There are a number of reasons why group income protection providers may decline a claim. Sam Barrett looks at some of the most common ones and asks advisers and insurers how best to handle what can be an awkward situation
Declined claims are bad news for the protection industry. But while decline rates as high as 25% have rocked sales of critical illness, a very different picture is emerging in the group income protection (GIP) market.
“There’s been very little bad publicity about declined GIP claims, especially in recent years,” says Colin Micklewright, manager of income protection business development at Canada Life. “The industry has put a lot of resource into the claims process, which has helped to ensure it runs smoothly and made sure there’s little misunderstanding from employers and employees.”
The number of GIP claims that are declined is low but, as no official data is collected, it is hard to put a figure on the exact number. For example, while Legal & General estimates that less than 5% of the GIP claims it receives are declined, intermediaries put the industry-wide figure closer to 15%.
This variance is largely because there are no hard and fast rules about what constitutes a declined claim.
“Some claims clearly aren’t valid as there’s no supporting medical evidence and we will point these out to the employer so they don’t submit them as claims,” says Stuart Gray, managing director of Portus Consulting. “But other claims can be less clear. The employee isn’t fit to work but the medical evidence doesn’t support this. These can often be cleared up through the appeals process or by producing further medical evidence.”
He adds that of the 800 or so claims Portus Consulting handles each year, either new or under review, there are only one or two where he is unhappy with the outcome.
The closer relationships that both insurers and intermediaries have developed with employers have helped make the claims decision process fairer. “Our benefits managers meet with employers on a regular basis to discuss any potential claims as well as ongoing ones. This helps to identify claims that won’t meet the criteria for payment,” says Vanessa Sallows, benefits director at Legal & General.
A push on early notification has also helped to ensure that potential declines never actually make it into the claims process. To encourage employers to notify them as soon as possible of a potential claim, insurers now offer access to rehabilitation processes long before the end of the deferred period. “It’s really in the employer’s interest to notify as soon as possible as these services can reduce the length of the claim and help get the employee back to work,” says Dan Lamb, head of group risk at the Jelf Group.
Legal & General has taken this a step further, offering an early notification bonus to GIP clients with 500 or more employees. Providing they report at least 80% of absence that lasts for at least four weeks within six weeks of its start, they will receive a bonus of 5% of the premium.
“This has helped drive down the average length of time it takes for employers to notify us of absence,” says Sallows. “The average used to be 26 weeks but it’s fallen to 13 weeks with many reporting well within this period.”
Another factor that helps to keep the claims validation process clean is the nature of GIP policies. While non-disclosure is the main reason claims on individual policies are declined, this rarely comes into play for GIP. “Medical underwriting is usually only used on very small schemes or for a high earner,” explains Nick Homer, senior propositions development manager at Norwich Union Healthcare. “There are also no exclusions on GIP policies so there’s never any confusion over these claims.”
Additionally, most business is written on an own or suited occupation basis, which makes claims less contentious. “We do have some policies written on an activities of daily living basis but even with these it’s fairly clear when a claim is valid or not,” Homer adds.
Even where a claim is declined it can benefit the employer. “When a claim is assessed we bring into play a whole range of independent assessors that employers wouldn’t necessarily be able to access. This can help them determine how they deal with the employee,” says Steve Browning, product manager for group risk at Friends Provident.
Where it becomes apparent that the employee is able to work but absent for another reason this independent assessment can assist the employer to take further action, either providing the evidence to make changes in the workplace or, where necessary, pursue disciplinary action.
Data protection means that insurers can’t always share details with the employer. “We can give a flavour of what the problem is but, unless the employee has given their permission, we can’t give details of the medical condition,” says Andrew Marchant, claims management service manager at Canada Life.
Indeed this was the reason the last exclusion, HIV, was removed from policies. “Once this was the only exclusion, we were in danger of contravening data protection rules if we had to tell an employer a claim had been declined on the grounds of an exclusion,” explains Homer.
Additionally, keeping claims down helps to protect employers from rising premiums. Claims experience is the key driver for the cost of cover so an employer does not want invalid claims paid as they will pay for it in increased premiums.
Insurers will often provide additional support and assistance even when a claim is declined. “This could be advice on adapting the workplace to help the employee continue working. Or, although they won’t get involved in any legal case, they might point the employer to the relevant legislation, for instance the Disability Discrimination Act, to help them understand their position and responsibilities if they do want to take disciplinary action,” explains Lamb.
Lamb has also known a few cases where medical evidence has been inconclusive and the insurer has made a one-off payment to provide medical or rehabilitation support to the employee.
But although decline rates are low, there are still claims that are rejected even though the employer, employee and intermediary believe they should be paid. This has been driven by the rise in claims for more subjective conditions such as stress and mental health conditions. “In some of these cases it can be tricky to prove or disprove these conditions,” says Micklewright.
For example, L&G’s Sallows says that one of the most common invalid claims involves the medicalisation of unhappiness. In these instances an employee might go off sick following a disagreement with their boss or colleagues. Once absent their GP might give them a sick note and some anti-depressants so, although they are capable of working, they get into a cycle of absence.
“We don’t have any financial obligation to do anything in these situations but we might refer the employee to our cognitive behavioural therapy assessors to ascertain what’s been happening,” she explains. “This might highlight that bullying has been going on, which can be useful information for the employer.”
It is prudent for the insurer to take this stance. Employees respond differently and while one might cope, another might end up with a psychological condition that would be a valid claim.
Where a claim is declined there is an appeals process where the employer can lodge an appeal if they don’t agree with the insurer’s decision for decline. Under third party rights, the employee can appeal against a decision too. In these instances the employer will also be notified. “If a claim is declined we’re more than happy to see additional information to support it being paid,” explains Marchant.
Gray says that most clients want to appeal against a declined claim. “In these incidences we’d source an independent medical examiner and help the employer put together an appeal letter. Where this isn’t sufficient to validate the claim we’d recommend the employer takes it to the Ombudsman,” he says.
Given the power of the claims management service, there is potentially room for the insurers to offer this service on a standalone basis too. Increased legislative requirements mean that employers are looking for way to protect themselves, especially with settlements increasing.
Nowich Union Healthcare has already trialled this approach. Homer explains: “We did offer this service on a standalone basis but we found it was pretty niche as most employers wanted the insurance component in case something did go wrong. It could however be seen as a valuable part of the mix if limited term policies become more popular.”