Current Concepts in Underwriting Disability

1
Current Concepts in Underwriting Disability
2
Attribution

• Material attributed to
• Brackenridge Medical Selection of Life Risks,
  5th Ed.
• is reproduced by permission of Palgrave
  macmillan.

3
Historical Background

• With us, the poor is divided into three sorts, so
  that some are poor by impotency, as the diseased
  person that is judged to be incurable the
  second are poor by casualty as the wounded
  soldier the third consisteth of the thriftless
  poor as the rioter that hath consumed all
• For the first two sorts, which are the poor
  indeed, there is order taken throughout every
  parish in the realm, that weekly collection shall
  be made for their help and sustentation
• William Harrison, Description of England, 1587

4

• 1600s first contract of life insurance,
  England
• 1830s legislation protects injured railroad
  workers and passengers, Germany
• 1860s first disability provision in a life
  insurance contract, United States
• 1880s compulsory Workingmens
  Compensation, England
• 1900 stand alone commercial disability
  contracts become common

5
Actuarial Risk Assessment

• Paradoxically, the same qualities that make
  mortality an unpredictable individual behavior
  also make it a highly predictable group behavior.
• from Medical Selection of Life Risks, 5th Ed.
  Chapter 9

6
Insurable Risk

• The population at risk must be large, the
  incidence low, the loss definite, and difficult
  to predict or control.
• Medical Selection of Life Risks, 5th Ed.,
  Chapter 9

7
From Income Continuance to Lifestyle
Continuance Weida, BJ The ABCs of Medically
Underwriting Individual Disability Income,
Journal of Insurance Medicine, 1988 20 30-34

• 1860s Low benefits, short benefit period,
  confined to accident, house confinement
  required
• 1960s 60 of own occupation income to age 65
  years

8
Concepts of Disability

• Impairment any loss of structure or function.
• Disability any restriction or lack (resulting
  from an impairment) of ability to perform an
  activity in the range considered normal for a
  human being.
• Handicap a disadvantageresulting from an
  impairment that limits or prevents fulfillment
  of a (societal) role
• WHO ICIDH, 1980

9
The Americans with Disabilities Act

• Disability
• A physical or mental impairment that
  substantially limits one or more of the major
  life activities, or has a record of such an
  impairment, or is regarded as having such an
  impairment, even when no impairment exists

10
Legal Environment

• Unilateral Contract
• When one party makes no express promise, the
  contract is called uni-lateral.
• adapted from Blacks Law Dictionary
• Ambiguity is usually construed against the
  issuer.

11
Treating Physician Rule (US Social Security
Disability)

• The treating source's opinion on the subject of
  medical disability is binding on the factfinder
  unless contradicted by substantial evidence.

12
Symptom-based Conditions

• Chronic Fatigue Syndrome
• New fatigue for 6 months causing a 50 decrease
  in activity
• Conditions that may produce fatigue clinically
  excluded
• Holmes GP, et al. CFS A Working
  Case Definition Ann Int Med 1988 108 387-389
• Fibromyalgia
• Widespread pain (axial upper/lower extremity
  right/left)
• Eleven or more of 18 specific tender sites
• Wolfe F, et al. Criteria for
  Fibromyalgia Arthritis and Rheum. 1990 32(2)
  160-172

13
Subjective Health Complaints

• This is not to imply that subjective health
  complaints are minor. They now seem to be
  causing as much or even more suffering and
  disability than organic medical conditions.
  (emphasis added)
• from Waddell G. Models of Disability Using Low
  Back Pain as an Example, The RSM Press, 2002
• also Waddell, Aylward, et al. Back Pain,
  Incapacity for Work and Social Security Benefits
  an international literature review and analysis,
  The RSM Press, 2002

14
The Disability Paradox

• 1970s people with severe impairments report
  their quality of life is better than those around
  them expect
• 1990s applicants increasingly report
  deterioration in quality of life due to symptoms
  with little or no impairment

15
Accelerating Absence US Soc. Security
Medical Selection of Life Risks, 5th Ed., Chapter
9
16
Absence v. Economy (temporal) US Commercial
Medical Selection of Life Risks, 5th Ed.,
Chapter 9
17
Absence v. Economy (geographic) UK IB
Medical Selection of Life Risks, 5th Ed.,
Chapter 9
18
Limitations of Activity by Age

• 65 In the United States 2005 (p 55)
• US Census Bureau, W. He, et al.
• accessed at www.census.gov/prod/2006pubs/p23-209
  .pdf

19
Reported Disability, 65 in the US

• 65 In the United States 2005 (p 62) US Census
  Bureau, W. He, et al.
• accessed at www.census.gov/prod/2006pubs/p23-209
  .pdf

20
65 in the US 2005

• Selected references
• Freedman VA, et al. Recent Trends In Disability
  and Functioning Among Older Adults in the United
  States A Systematic Review JAMA, 2002 288(24)
  3137 3146
• Several Measures of old age disability and
  limitations have shown improvements in the last
  decade. Research into the causes of these
  improvements is needed
• ? Partly due to varying criteria across
  studies
• ? Partly due to the difficulty in
  assessing educational and societal influences
  across sub-populations

21
65 in the US 2005

• Selected references
• Manton KG, et al. Active Life expectancy
  Estimates for the US Eldely Population a
  Multidimentional Continuous-Mixture Model of
  Functional Change Applied to Cohorts, 182 1996
  Demography 2000 37(3) 253 265
• the completed-cohort ALE estimates count the
  partial functional capacity of individuals at
  each age and allows for recovery from disabled to
  active states. These findings suggest that the
  overall population burden of chronic disability
  in the elderly U.S. populations may be smaller
  than previously estimated.
• ? From questionnaires of 65 sub-population
  (self-report)
• ? Active life expectancy (ALE) assess
  impairment of ADL and IADL

22
Compression of Morbidity

• Another possible external cause of for the rising
  health care costs is the aging of the populations
  of developed nations.
• (However) while life expectancy is increasing,
  the number of years of disability is lessening
• Bodenheimer T High and Rising Health Care Costs.
  Part 1, Seeking an Explanation. Annals of Int
  Med, 2005 142(10) 847-854

23
Delayed Recovery

• One hundred consecutive back pain claimants were
  identified from a single office of New Zealands
  sole accident compensation insurer The study
  end point was case closure in the subsequent 12
  months.
• The variable most strongly associated with
  case non-closure was whether the claimant was
  receiving earnings-related compensation
• McNaughton HK, Sims A, et al. Prognosis for
  People with Back Pain under a No Fault 24-Hour
  Compensation Scheme. Spine 25(10) 1254-1258
  (2000).

24
Absence v. Economy (geographic) UK IB
Medical Selection of Life Risks, 5th Ed.,
Chapter 9
25
Growth in Sickness Absence

• Population 1 prevalence stable or declining,
  objective impairment, medically predictable
  recovery
• Population 2 prevalence climbing with cyclical
  variance, subjective health complaints, delayed
  or non-recovery

26
Classical Disability Underwriting

• Underwriting tools, pricing and regulation are
  directed at classic, pathophysiologic (or
  objective) medical conditions.
• Controversial, subjective, or self-reported
  conditions are not addressed by this model.

27
Are there reliable predictors of
Controversial Conditions ?

• Hotopf M, et al. Brit Jour Psychiatry 1998 173
  268 74
• A psychiatric diagnosis increased symptom
  reporting
• McBeth J, et al. Arthritis and Rheumatism, 2001
  44(4) 940 946
• Somatization is a risk for future widespread
  pain
• Applegate KL, et al. Journal of Pain, 2005 6(2)
  92 97
• MMPI-2 testing showing somatoform
  tendencies may predict chronic pain
  conditions
• (30 year follow up of 2, 332 subjects)

28
The Floor and Ceiling of Claim Incidence

• Therefore, classic underwriting procedures can
  establish a medical floor under which
  disability claim incidence is unlikely to fall.
• However, the variable ceiling of claim
  incidence is the result of non-medical factors
  that are still poorly defined at underwriting
  and during the benefits risk management
  process.

29
Whats a poor Underwriter to do?

• Dont forget the basics!
• The core of risk management is still the
  traditional underwriting of classic medical and
  psychiatric conditions.

30
Be alert to undefined risk

• controversial, subjective, or self-reported
  conditions often cannot be underwritten because
  they will not manifest for many years.

31
Adapt old tools to new circumstances

• Apply underwriting tools that classically protect
  against undefined risk
• Decline
• Ratings
• Elimination periods
• Benefit periods
• (Consistent with your companys regulatory,
  marketing, sales, and underwriting framework.)

32
Address the Wider Context

• Work with your underwriting committee to
• Define a workable approach to undefined, excess
  risk
• Adjust pricing
• Refine policy language to reflect the regulatory
  and legal climate
• Recognize the limits of post-sales risk
  management
• Educate medical and lay Underwriters in
  somatoform presentations in the absence of a
  psychiatric diagnosis
• ? Educate the medical community, regulators
  and legislators about the practical effect
  of medicalizing non-medical conditions.