It's business unusual for the disability insurance industry
A few years ago we predicted that the disability insurance industry was headed for major change. Last year we saw it borne out by the results of Old Mutual Corporate's Disability Monitor: the frequency and nature of claims are changing.
Benefit levels that were designed when disability income was subject to tax have become much more generous after tax on benefits was abolished in 2015. This, coupled with the difficult economic environment of the last two years, have created the perfect storm which led to a very poor disability experience in the insurance market.
But there is a silver lining – these changes also present the industry and employers with the opportunity to work even closer together to the benefit of all concerned, including employees.
ON-THE-JOB INJURIES ARE CHANGING
Now that a computer is the only machine many employees operate at work, it stands to reason that physical injuries are less common. As the 2017 Old Mutual Corporate Disability Monitor showed, 43% of respondents reported seeing a change in the nature of injuries claimed for – 70% cited poor lifestyle as the primary cause of claims, followed by stress (54%). Physical injuries came in fourth after psychological conditions (39%).
When physical injuries do occur, the lacerations, burns and cuts of the Industrial Revolution are being replaced by musculoskeletal injuries affecting joints, muscles, tendons or nerves, many of which stem from sitting at a desk all day.
Despite the better than expected 2017 growth rate, the South African economy remains uncertain and 70% of the respondents in our monitor named the economy as a source of stress, with 38% specifically pointing to worry about retrenchment and job losses. An often overlooked fact is that, retrenchments have a knock-on effect as the remaining employees have to pick up the slack. Having to shoulder a greater workload results in even more stress and potentially more disability claims (21% reported this knock-on effect as the cause of their stress). A shaky economy also leads to personal financial strain, which causes many employees to become over-indebted, adding to their worries and stress, which hamper their ability to cope.
This is playing out at all levels of employment but the number of stress- and lifestyle-related disability claims received from more senior, higher-paid employees has spiked considerably. Even if the overall number of claims were to remain the same, the total value of claims would still increase because they now come from higher income earners.
TAX CHANGES AND THE CONSEQUENCES
Changes to the Income Tax Act, which came into effect on 1 March 2015, brought disability payouts in line with other insurance payouts, which are tax-free.
The result, as intended, is that claimants have been receiving bigger payouts than before for the past two years. In addition, income replacement ratios have become very high as the gap between monthly salaries and disability payouts have been reduced, particularly in higher-income groups. This has made remaining ‘on disability’ an attractive option for many.
Alternatively, employees who previously would have sought medical treatment now go on disability and instead decide whether or not to return to work (albeit a new job) once they've recovered.
RESTORING THE BALANCE
Naturally the aforementioned scenarios – increased replacement ratios and being incentivised to remain on disability – add to the payout burden and result in premium increases. This situation is not sustainable. If costs continue to increase, employers will quickly reach their ceiling for risk benefit costs. Even if an employer does not have limits, the cost will crowd out much needed retirement savings. Employers also lose highly skilled staff in a country where skills are sorely needed.
WHAT CAN EMPLOYERS DO?
Prevention. As Urvashi Ramjee, who heads Claims Management at Old Mutual Group Assurance, points out, employers have to use all the data at their disposal to understand why more staff are opting to go on disability. For instance, if most of them come from one department and have a medical-aid history that shows repeated claims for anxiety or stress treatments as well as high level of absenteeism and frequent sick leave, it could mean that the department is overworked or understaffed. Taking proactive steps to change this may very well convince the remaining employees to stay.
Reintegration. It is important to stay in touch with employees while they are off work. Getting them to return sooner rather than later increases the chances that they will make a return to full-time work at the same level. In Canada, it was found that those who return within three months are more likely to make a full return whereas those who have been away for two years almost never return to work.
Regardless of the length of the absence, employers must have a comprehensive, coordinated reintegration programme to welcome employees back. This includes having follow-up meetings to monitor their progress and morale, and pre-empt a relapse.
Wellness programmes. It was heartening to see that 79% of the respondents in the Old Mutual Corporate Disability Monitor do have a wellness programme in place but it's mostly of the type advocated by medical aids. Focusing on the 'basics' such as eyesight, weight, blood pressure and glucose levels is just the beginning, though. Extending it to include lifestyle, mental and skeletal health would benefit employees, when one looks at disability claims.
I would like to suggest another element to such wellness programmes: financial wellness. Debt counselling, for instance, and helping an employee to regain control of their finances will reduce stress at work and at home. It will help them to focus better and spend less time on personal affairs at work and possibly create greater loyalty. For employers, it would mean greater productivity and reduced staff turnover.
In this 'new normal’, insurers and employers have a role to play in creating a holistic risk-management approach that will add value for employers and their employees. Done right, it will stop the cost of group disability insurance from spiralling out of control.