British Telecom have been spending serious cash hiring the likes of Bob Hoskins and more recently Hugh Laurie,to press home the point that it is `good to talk’. This could also be the motto of those involved in PHI claims management.
Virtually every product provider is now emphasising the point that communication between the claimant and the insurer should happen as soon as a possible claim is on the cards.
Providers are now seeing early information as something of a fact-find which helps to establish, at the earliest possible juncture, whether a claim is valid or not. The message is: `establish the situation now, not six months down the line’.
Claims management is an essential element of income protection particularly as it is probably the only way of keeping premiums down without resorting to measures such as imposing deferral periods.
As far as Peter Smith, technical and marketing director at Health Claims Bureau, is concerned, active claims management is crucial if insurers are looking to lower their costs. “Insurers need to put more money into the management of claims. You can see the returns in terms of savings but only if you pay out.”
The number of product providers using external health claim services has increased significantly over the last decade as has the number of third party administrators. Back in 1988 there were only a couple of companies offering this service but now there are five or six and also a number of training and rehabilitation specialists.
Active claims management
Smith explains just how they function: “We employ 19 inspectors who are usually ex-insurance men who know the industry inside out. We are more akin to loss adjustors than anything else. In terms of speeding up claims handling, we turn around claims in two weeks. We guarantee four weeks but we always seem to tidy things up within a fortnight.”
Smith’s point on the success of active management of claims appears to be borne out by the table opposite. It demonstrates that over a five-year period the percentage of claims still in force under active claims management is 40% compared to 60% for passive management.
For savings to the insurer, this is hugely significant in terms of capital costs as well as a reduction in claims revenue. If the rate of termination of claims can be gradually improved, then lower annuity values can be put on claims in payment in an actuarial valuation and substantial capital savings can be made. It is likely that the improvement in claims experience on new claims will be greater than on existing and longstanding claims. In the example above on actual claims results, the capital costs of a £1,000 a month claim can be lowered from £63,200 to £45,700, a saving of £17,500 or 27%. Yet the likely extra cost would be in the region of £1,600 per case. (Roughly 50% is assumed to be the insurer’s administration costs.)
Returning to the question of information not coming through from claimants, one of the most worrying aspects is that durations are going up because they are not being monitored. It is often a case of six months claims payout when it should really have been three months. As Smith says, it is not really the long-term claims that are the problem but these short-term claims. “When it comes to two years claiming you are almost always looking at a serious condition which will mean an indefinite payout until retirement.” So what can be done to ensure these shorter term claims do not run further than they should? “Claims managers must keep emphasising to companies and individuals the policy conditions. It is also worth visiting employers and explaining to them that early notification and continued contact is crucial. I would even go as far as to suggest a visit even before a claim has been made.”
Will Kentish, claims manager at Norwich Union Healthcare, agrees that monitoring needs to improve. “Claims have not been reviewed as much as they should have been. For instance, it should be automatic for the claims management team to call a claimant after a training course has finished. Establishing dialogue and getting to know your client is important.”
Colin Fitzgerald, UK broker sales manager at Generali, is another who sees enormous scope for improvements in claims management. “In many cases there is no talk between employee and employer at the start of the process. The extent of the illness is not being monitored so everyone is completely in the dark and no progress is made. If there is an absence of management controls, then you have major problems. All three sides must get involved at the one-month stage.”
One real-life case study that Generali has dealt with, shows just how important it is to communicate from the outset and plan accordingly. “A worker with a stress-related illness is costing £3,000 a month for rehabilitation treatment. But in the long run this is not expensive since at 42 years of age he is too young to be written off. If you consider the cost of paying out over 20 years then the payment for rehab is cost effective. We reckon that for every pound in rehab we save £7 in paid salary.”
On the question of retraining and rehabilitation Kentish has recent case studies to prove how effective they can prove if handled correctly.
“It is cheaper for training and rehabilitation than to pay out long-term PHI claims. Two long-term PHI claimants recently attended a three-week residential course. The course involved a mixture of physiotherapy with an element of retraining. One of the men was a taxi driver, the other was a plasterer and both suffered chronic back problems. The taxi driver is now back at work and the plasterer is being retrained as a tiler.”
As has often been mentioned in the past, it is not a case of two sides pulling opposite ways. On the most part both insurer and insured want to see a return to work even if that return be to a different profession. The problem of bogus claims is not, according to Kentish, as prevalent as it used to be. “Out and out fraudsters are becoming rare mainly because we are better at claims handling. Of those that are not valid claims I would not say they were restricted to any social class. Around 90% of our visits are to authenticate a claim. If the claim is authenticated, then we make sure the claimant is aware that we will be back to assess the situation further down the line.”
In recent years the number of claims has risen because more people are suffering from stress-related illness. Of course stress in itself is not an illness or disease, it is the affect it has on your mental state or in the case of cardio-vascular illness, on your physical state. Both stress and unemployment reached record heights in the 1980s and insurers found that they were paying out hefty claims. Some people became so stressed following ‘over-promotion’ that they were unfit to carry on. Other professions just had huge amounts of stress placed on them, almost continually, owing to continual change and upheaval. Teachers, doctors, miners and nurses are obvious examples. Another profession quite high on that particular statistics table is the IFA who has been put through various hoops following the impostion of new regulations and compliance procedures.
Stress-related Illness claims
Dealing with claims relating to stress-related illness can be quite tricky. Smith illustrates the point: “You should look to get details on psychiatric condition pretty early on. Is your GP doing anything? In addition to the involvement of the GP there should be expert psychiatric opinion on hand.”
When it comes to the visit to determine a claimant’s condition, the insurer will normally use the claimant’s own preferred consultant then bring in their own external consultant if necessary.
One company that has recently taken on an independent claims management service is OHRA who have struck up a deal with Medical Claims Handling. David Potter director of OHRA explains the reason behind the move: “One of the reasons for selecting Medical Claims Handling is that they are in a better position to negotiate cost reductions for the medical treatment our policyholders receive mainly because they provide similar work for other private medical insurers and also for health insurance trusts. The reductions they achieve will follow on what OHRA has already done by settling accounts with hospitals and consultants promptly – not by limiting hospital choice. This will remove any potential element of antipathy between the providers of medical services and our policyholders.” Potter adds: “Being able to contain expenditure enables us to ensure our premium rates remain at a very competitive level.”
Farming out claims management is not, however, on the agenda at Norwich Union. Kentish explains that Norwich Union Healthcare does not use an external service as such but instead uses its own in-house claims management team. “We are a lot more active in terms of claims management than we were. The team has been expanded and every visitor is trained in counselling as well as all the technical aspects of the PHI product that is providing the claimants cover.” One of the difficulties with claims is in dealing with some cases relating to `own occupation’ categories.
“There are problems in some own occupation cases, for example when a fighter pilot has a slight eye defect that quite clearly will not improve.”
One possible solution to these difficult claims could be UNUM’s recently launched Essential Ability Cover which hinges on set functional tests rather than on own or any occupation definitions.
Kentish is non-committal on the possible success of the UNUM product. “Our long term care product runs very much on the same lines in that the claimant must satisfy criteria laid down under `Activities of Daily Living’. How it works in the PHI market has yet to be seen. The jury is still out on this one.”
He adds “At the end of the day insurers have to be aware of what the Government will do and they have to make sure the product is affordable and as straightforward as possible. This may or may not be achieved by imposing limits on cover or basing claims on ADLs or something similar.”
Technology and the claims procedure
And finally, what of technology? Has technology speeded up the claims procedure?
“The Technology is there on our side, but the problems come alight when we are looking for GPs to use more advanced technology. The response from those out in the field is often poor,” says Kentish.
“There have been improvements. Computerisation means you can flag cases a lot easier. For instance you could say one day `we seem to be getting a lot of claims from Merthyr Tydfil’. What you find is that the warning signs are seen quicker.”