Digging Into Your LWOP Block

You won’t need a shovel but bring your best-case management skills, and you may find a treasure! 

Group insurers can unearth significant reserve savings by focusing more attention on their life waiver of premium (LWOP) block of claims. A 2018 RGA survey of 30 major group disability carriers in the United States and Canada suggests that LWOP claims management is a top concern.

Life policies or riders often allow insurance premiums to be waived if an insured has met the definition of disability. Most carriers in the U.S. and Canada offer a seamless LWOP process between group life and disability coverages. In a seamless process, the carrier adjudicates the plan member’s LWOP eligibility based on their long-term disability (LTD) claim submission.

These waivers are in widespread use, yet training gaps and staffing constraints often limit the ability of insurers to explore the full potential of this claim block. Investigation becomes even less attractive when the block is still profitable. By actively managing these claims, insurers could realize significant waiver closures and release substantial reserves.

Waiver claim adjudication remains primarily process-driven, but administration practices vary markedly with no designated standard of practice and few industry information sources available. Typically, the insurer collects and evaluates the claimant, employer, and attending physician statements. If the claimant has LTD coverage with the same carrier, the carrier may also retrieve additional medical records. The LWOP claim investigation often ends there, but so much more can be uncovered.

RGA’s experience and research suggest a few ways group insurers could efficiently “clean up” a LWOP block:

1. Prioritize: Segmenting claims by likelihood for recovery can yield savings rapidly. Dividing the block into two buckets – maintenance and active – can help claims examiners improve productivity by focusing on the claims with the most potential for resolution.
2. Focus on functionality: Diagnosis does not necessarily equal disability. Nearly 90% of U.S. insurers reported that their standard LWOP provision contained the any occupation of disability definition through the duration of the claim. Alternatively, more than 90% of Canadian insurers use a 24 month own occupation period followed by an any occupation definition. For the majority of carriers in the U.S., any review of LWOP claims should clearly define what other occupations the claimant may be capable of performing, taking into consideration the claimant’s restrictions and limitations as well as their work experience, education and training. Too often, thorough occupational analyses and/or labor market surveys are not done during the adjudication phase of LWOP claims management. Once an LWOP claim has been approved it is difficult to reassess the claimant’s ability to perform any occupation, so giving this element of claim management additional attention at the onset can prove beneficial in the long run.
3. Interview: It is common for carriers to conduct in-depth interviews with LTD claimants, however this essential part of information gathering is frequently overlooked in the adjudication of LWOP claims. Remember, a phone interview can help claimants better understand their LWOP benefit and what is required of them throughout the life of the claim. In addition, a phone call at any stage of the claim can provide an opportunity to:
   • Obtain and clarify any missing or unclear medical information;
   • Ask about vocational information, such as training, education, and experience.
   • Gauge motivation about return to work by asking about plans for the future, which could also help establish a management plan. For example, the interviewer may learn of an extensive surgery that is planned with a recovery date established.
   Random telephone calls to the claimant and/or employer at any stage of the claim may alert you to reexamine the claimant’s continuing LWOP eligibility. RGA survey respondents reported a lack of understanding among policyholders and claimants regarding LWOP benefit provisions. For example, employers and claimants often fail to notify a carrier when the claimant returns to work or takes retirement.
4. Ask for information early and often: Request updated medical and claim information at least annually for the first few years (unless the claimant is clearly permanently disabled), then base update cycles on the claimant’s likelihood for recovery. In addition, it may be fruitful to ask the attending physician about the barriers keeping the claimant from returning to work.
5. Check eligibility: Upon reviewing active claims from your LWOP block, ensure the claimant was entitled to the LWOP benefit in the first place by verifying that premiums were paid during the elimination period. Sometimes these premium payments are not verified thoroughly and you can catch an ineligible claim sooner rather than later. While it may be challenging to terminate a claim on this basis, insurers have the right to evaluate all aspects of their claims administration at any time to ensure consistency and compliance with standard procedures.
6. Exclude age: Too often, age is seen as a factor in determining return-to-work potential, even when a claimant is several years from normal retirement age (based on Social Security’s current normal retirement schedule). It is important to note that baby boomers have been working longer and retiring later than previous generations. Many motivated seniors are able to take on new challenges, enjoy the social aspects of work, and need additional income. Don't assume that just because a claimant is awarded Social Security Disability Insurance (SSDI) that he or she is totally disabled.
7. Coordinate and clarify roles: Because LWOP could be considered part of both life and disability product lines, many survey participants reported shared and overlapping claims adjudication responsibilities and a need for more cross-training. Insurers can benefit by integrating and coordinating LWOP and LTD medical and vocational protocols to share knowledge and expertise.

The world of LWOP is evolving, and RGA will continue to watch this area carefully, and will offer another LWOP benchmarking study in 2020.