Morbidity Lessons Across IDI and LTD
In 2019, we shared insights on how the group and individual disability insurance lines could benefit from sharing information. Group LTD and IDI carriers both likely insure some of the same risks and could benefit from leveraging knowledge across markets. In this article, we revisit our earlier thoughts and supplement them with insights from the past year with a focus on lessons from the pandemic.
Munich Re's wide exposure can influence how carriers examine risks across varying product lines as we are able to provide valuable market information and analysis.
Lessons from IDI data that could prove useful if leveraged by LTD carriers:
The IDI industry has material exposure to and experience from medical occupations. As the medical delivery model continues to shift from private practice to medical groups, LTD carriers will continue to see their medical blocks grow. There are lessons about the morbidity associated with this business that can be learned from IDI — beyond just higher morbidity levels — such as there is a clear stratification of medical professions (chiropractors and dentists with worse morbidity through primary care providers at the better end of the spectrum).
This is a critical learning from 2020. Physicians (and medical occupations in general) are impacted in multiple ways by this environment. On the front lines of treating the pandemic, they have higher exposure to the virus. Being on the front lines exacerbates the burnout that was already such an issue in this field. We saw elective surgeries and other procedures delayed at the onset of the pandemic and physicians and other medical personnel felt an impact to their business as a result of lockdowns and treatment interruptions. Dental offices were also materially affected. In addition, we need to be careful in making underwriting decisions about post-pandemic business based on pandemic/recession results. Some physician’s incomes increased materially while others had to close their practices or reduce staff for a period of time. It is uncertain how burnout, long-term COVID symptoms, and PTSD will impact this essential population. Moreover, there are also other uncertainties in the future, such as the lockdown-driven shift to telemedicine and its effect on the industry.
Morbidity also varies across states with certain states having materially higher morbidity than others (CA, FL, NY). States that were more impacted by COVID and/or were more impacted by the lockdown or other economic pressures will likely have higher morbidity. LTD carriers should learn the reasons for that experience and be sure to reflect it in their own pricing.
As LTD carriers continue to get pressure to increase limits or offer more medically underwritten coverage, they can look to the IDI market for lessons learned regarding replacement ratios and issue and participation limits. Income-generated anomalies like those mentioned for physicians should also be considered before making any maximum benefit type liberalizations. For example, residential real estate and construction groups may have seen a boom in 2020. Should that be assumed to continue? The other liberalization to be particularly wary of is anything around mental/nervous limitations. Given burnout and stress in ALL industries and occupations, the expectation is for an increase in such claims in the coming years. We also noticed a trend in employers making liberalizations on their own as they look for ways to support employees.
Lessons from LTD market that IDI carriers could leverage:
LTD carriers saw a more material morbidity impact resulting from the last recession and were able to gauge a better sense of the industry-specific impacts. IDI carriers could leverage that information in assessing the characteristics and impact of the next recession.
While IDI was less impacted during the financial crisis ten years ago, that is not the case now. Physicians and small business owners—both making up a material percentage of most IDI blocks — are impacted with the current economic crisis. Pending claims and submissions are increasing. We need to pay close attention to our specific areas of exposure such as service, commercial real estate, health care, hospitality, etc.
In addition, because LTD business was more impacted last time, there are conclusions to draw about how experience may play out. Generally, LTD sees an 18-month lag from recession to an increase in claims and then another 18 months to recovery. While the single event-driven nature of the current situation initially suggested a shorter lag, it may still serve as a good rule of thumb for us to consider, especially given we don’t yet know how long it will take for the environment to normalize.
LTD carriers already look at claim terminations by diagnosis. As IDI carriers look to create diagnosis-specific terminations for the new valuation requirements, they can look to their LTD brethren for guidance and experience. LTD carriers also look at claims terminations separately by recoveries vs. deaths. It turns out that this distinction was critical in explaining morbidity results in the last decade.
In addition to the lessons that can be gleaned across product lines, there are other lessons. How are occupations and work environments changing permanently in the future? What impact could those changes have on our business, our contract language, and our ability to adjudicate claims? The wholesale shift to remote working changes what may be considered about defining “inability” to work. As occupations and mindsets continue to evolve, we need to ensure contract language and definitions are aligned.
On the positive side, the lockdowns accelerated the shift towards digital solutions — we saw great strides made by carriers moving to electronic applications, policy delivery, and efficiencies on the IDI underwriting side. These are things that can drive further change as we move into a post-lockdown world.
While the pandemic and correlating economic downturn forced the industry to adapt and think differently, we believe we should continually leverage knowledge across product lines and challenge how we view and evaluate risk. If IDI carriers see higher morbidity in certain states, what does that mean to your group business? If LTD carriers saw increased morbidity during the last recession, does that mean this recession will eventually yield the same results? Why did we see increased morbidity with the last recession – was it the occupations insured, the average salary of covered employees, or something else? Those are just a few of the questions we can help you answer.