Integrated group disability insurance programs work–but only if they include a traditional claim review process.
A rigorous claim review process can help hold down costs and make the product more attractive for insurers, employers and the insurance professionals who place the coverage.
Traditionally, insurers have sold group short-term disability and group long-term disability plans as two distinct products.
The contracts have had obvious differences in features, but they also have applied different eligibility criteria and experienced different rates of claims.
A typical STD policy, for example, provides benefits for non-occupational disabilities and has a claims frequency of 70 to 75 claims per year for every 1,000 employees covered. Short-term disability benefits pay up to 70% of the claimant's salary and can last up to six months.
A typical LTD policy covers both occupational and non-occupational-related disabilities, with three to five claims per year per 1,000 lives covered. These claims typically are covered to normal retirement age and pay up to two-thirds of an individual's income.
Most carriers have managed STD claims and LTD claims separately and have made only minimal efforts to package STD and LTD coverage together.
In the 1990s, group disability insurers tried to create greater value for group disability customers by selling new, integrated, "24-hour" disability insurance packages. The packages were supposed to deliver "seamless benefits" incorporating STD coverage, LTD coverage, workers' compensation insurance and, in some cases, medical insurance.
The integrated group disability product attracted more buyers to the market and helped to bridge the gap between the various disability products.
However, unintended consequences resulted from discounts on the integrated product, the lack of a benefit payment gap between the day STD coverage ended and the day LTD coverage began, and the blurred review lines between parties responsible for different types of claims management.
In essence, the transition from STD coverage to LTD coverage became so seamless that it created an artificial fast track for LTD claims approval. Claims managers had fewer opportunities to assess each claimant's situation and benefit eligibility.
