Insurance (SSDI), which covers more than 156 million U.S. workers. As more people experience COVID-19, LTD carriers can benefit by partnering with third-party providers capable of monitoring and assessing emerging health impacts. An added benefit is that these providers can help LTD carriers reduce spending by coordinating and assisting former workers to access the SSDI benefits they earned while working.

The LTD industry has long looked to third-party organizations to help them determine if a beneficiary is eligible for SSDI benefits. Steps include walking individuals through the application process and doing everything possible to make sure that person is approved for disability benefits as soon as possible. 

See also: 3 Tips for Improving Customer Loyalty  

This is important because almost two-thirds of SSDI applicants are initially denied during the application process, which lasts three to five months. If a claimant files an appeal, the reconsideration level of review by the Social Security Administration requires an additional four to six months, and only one in 10 claimants will be approved. With a second denial, claimants must file another appeal to the hearing level. This appeal may require another 12 to 24 months—up to two whole years—before an applicant receives a hearing with an administrative law judge, and less than half of these individuals are approved nationwide. 

During this time, LTD carriers can be paying the individual’s disability benefits and providing an important financial backstop for American workers. That reality is significant when coupled with the current environment as the LTD industry enters unprecedented times, and raises the opportunity for LTD carriers to explore and expand their alternatives with third-party service providers. If we’ve learned anything from this crisis, it’s that we’re stronger when we work together.

Group Insurance: On the Path to Maturity

The group insurance market shows real promise, but most carriers are still trying to determine the best path forward. Moving from being in a quiet sector to the front lines of new ways of doing business has shaken the industry and confronted it with challenges – and opportunities – that many could not have foreseen even a decade ago.

For starters, let’s take a look at where the market is right now. Three recent trends, in particular, are having a profound impact:

  • The Affordable Care Act, which has led health carriers to increase their focus on non-major medical aspects of the parts of their business that the legislation has not affected. In turn, this has led to intensifying competition.
  • Consumerism, which has resulted largely from workers’ increasing responsibility for choosing their own benefits. This has created disruption as employees/consumers have become increasingly dissatisfied with the gap between group insurance service, information and advice and what they have come to expect from other industries.
  • The aging distribution force, which means that experienced brokers/agents are leaving the work force and are being replaced by inexperienced producers at decreasing rates or are not being replaced at all.

Group players – which historically have been conservative in their market strategies – focus on aggressively driving profitable growth. To do this, they are concentrating on four key areas: 1) growing their voluntary business, 2) streamlining their operating models, 3) re-shaping their distribution strategies and 4) making significant investments in technology.

See Also: Long-Term Care Insurance: Group Plans vs. Individual

Group insurance is no longer a quiet sector of the industry but instead is in the front lines of developments in customer-centricity and technological innovation.

Growing the voluntary business – The voluntary market has been of interest to traditional group insurance carriers for more than two decades, but the success of the core employer paid group insurance business has resulted in a lack of robust voluntary capabilities. However, with employers shifting more costs to employees, voluntary products have become a key way to manage group benefit costs while expanding the portfolio of employee products.

Some carriers are expanding their voluntary businesses by offering a modified employer paid group product in which the employee “checks the box” to pay an incremental premium and receive additional group coverage (e.g., long term disability (LTD), life and dental). Other carriers are exploring models where employees can sign up for an individual policy at a special premium rate. The former example is a traditional voluntary product, while the latter example is a traditional worksite product. For most carriers, adding the traditional voluntary product is fairly straightforward because it is still a product that the group underwrites. However, more carriers are looking into the worksite product (which AFLAC and Colonial Life & Accident have executed particularly well) because, with the passage of the Affordable Care Act, some see a potential opportunity to reach small businesses that previously may not have been interested in group benefits.

Streamlining operating models – Group carriers also are trying to develop streamlined, cost-effective, customer-centric operating models. The traditional group insurance operating model has been built around product groups such as group LTD, short-term LTD, dental, etc. However, the product-based model is inefficient because it increases service costs, slows speed to market and fails to support the holistic views of the customer that enables carriers to serve customers in the ways they prefer.

Group insurers are now investing both time and capital to understand how to remove inefficient product-focused layers of their operations and streamline their processes to profitably grow. Many have focused on enrollment, which cuts across products and is a frequent source of frustration for everyone. Carriers are frustrated because they can spend days and weeks trying to ensure that everyone is properly enrolled in the right plan. Moreover, what should be a fairly straightforward, automated process often can require considerable manual intervention to ensure that employees are properly enrolled. In the meantime, employees are frustrated with recurring requests for information and the slowness of the enrollment process. Employers are frustrated by the additional time and effort that they have to expend and the poor enrollee experience. Producers become frustrated because the employer often holds them accountable for the recommended carriers’ performance.

Reshaping distribution strategies – In terms of distribution, private exchanges initially promised to connect group carriers with the right customers using extremely efficient exchange platforms. As a result, many group carriers joined multiple exchanges expecting that this model would put them on the cusp of the next wave of growth. However, success has proven more elusive than they expected, largely because they’ve spread themselves too thin across too many, often unproven exchanges. And, while private exchanges still offer great potential, many carriers have now begun to rethink their private exchange strategies with the realization that the channel is not yet a fully mature group insurance platform.

Investing in technology – Whether group carriers are focusing most on entering the voluntary market, streamlining operations or refining their private exchange strategies, successful in all these areas depends on technology. Group technology investments have lagged behind the rest of the industry. The reasons for this range from a lack of proven technology solutions that truly focus on the group market to downright stinginess and the resulting reliance on “heroic acts” and dedication of committed employees to drive growth, profits and customer satisfaction. However, viable technological solutions now exist – and they are probably the most critical element in the march toward effective data integration, efficient customer service and ultimately profitable growth. Every facet of the business –underwriting, marketing, claims, billing, policy administration, enrollment, renewal and more – is critically dependent upon technological solutions that have been designed to meet the unique needs of the group business and its customers. Prescient group carriers understand this and have been investing in developing their own solutions and partnering with on-shore and offshore solutions providers to fill gaps in non-core areas.

Whatever their primary focus – growth, operations or distribution – a necessary element for success is up-to-date and effective technology.

A market in flux

In conclusion, group insurance is in a time of transition. Major mergers and acquisitions have already started to reshape the market landscape, and existing players are likely to use acquisitions and divestitures as a way to refine their market focus. Moreover, new entrants are looking to exploit openings in the group space by providing the kind of focus, cutting-edge product offerings and service capabilities that many incumbents have not. These developments show group’s promise. The winners will be the companies that wisely refine their business models and effectively employ technology to meet the unique needs of new, consumer-driven markets.


  • We will continue to see group carriers focus on the voluntary market, especially traditional group-underwritten products. They will look to not only round out their product bundle by providing solutions that meet consumer needs, but also integrate their offerings with other employee solutions like wealth and retirement products.
  • Group insurers will continue to aggressively streamline processes to promote productive and profitable customer interactions.
  • Private exchange participation strategy needs to align with target markets goals, including matching products with appropriate exchanges. Focusing on participation means that group carriers avoid spreading themselves too thin trying to support the various exchanges (often with manual back-end processes).
  • Group carriers can no longer compete with antiquated and inadequate technology. Fortunately, there are now group-specific solutions that can make modernization a reality, not just an aspiration.

Responding to Needs of the Aging Workforce

Understanding the Issue

According to the U.S. Department of Labor, over the past decade, workers in the 45 year-old and over category have increased 49% and now make up 44% of the workforce. The age group over 55 has grown to 21% of the workforce. As a glimpse into the future, a 2013 Gallup poll revealed that 37% of working age respondents indicated they expect to work beyond age 65. Gallup reported that only 22% responded the same way in 2003 and only 16% in 1995. Given this projected “aging” of America’s workforce, are America’s employers prepared to effectively address the associated increase workers compensation claims?

As the population pyramids below illustrate, the aging of America is not a short-term issue. Note the diminishing dependency ratio of young to old, from 1980 to 2030 as shown in Figure 1.

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The Future is Now

The time to discuss these trends as a “having potential impact in the future” has actually passed. We need to re-orient our thinking of the aging workforce as a new constant and as “today’s reality”. The medium age of some industries is as high as 55 (agriculture) indicating a need to act.

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Table 1: Percent of workforce over 45 years of age, by industry.

At Aon, we have been studying and quantifying the impact of the aging of America on our clients. Based on our market insight, we have developed prescriptive solutions to support our clients’ needs. As you can see from the table below, the age of the workforce and population within each age band varies significantly and is in part why all employers may not experience a direct impact of this issue. Based on our client research, we believe it is imperative to quantify the impact of this issue, which in turn provides key input and metrics for helping mitigate the problem. As one client put it when shown the injury trend related to an age band of workers and type of injury driving a considerable portion of their loss time injuries, “Are you saying that by prioritizing the identification and potential for shoulder injuries I could get more return on investment from my ergonomics efforts?” The response was a simple but definitive, “yes”.

The Impact on Work-Related Injuries

Over the past three years, Aon casualty specialists have been monitoring the impact of work-related injuries to aging workers by examining workers compensation claim costs of our clients. From this research, we have identified some rather compelling trends.

One of the most concerning trends is the “current” impact on the cost of workers’ compensation. We studied $2.5 billion in workers’ compensation claims from 2007 through 2012 and found a consistently higher average cost for workers’ compensation claims for older claimants across all industry groups. For example, the 45- to 55-year-old claimants in the manufacturing industry group’s average claim cost was 52% higher than 25- to 35-year-old claimants. This trend varied in degree by industry, but only by the pitch of the slope, leaving us to look deeper into the issue and attempt to identify what was driving this cost. This issue has been under study for quite some time.

Heather Grob, Ph.D. and senior economist with Washington State Department of Labor and Industries, published materials on the concern in 2005, stating “that a random sample of Washington workers’ compensation claims from 1987-89 found that workers over age 45 were at risk of longer term disability” (Cheadle et al 1994). The study concluded that older age is the most important and consistent influence on duration of disability. While we are not breaking new ground on identifying the issue, what seems to be missing is the socialization and acceptance of the impact as well as an understanding of what we should be doing about it.

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The Birth of Ageonomics in Workers’ Compensation

In 2011, we at Aon coined the term Ageonomics to address the phenomenon of the aging workforce and the strategies that can help address increased costs and worker safety. Vicki Missar, Aon board-certified ergonomist, defines Ageonomics as the scientific discipline concerned with the interaction among aging humans and other elements of the system within which they work.

Ultimately, Ageonomics is Aon’s professional service that applies theoretical principles to designing age-specific systems to optimize the wellbeing of the aging worker while improving overall system performance. Aon’s Ageonomics practice leverages the differentiated expertise of professionals spanning such disciplines as ergonomics, wellness, benefits and safety to deliver comprehensive and very powerful solutions to the aging workforce challenges most employers are facing.

Ageonomics calibrates the absenteeism trends for the aging workforce, regardless of the bucket within which they fall. Aon analyzes the trends, from short-term disability (STD), long-term disability (LTD), workers’ compensation (WC), casual absences (CA) and Family Medical Leave Act (FMLA) absences to understand claim volume, average claim duration, average cost per lost day, average cost per claim, total costs and the ultimate cost projections. In addition to the financial output, Aon calibrates the leading absence causes by program type to understand what is driving the aging employee absenteeism. This insight provides clearer diagnosis on which programs are affecting the organization the greatest and which absenteeism causes are being reported with the most frequency. Aon also reviews the internal programs to understand how the framework is aligned with the organization’s aging worker initiatives. Organizations can then develop a targeted, age-specific strategy to help not only prevent or reduce the duration associated with the respective absences, but implement preemptive programs to help keep aging workers healthy and optimize their individual productivity.

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Changes Associated with Aging

The physiological changes associated with aging occur from the moment we are born. Fast forward to age 45 and older, and the body begins to change more significantly. Depending on primary factors such as health, fitness and genetics, all of us age differently. Researchers in Finland (Ilmarinen, et. al. 1997) found a decline in what they called “workability,” with 51 years of age being the most critical point at which workability started to decrease. In addition, researchers noted that workability was shown to have a high predictive value for work disability (e.g. lower workability equals higher disability days). This means that we must now focus on the individual to understand age-related risk factors, modifiable and non-modifiable, to really address the challenges facing the aging workforce.

Physiological Changes That Can Affect Work Performance

With age comes decreased muscle strength, lower dexterity, reduced fitness level and aerobic capacity, poorer visual and auditory acuity and slower cognitive speed and function, to name a few. All of these changes can have a dramatic impact on the aging worker. For example, aging is related to the loss of muscle mass beginning at the age of 50 but becomes more dramatic at the age of 60 (Deschenes 2004). In addition to physical changes, older workers are at increased risk of disease and other ailments. These include the increased risk of obesity associated with aging, diabetes, heart disease, cancer and reduced fitness level, among others. Thus, prevention initiatives are needed to support the aging worker so that an effective, comprehensive strategy is developed. For example, if we know that muscle strength declines with age, organizations need to consider implementing safety, ergonomics and wellness programs to help build individual strength while working to reduce manual lifting, which could potentially result in injury or absence.

In the course of Aon’s Ageonomics diagnostic research, the two leading loss causes of injuries to knees and shoulders stem from strain/sprains and slip/trip/falls that can directly be attributed to reduced mobility and reduced strength, both of which can be related to an older physiology. By understanding the physical changes of an aging human and linking these changes to loss-producing trends in the data, we can develop a thoughtful strategy for increasing workability and reducing age-specific exposures in the workplace.

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Rethinking the Work Environment

After some research and discussions with other benchmarking groups (NCCI and IBI), we can begin to make some educated assumptions surrounding drivers of these increased costs. What is of interest to Aon’s Ageonomics practice is how physical changes can influence solutions to reduce injury risk and prevent absenteeism. With onset of saropenia — loss of muscle mass — comes decreased strength. Many physically demanding jobs do not factor this into the equation when developing production standards or production demands for the workforce. By age-adjusting the demands by a specified factor, for example, we can not only reduce the risk of injury but improve the long-term workability and productivity of the workforce in general.

As part of Aon’s Ageonomics methodology, each safety, ergonomics, benefits, wellness, human-resource program aligns strategies and their resulting activities around the needs of the aging worker. The ultimate objective is to develop strategies geared toward optimizing the performance of the aging worker. This can only be done when each program is assessed and refined for the aging workforce (Table 2). For example, a recent study (Ruahala, et. al. 2007) found a linear trend between increasing workload and increasing sick time among nurses. First, we know that in health care and social assistance, musculoskeletal disorders (MSDs) make up 42% of cases and have a rate of 55 cases per 10,000 full-time workers. According to the Bureau of Labor Statistics, this rate was 56% higher than the rate for all private industries and second only to the transportation and warehousing industry. Second, given that 55% of the USA nursing workforce is age 50 or older (NCSBN &The Forum of State Nursing Workforce), conducting an Ageonomics assessment may be an important part of a strategic program to reduce sick leave, workers’ compensation injuries and overall absenteeism. Third, solutions cannot be one-dimensional, i.e., simply purchasing patient-handling equipment and hoping that will remedy the situation. Strategies must encompass the total health and wellbeing of the worker for optimal success, including a thorough review of the programs outlined in Table 2.

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Rethinking Wellness As the U.S. workplace continues to age, it is critical to rethink wellness programs. Berry et. al. (2010)5 state in the Harvard Business Review:

“Wellness programs have often been viewed as a nice extra, not a strategic imperative. Newer evidence tells a different story. With tax incentives and grants available under recent federal health care legislation, U.S. companies can use wellness programs to chip away at their enormous health care costs, which are only rising with an aging workforce.”

The article points out six pillars of an effective wellness program that can help significantly lower healthcare costs. As part of Aon’s Ageonomics practice, we analyze these pillars, including leadership, program quality, accessibility and communication of not only wellness but safety, ergonomics and other programs, to understand gaps for aging workers. By reviewing age-specific data and wellness program statistics, we can probe deeper and ultimately develop strategies to better align these programs for the aging worker. Researchers at Harvard found that participants in wellness programs are absent less often and perform better at work than their nonparticipant counterparts. Thus, structuring a wellness program around aging workers can become a way for organizations to not only retain aging workers but ensure their workability does not decline to levels that result in disabilities and workers’ compensation claims.


As with any workplace program, measuring success includes not only healthcare costs, but workers’ compensation costs, safety program incident rates, absenteeism and turnover rates, among other indicators. It becomes essential to align traditional silo programs and produce a synergistic, thoughtful approach to optimize any program touching an aging worker. For a copy of the full Aon white paper on which this article is based, click here.

Life Waiver of Premium Part 2: Optimizing Claim Management Operations

This is Part 2 of a two-part series on waiver of premium. Part 1 can be found here.

Recognizing the need to improve claim management processes in waiver of premium claims, life insurers are turning to technology to replace inefficient operations associated with manual claim processing.

“Insurers today have an opportunity to bring automation into the life waiver of premium adjudication process to improve existing business models,” says Eric Lester, vice president of administrative services at Legal & General America. “It’s about operational efficiency, providing a good consumer experience, and integrating forward-looking solutions that fit the profile [that] business models in the industry should emulate. This is why we’re thinking forward—strategizing as how to integrate these efficiencies into everyday processes.”

Insurers can streamline the claim adjudication process by standardizing procedures to substantially reduce manual claim handling and support lowered risk management outcomes.  This next level of technology not only yields greater improvements in life waiver claim management but also enables insurers to focus on the effectiveness of their claim decisions.

Scope of the Problem

For benefit specialists to effectively manage claims and provide highly personalized results requires access to relevant medical data from multiple sources.  Life waiver claim management requires collecting, collating, and communicating the claimant’s medical notes and pre-disability occupation data to evaluate their current capabilities, restrictions and limitations. The information derived during the initial assessment stage builds a critical foundation for ensuring consistency not only in the initial claim interpretation but in the recertification process, as well.

The handling of restrictions  and limitation (R&L) data, occupational identification information, and policy definitions  continue to follow more traditional manual processing procedures, resulting in claims frequently adjudicated without the required data, or against underwritten policy definitions. Here is what’s happening with manual processing:

manual processing

Insurers rely heavily on the Attending Physician Statement (APS) forms to collect medical status data. However, considering the high volume of claims per specialist and the time involved to manually process them, information contained in the APS isn’t always fully translated. Because of this, forms are often lacking the complete information required to fully understand the claim, based on a fair and accurate assessment of the claimant’s physical capabilities, restrictions and limitations. Moreover, this manual process makes it hard to ensure consistency throughout the duration of the claim.

For example, if the physician states that the claimant is unable to work and fails to provide a written medical basis in the APS forms regarding the decision, benefit specialists are unable to accurately assess and match the claim to the appropriate contractual definition of disability as defined in the claimant’s policy. This process makes it difficult to determine if the liability should be accepted or denied.

Managing the risk throughout the duration of the claim can influence claim outcomes by providing the opportunity for better claim management for both the insurer and the claimant.

The Long-Term Disability & Life Waiver Chokehold

It is not uncommon for consumers to have both their long-term disability (LTD) and life insurance with the same insurance carrier. So, when a person goes on disability, there are essentially two claims open and running simultaneously. The problem is the life waiver claims aren’t being treated as disability claims—which is, in reality, what they are.

What typically happens is the LTD claim becomes the driving force while the life waiver claim takes a backseat, often translating into processing delays. Even though these plans usually reflect two very distinct definitions (LTD claims begin as a two-year “own occupation” plan, while life waiver is usually “any occupation” provision from day one), the life waiver claim sits—waiting to see what the LTD claim is going to do first.  The life waiver claim essentially becomes more of a contractual definition of secondary importance, and consequently is managed as such.

Insurance carriers must be diligent in applying adjudication decisions consistent with what is underwritten in the life waiver provisions of an insured’s policy, and not based on what’s happening with the LTD claim. This has become increasingly problematic as caseloads continue to grow and life waiver claims follow the LTD claim by default, increasing the insurer’s reserve liabilities (i.e., disability life reserves, morality life reserves and premium reimbursement liabilities), and risk exposure.

Unfortunately, once a disability has been accepted on a life waiver claim, there tends to be minimal risk management. Improved risk management in life waiver claims should include best practices that focus on understanding the severity, restrictions and limitations of the claimant, then matching claimant capabilities to the occupational policy terms.

Better Claim Monitoring, Better Results

What’s missing within life waiver processes is the ability to manage the claim block holistically with information derived from all necessary sources, and integrating it into a unified data platform. By doing this, insurers can quickly identify claimants that have occupational opportunities based on their specific physical capabilities, restrictions and limitations, education, experience, and training. But it doesn’t stop there.

Once an occupational opportunity has been determined, insurers can compare these findings to occupations identified by the department of labor and match the capabilities of the claimant to a specific occupation. In addition, medical details surrounding the claim should be updated continually and combined with historical data, as physical capabilities can change over the duration of the claim. This type of automated vocational support allows adjusters to fully evaluate the claimant’s condition for available occupation opportunities.

Considering the thousands of claims that are processed manually by examiners, it can be difficult to ensure that new claims and the recertification of claims are being completed on time, consistently, and in line with risk management best practices. This becomes an almost unmanageable task for examiners as they struggle to maintain the continuity required to reopen, examine, and research individual claims from day one. It is a continual problem because a claim that is approved today may look completely different a year from now.

“With technology, there is a great opportunity for insurers to make operational changes that will systematically improve their current adjudication processes and minimize the insurer’s reserve liabilities,” explains Thomas Capato, CEO of FastTrack RTW Services & Solutions, whose Life Waiver Tool is the first commercially available technology to automate the waiver of premium process. “This next-generation best practice will not only help improve internal productivity for life insurers but allow waiver reserves to be managed properly and improve future actuarial assumptions.”

An automated claim process allows for continual claim management and tracking that’s set to the claimant’s policy terms, ensuring that all follow-ups are done in a timely and consistent manner — without the need for manual intervention.


Every claim has unique situations, and insurers need to apply the right risk management principles to that particular claim. This can mean the addition of a single automated application, or perhaps a combination of many, internalizing processes to determine the best solution for enhancing risk management outcomes.

“Technology enhances the ability to fully capture specific information surrounding the nature of a claimant’s disability for better risk management within the life waiver block, providing insurers with an accurate profile of the person, the job, and occupational capabilities,” says Lester, at Legal & General America.

It’s time for life waiver processes to utilize technology to manage claims in a more efficient, effective, and standardized manner. By replacing manual claim tasks with the rigor of automated monitoring, insurers have the opportunity to optimize existing processes and improve overall operational efficiencies within their life waiver claim block. Moreover, it is this technology that can make consistent, supportable and repeatable real-time decisions, bringing value to both the insurer and the claimant.