Companies that sell disability insurance to individuals are reporting a sharp rise in claims for certain ailments that were little known 10 years ago, leaving the insurers with losses of hundreds of millions of dollars. The companies also are reporting a big increase in claims by doctors, once among the most prized of the insurance industry's clients.
In response, insurers are adopting new strategies, from offering less generous benefits to pulling out of the business.
Three million people, many of them self-employed, are covered by individual disability policies that generate annual revenues for insurers of $3.5 billion. Group disability policies offered through employers cover 48 million more people and offer more limited benefits.
The ailments with by far the biggest increases in claims in the past five years, according to UNUM Corp. of Portland, Maine, are carpal tunnel syndrome, a nerve disorder that often arises from prolonged use of computer keyboards, and Epstein-Barr virus syndrome, which produces symptoms of fatigue among otherwise healthy people. The number of claims has also doubled for back and disk pain, psychiatric problems and AIDS.
Among some doctors, such as emergency-room physicians and anesthesiologists, disability claims have grown to more than twice the expected rates. Unlike claims involving heart attacks, cancer or accidents, where the disability is clear, "we are now seeing more and more claims for nervous- or mental-type situations or muscle and soft-tissue disorders that are very hard to evaluate," like back pain, said Stephen B. Center, executive vice president of UNUM, the fourth-largest disability insurer for individuals. "There are a lot of claims from physicians that fall into a gray area."
"Too many white-collar workers have learned to use their disability insurance as a substitute for unemployment compensation" or as a retirement plan, said Eric N. Berg, an insurance analyst at Bear, Stearns & Co.
Last week, Provident Life and Accident Insurance Co. of America -- the second largest in the business with a 17 percent share of the individual disability insurance market -- presented its sales force with the outlines of its new policies.
The new approach, which is expected to take effect early next year, calls for benefits to be reduced when a disabled person earns money from a new job. In addition, those filing claims would be required to join a rehabilitation program.
On existing policies, companies have little choice but to lick their wounds. A typical middle-aged doctor paying less than $5,000 a year in premiums for a disability policy can collect $15,000 a month and cost the insurance company a few million dollars. For every 1,000 people they cover, insurance companies expect no more than three or four to file for disability each year. Even a slight increase in claims can create sizable losses.