An Individual's Disabled Life Reserve – E. Pluribus Unum

DISABILITY REINSURANCE 

ING AMERICAS 

The following material was developed prior to RGA’s acquisition on January 1, 2010 of the Group Reinsurance 


Business formerly owned by ReliaStar Life Insurance Company (a subsidiary of ING Groep N.V.) If you have 


questions, please please contact contact RGA. RGA. 

FOR DISABILITY INSURANCE PROFESSIONALS 

FORUM® 

VOLUME 12 • NUMBER 1 

FIRST QUARTER 2005 

DISABILITY 1 

UNDERWRITING INSIGHT 

An Individual’s Disabled Life Reserve 

– E. Pluribus Unum 

By Curt Zepeda and Tim Meyer 

In our last Underwriting Insight article, we said the assumptions used 

in the Disabled Life Reserve (DLR) calculation for an individual 

claimant are based on overall averages for claimants of the same 

age, gender, elimination period, etc. I am reminded of the Latin saying... 

E. Pluribus Unum – Out of many comes one. Let’s dig a little 

deeper into exactly how the reserve is calculated for an individual. 

I was preparing an incurral exhibit 

for an upcoming renewal and came 

across something that at first didn’t 

intuitively make sense. I had two 

claimants who were the same gender, 

nearly identical dates of birth, 

the exact same benefit amount, same 

Elimination Period (EP), etc. In 

fact, the only difference between the 

two claimants was that one had just 

reached the end of the 90 day EP 

(we will call this claimant – Claimant 

A) and the other had a date of disability 

three years earlier (we will 

call this claimant – Claimant B). 

The weird thing is that the disabled 

life reserve for Claimant A is 

$68,000 and the disabled life reserve 

for Claimant B is $141,000. How 

can this be? After all, they are basically 

the same claimant and if both� 

IN THIS ISSUE: 

UNDERWRITING INSIGHT: 

An Individual’s Disabled Life 

Reserve – E. Pluribus Unum 

By Curt Zepeda and Tim Meyer 

5 

ACTUARIAL INSIGHT: 

Leveraging Revisited 

By Jeff Schuh 

8 

CLAIMS INSIGHT: 

Financial Claims Management – 

Managing Long-Term Disability 

Claims by the Numbers 

By Ernest Patrick Smith CPA, CFE 

and John K. Hoffman, CPA 

11 

RESEARCH UPDATE: 

1st Quarter 2005 

By Ray Ayotte and Kathy Thiesen 

12 

UPCOMING DISABILITY 

INSURANCE MEETINGS

page 2 



questions, please contact RGA. 

Disability Forum, Volume 12, Number 1 

DISABLED LIFE RESERVE 

(Continued from page 1) Meyer, Meyer Disability Consulting 

Inc., for some insight into his actuar- 

of these claimants remain disabled 

to age 65 there are fewer remaining 

payments to Claimant B than there 

are for Claimant A. 

So, I called up my buddy, Tim 

GRAPH 1 

DLR 36 months beyond end of EP = $141,000 

DLR at end of EP = $68,000 

ial voodoo on how reserves are 

established. He said, “It’s just the 

natural progression of the reserves 

and everything is cool”. Not one to 

just take things at face value, I asked 

him to delve into this “natural pro- 

LTD Reserve Progression 

gression” of the reserve. Let’s take a 

look at an example. In order to keep 

things simple, yet without compromising 

the conclusions, we will 

assume zero percent interest in our 

disabled life reserve calculations and 

a $1,000 monthly benefit. 

First, we should note that Tim is 

This graph is for a male age 42 and is based upon 90 day EP 

termination rates from Table 95a (without any own occ spike) 

using zero percent interest and a $1,000 monthly benefit. 

correct. After all, any actuary who 

says, “everything is cool” must have 

substantial knowledge. Let’s start 

with a picture, because as they say, a 

picture is worth a thousand words. 

Below is a graph that shows the disabled 

life reserve a typical claimant 

will have at each valuation month 

since the incurral date assuming that 

this claimant is still disabled at each 

future valuation month. As you can 

see, this graph follows the natural 

progression Tim mentioned, i.e. the 

DLR at the end of the EP is less 

than the DLR at valuation month 36. 

See Graph 1. 

Again, we remind ourselves that 

the reserve for an individual claimant 

is based upon averages, i.e. average 

termination rates, average social 

security approval rates, average 

social security amounts, etc. The 

reserve for an individual claimant, at 

any given valuation month, is the 

average of the expected benefits for 

a pool of claimants with the same 

gender, date of birth, elimination 

period, and benefit amount. For 

example, suppose we expect 10 percent 

of such a pool of claimants will 

receive one month of benefit, nine 

percent will receive two months of 

benefits, seven percent will receive 

three months, and so forth through 

some percentage receiving benefits 

to age 65. Graph 2 illustrates this. 

If you multiply the percentage of�

page 3 






(Continued from page 2) 

claimants that receive “X” months 

of benefit payments by the total 

benefits payments to that claimant 

and add up all these amounts you 

will have the average reserve (see 

the blue line in the graph) that 

shows up for the first valuation 

month in our first graph. See 

Graphs 2 and 3. 

So how does all of this relate to 

Claimant A and Claimant B in our 

incurral analysis? One way to 

think about this is Claimant A and 

Claimant B each belong to a separate 

and unique pool of claimants 

where all are the same age, same 

gender, same duration since disability, 

same elimination period, 

etc. The reserves for Claimant A 

and Claimant B each are the average 

of the pool to which they 

belong. Graph 2 shows the distribution 

of the reserve amounts for 

the pool to which Claimant A 

belongs and Graph 3 shows the 

distribution of the reserve amounts 

for the pool to which Claimant B 

belongs. Those claimants in Pool 

A with less severe disabilities will 

not be in Pool B because they have 

recovered and returned to work by 

the 36th month after disability. 

Thus, relatively speaking, the pool 

to which Claimant A belongs has a 

much higher percentage of 

claimants who will be paid fewer 

months of benefits resulting in the 

average number of benefit payments/reserve 

per claimant being 

lower for Pool A than Pool B. 

GRAPH 2 

% OF CLAIMANTS EXPECTED TO RECEIVE X NUMBER 

OF MONTHLY BENEFIT PAYMENTS 

For example the “average” reserve 

for Claimant A is $68,000 while 

the “average” reserve for Claimant 

B is $141,000. This is true even 

though some claimants in Pool A 

will receive benefit payments for a 

longer period than any claimant 

in Pool B. At some point, as the 

claimants in a pool get closer to the 

maximum end date, the average 

number of payments remaining 

causes the reserve per claimant to� 

Pool A – % of Claimants with X Number of Benefit Payments and Total Benefits Paid 

10.32% of claimants expected 

to receive exactly 1 benefit payment 


to receive exactly 2 benefit payments 


to receive exactly 3 benefit payments 

Average # of Payments is 68 and 

average total benefits paid is $68,000 

11.55% of claimants 

expected to receive 

benefits to age 65 

Total Benefits Paid = $1,000 * Number of Benefit Payments

page 4 



decrease as we can see from Graph 1. 

What conclusion can we draw 

from this? Because the reserve is 

based on the average liability of 

claims with the same demograph- 

GRAPH 3 

% OF CLAIMANTS EXPECTED TO RECEIVE X NUMBER 

OF MONTHLY BENEFIT PAYMENTS 




ics, the probability that the ultimate 

liability for any individual claimant 

will be exactly equal to the reserve 

established is very small. As 

underwriters, we tend to rationalize 

reducing reserves because we think 

a particular claimant will return to 

work in the near future, or will no 

longer meet the definition of disability 

after the own occupation 

period, or that they will die before 

reaching age 65. Because the 

reserve is an average of claimants 

with different expected durations 

Pool B – % of Claimants with X Number of Benefit Payments and Total Benefits Paid 

0.83% of claimants expected to receive exactly 

1 benefit payment, 0.80% of claimants expected to 

receive exactly 2 benefit payments, 0.78% of claimants 

expected to receive exactly 3 benefit payments, etc. 

32.92% of claimants expected to receive benefits 

to age 65 

Average # of Payments is 141 

and average total benefits 

paid is $141,000 Total Benefits Paid = $1,000 * Number of Benefit Payments 


(see graphs 2 and 3), this is already 

taken into account and the reserve 

should not be adjusted further. 

If you want to adjust individual 

reserves for expected durations, 

you need to not only adjust some 

claims downward but also adjust 

some claims upward. To demonstrate 

the magnitude of the upward 

swing, you might ask your actuary 

to provide the present value of the 

annuity certain for a particular 

claim assuming that it lasts to age 

65 to see how it compares the to 

the DLR. ■ 

Curt Zepeda is the 

Chief Underwriter of 

the Group Disability 

Reinsurance team at 

ING Re in Minneapolis, 

and has more than 

12 years of industry 

experience. 

Tim Meyer, FSA, 

MAAA is the 

President of Meyer 

Disability Consulting 

Inc., an independent 

actuarial consulting 

firm located in 

Omaha, Nebraska. 

Tim's experience 

includes more than 

17 years of group 

actuarial experience 

with an emphasis in 

group long term disability, group short term 

disability and group dental. His email address 

is meyert@meyer-disability.net.

page 5 





ACTUARIAL INSIGHT 

Leveraging Revisited 

By Jeff Schuh 

Last issue’s Actuarial 

Insight article touched 

briefly on the leveraging 

effect that wage inflation 

and aging can have on 

reinsurance exposure. 

A single-life example 

demonstrated how a 

reinsurer’s exposure can 

increase several times 

faster than premium. 

This occurs when a direct 

carrier pays its reinsurance 

as a flat percentage of 

the underlying direct 

premium rather than on 

an exposure basis. 

It is for this reason that 

reinsurance manual 

rating and experience 

rating must account for 

leveraging during the 

pricing process. 

There are, in fact, several types of 

leveraging that can take place. The 

key drivers of leveraging can be 

placed into two general categories: 

Risk Transfer and Passage of Time. 

Risk Transfer leveraging 

explains why a direct carrier may 

be paying 15 percent of direct premium 

to the reinsurer even though 

only 10 percent of the total exposure 

is above the excess attachment 

point. The reason is the higher cost 

typically associated with the excess 

reinsured lives. Due to the age and 

gender mix of the ceded risk, the 

morbidity cost being transferred is 

significantly higher on those individuals. 

Mitigating some of this 

demographic leveraging is the 

white-collar nature of the reinsured 

individuals which can reduce some 

of the incidence risk, and the reinsurer 

often has lower expenses than 

the direct carrier. The net effect, 

however, is usually a percent-ofpremium 

rate that is higher than the 

percent of benefit exposure ceded. 

The other category, Passage of 

Time leveraging, involves the 

change in reinsurance exposure 

arising from the timing difference 

between the data period (census or 

incurred claims) and the pricing 

period. Examples of this type of 

leveraging include wage inflation, 

aging, and other demographic 

shifts over time. For this article, 

we will focus solely on the impact 

of wage inflation. Consider the 

following factors that will affect 

the change in reinsurance exposure 

on a given group of active employees 

or claimants over time: 

i) Wage inflation on a cohort of 

currently reinsured employees 

ii) Employees that will cross over 

the reinsurance attachment 

point due to wage inflation 

iii) Employees with salaries at the 

Plan Maximum 

iv) Hiring of employees with 

salaries below the attachment 

point 

v) Retirement of older high paid 

workers 

While the effects of some of these 

circumstances are obvious, the 

magnitude and net impact on reinsured 

exposure are not always so 

clear. The results will vary by 

group, but perhaps an illustrative 

example would help. 

Let’s take a sample group of 

10,000 lives and look at how each 

of the previously mentioned components 

affect the ultimate reinsurance 

exposure. We will assume 

that a census from 01/01/2004 has 

been provided and we are trying to 

determine the reinsurance exposure 

and manual rate for the pricing 

period of 1/1/2005 to 01/01/2007. 

If the reinsurance premium is going�

page 6 





LEVERAGING REVISITED 


EXHIBIT A 

xhibit A: General Case 

Census in Year X 

Census in Year X+2 3% inflation per year 

Avg Gross Excess Avg Gross Excess 

Monthly $5,000 # of Gross Ben Reins Ben Monthly $5,000 # of Gross Ben Reins Ben 

Class Benefit Reins Ben EEs Exposure Exposure Benefit Reins Ben Employees Exposure Exposure 

A $2,500 9,000 $22,500,000 $2,652 9,000 $23,870,250 

B $5,500 $500 400 $2,200,000 $200,000 $5,835 $835 400 $2,333,980 $333,980 

C $6,500 $1,500 250 $1,625,000 $375,000 $6,896 $1,896 250 $1,723,963 $473,963 

D $7,500 $2,500 150 $1,125,000 $375,000 $7,957 $2,957 150 $1,193,513 $443,513 

E $8,500 $3,500 100 $850,000 $350,000 $9,018 $4,018 100 $901,765 $401,765 

F $9,500 $4,500 75 $712,500 $337,500 $10,079 $5,079 75 $755,891 $380,891 

G $10,000 $5,000 25 $250,000 $125,000 $10,609 $5,609 25 $265,225 $140,225 

10,000 $29,262,500 $1,762,500 10,000 $31,044,586 $2,174,336 

trend effect --> 6.1% 23.4% 

EXHIBIT B 

xhibit B: Lower Boundary: New Exposure Crossing Over the Attachment Point (A2) 

Upper Boundary: Capped at $10,000 Maximum (G) 




A1 $2,487 8,950 $22,255,000 $2,638 8,950 $23,610,330 

A2 $4,900 $0 50 $245,000 $0 $5,198 $198 50 $259,921 $9,920 

B $5,500 $500 400 $2,200,000 $200,000 $5,835 $835 400 $2,333,980 $333,980 

C $6,500 $1,500 250 $1,625,000 $375,000 $6,896 $1,896 250 $1,723,963 $473,963 

D $7,500 $2,500 150 $1,125,000 $375,000 $7,957 $2,957 150 $1,193,513 $443,513 

E $8,500 $3,500 100 $850,000 $350,000 $9,018 $4,018 100 $901,765 $401,765 

F $9,500 $4,500 75 $712,500 $337,500 $10,000 $5,000 75 $750,000 $375,000 

G $10,000 $5,000 25 $250,000 $125,000 $10,000 $5,000 25 $250,000 $125,000 

10,000 $29,262,500 $1,762,500 10,000 $31,023,470 $2,163,141 

trend effect --> 6.0% 22.7% 

to be paid as a percent of the direct 

carrier’s total premium, then we 

need to determine what the reinsurance 

exposure “will be” during the 

future pricing period. The exposure 

needs to be trended from the 

census date to the midpoint of 

the pricing period, or two years in 

this case. 

Exhibit A shows the impact of 

applying two years of inflation to the 

salaries of the current employees. 

The census has been constructed 

such that 10 percent of the employees 

are subject to reinsurance and 

are grouped into benefit increments 

of $1,000. The result is similar to 

the example in the previous article. 

It clearly shows one of the problems 

with reinsurance remitted on a 

percent-of-premium basis, i.e., 

exposure can increase several times 

faster than the premium (23% vs. 

6%). 

But what happens when we take 

the “boundaries” into account? In 

other words, what is the effect of 

those employees who creep over 

reinsurance attachment point due to 

wage inflation as well as those who 

are or will be capped at the plan 

maximum? The net effect (Exhibit B) 

is a slight decrease to the reinsured 

trend. In this example, the increase 

in leveraged trend from employees 

crossing over the attachment point 

is more than offset by those whose 

leveraged trend was reduced by hitting 

the $10,000 ceiling. 

The above examples, however, 

only show the impact on a fixed 

cohort of employees. What happens 

to the reinsurance exposure 

when you factor in new hires at 

lower salaries and retiring higher 

paid employees? What you can see 

from Exhibit C is that the addition 

of new employees below the attachment 

point does not affect the reinsurance 

trend, but it does increase 

the gross benefit trend. Therefore, 

it narrows the gap between the�

page 7 





LEVERAGING REVISITED 


EXHIBIT C 

hibit C: New Employees Added Below the Attachment Point (H) 




A1 $2,487 8,950 $22,255,000 $2,638 8,950 $23,610,330 

A2 $4,900 $0 50 $245,000 $0 $5,198 $198 50 $259,921 $9,920 

B $5,500 $500 400 $2,200,000 $200,000 $5,835 $835 400 $2,333,980 $333,980 

C $6,500 $1,500 250 $1,625,000 $375,000 $6,896 $1,896 250 $1,723,963 $473,963 

D $7,500 $2,500 150 $1,125,000 $375,000 $7,957 $2,957 150 $1,193,513 $443,513 

E $8,500 $3,500 100 $850,000 $350,000 $9,018 $4,018 100 $901,765 $401,765 

F $9,500 $4,500 75 $712,500 $337,500 $10,000 $5,000 75 $750,000 $375,000 

G $10,000 $5,000 25 $250,000 $125,000 $10,000 $5,000 25 $250,000 $125,000 

H $2,500 $0 100 $250,000 $0 

10,000 $29,262,500 $1,762,500 10,100 $31,273,470 $2,163,141 

trend effect --> 6.9% 22.7% 

EXHIBIT D 

hibit D: Retirement of Older, Higher Paid Employees 




A1 $2,487 8,950 $22,255,000 $2,638 8,950 $23,610,330 

A2 $4,900 $0 50 $245,000 $0 $5,198 $198 50 $259,921 $9,920 

B $5,500 $500 400 $2,200,000 $200,000 $5,835 $835 400 $2,333,980 $333,980 

C $6,500 $1,500 250 $1,625,000 $375,000 $6,896 $1,896 250 $1,723,963 $473,963 

D $7,500 $2,500 150 $1,125,000 $375,000 $7,957 $2,957 150 $1,193,513 $443,513 

E $8,500 $3,500 100 $850,000 $350,000 $9,018 $4,018 100 $901,765 $401,765 

F $9,500 $4,500 75 $712,500 $337,500 $10,000 $5,000 70 $700,000 $350,000 

G $10,000 $5,000 25 $250,000 $125,000 $10,000 $5,000 15 $150,000 $75,000 

H $2,500 $0 100 $250,000 $0 

10,000 $29,262,500 $1,762,500 10,085 $31,123,470 $2,088,141 

trend effect --> 6.4% 18.5% 

increase in Gross Benefit, which 

drives the reinsurance premium, 

and Reinsured Benefit Exposure. 

The retirement of higher salaried 

employees reduces both the Gross 

and Reinsured Benefit Exposures. 

However, at the end of they day 

this sample group still shows that 

the reinsurance trend is several 

times that of the direct carrier’s 

trend. See Exhibit D. 

Conclusion 

Pricing excess disability reinsurance 

is a tricky business. 

Reinsurance pricing that is 

based on a flat percent of direct 

premium will not keep up with the 

leveraged increase in reinsurance 

exposure and therefore 

needs to be factored into the 

pricing analysis to avoid under 

pricing the business. There are, 

as pointed out in the examples 

above, several factors that drive 

the ultimate reinsured exposure. 

By identifying and quantifying 

as many of these factors 

as possible, a more accurate 

reinsurance price, as it relates 

to expected exposure, can be 

determined. ■ 

Jeff Schuh, FSA, MAAA, Actuary, Disability 

Reinsurance, ING Re, has more than 14 years 

of group actuarial experience with an 

emphasis on group disability products.

page 8 





CLAIMS INSIGHT 

Financial Case Management – 

Managing Long-Term Disability Claims by the Numbers 

By Ernest Patrick Smith CPA, CFE and John K. Hoffman, CPA 

The intent of any disability insurance policy is to insure earnings in the event of a disability. These 

policies have a medical, financial and an occupational activity component and to properly evaluate 

a claim, the claims professional must consider and understand how they relate to each other. 

Most companies have defined policies 

and procedures for documenting 

their claimants’ medical conditions 

and all insurance companies have 

financial case management policies 

and procedures. Some companies 

use internal accountants who perform 

loss of earnings calculations 

according to the terms within the 

policies. Other companies have 

the claims professional perform 

these calculations with the assistance 

of outside independent 

accountants. An accurate calculation 

of earnings is a starting point 

and is crucial to proper financial 

case management, but more needs 

to be done to properly assess the 

financial and occupational aspects 

of the claim. 

The term financial case management 

is defined as the methods 

used to obtain, analyze and understand 

the financial aspects of 

the claim. This includes a com- 

The term financial case management is defined as the methods used 

to obtain, analyze and understand the financial aspects of the claim. 

plete and thorough analysis of the 

claimant’s earnings in the pre and 

post disability periods, a detailed 

understanding of the claimant’s 

occupational duties and activities 

and verification that the loss of 

earnings is related to the onset of 

a disability. This article will outline 

the Best Practices approach 

for proper management of a claim 

from a financial and occupational 

perspective. 

Step 1 

It is important to document the 

claimant’s representations regarding 

his or her earnings and occupational 

duties with claim forms, a 

detailed telephone interview, field 

representative interview and/or 

questionnaires. The claimant’s 

restrictions and limitations regarding 

his or her occupational duties 

and activities should also be carefully 

documented and analyzed. 

Step 2 

Based upon the claimant’s representations 

regarding his earnings 

and occupation, the appropriate 

requests for financial documentation 

to objectively quantify and 

verify these representations should 

be made as early on in the claims 

process as possible. This includes 

documentation to verify both the 

claimant’s earnings and occupational 

duties and activities. 

Step 3 

After obtaining the documentation, 

a careful examination of the 

records should be performed 

regarding earnings. Any unusual 

fluctuations in these earnings as 

well as revenues, net earnings of 

the business (if the claimant is self 

employed, in a partnership or small 

corporation), and expenses of the 

business (if applicable) should be�

page 9 





FINANCIAL CASE MANAGEMENT 


analyzed and explained. For example, 

significant pre disability 

declines in earnings and revenues 

should be explained. In our experience, 

we have seen economic 

changes, loss of major clients, or 

the loss of key employees as primary 

factors for decreased revenues and 

loss of earnings. Significant 

increases in legal expenses, malpractice 

insurance, consulting fees 

and management expenses should 

be explained. Typically, this type 

of analysis should be performed for 

medical practices, clinics, law 

firms, dental practices and small 

business owners within a group 

LTD plan. 

Case Example 

A financial planner claims disability 

and receives full benefits under 

the provisions of a group long-term 

disability policy. During a routine 

analysis of the claimant’s tax 

returns, we observed some errors 

and inconsistencies on the submitted 

tax returns. We recommended 

that a Social Security earnings 

verification be performed to provide 

third party verification of earned 

income reported to the Social 

Security Administration. The Social 

Security earnings verification was 

not consistent with the tax returns 

submitted. The claimant was 

requested to provide the carrier 

authorization to obtain copies of 

his tax returns directly from the 

Internal Revenue Service to verify 

his post-disability earnings. The 

claimant refused to provide the 

authorization. The carrier, based 

upon the discrepancy between the 

earnings reported on the Social 

Security earnings verification and 

the tax returns and the unwillingness 

to provide additional financial 

documentation, closed his claim. 

Step 4 

Analyze the documentation 

obtained regarding the claimant’s 

occupation to verify the claimant’s 

pre and post disability work activity. 

Determine if the changes observed 

in work activities and duties are 

consistent with restrictions and 

limitations and medical condition. 

Regarding physicians, in many 

cases, we have been able to obtain 

the productivity data electronically. 

This allows a detailed analysis 

with minimal cost. 

Case Example 

An orthopedic surgeon with coverage 

from an association disability 

policy claims total disability 

because he cannot perform surgery. 

By analyzing the productivity of the 

The term forensic accounting is often characterized as the integration 

of accounting, auditing and investigative skills. 

claimant prior to the reported disability, 

we saw that surgical procedures 

accounted for less that one 

percent of his total pre-disability 

charges. Based upon this conclusion, 

the claimant was not considered 

totally disabled under the policy. 

Furthermore, based upon an 

analysis of the claimant’s tax 

returns, we learned that the 

claimant also owned a physical 

therapy rehabilitation center and 

reported a significant amount of 

legal expenses just prior to his 

alleged disability. Our analysis of 

the practice operations concluded 

that the claimant performed an 

extensive amount of expert witness 

work and obtained a significant 

amount of patient referrals from 

attorneys. Through further analysis 

of the legal bills we discovered 

that the claimant lied under oath 

regarding his professional credentials 

while providing expert witness 

testimony. This resulted in a �

page 10 





FINANCIAL CASE MANAGEMENT 

decrease in patient referrals from 

attorneys and significant losses to 

the practice, which were unrelated 

to his reported disability. The carrier 

attempted to administer the claim 

under the partial provisions of the 

policy and entered into a settlement 

as the loss directly due to disability 

was able to be quantified at a minimal 

amount. 

Step 5 

After documenting any trends in 

earnings and the claimant’s business/ 

practice (if applicable) determine 

if the changes in the claimant’s 

earnings and business/practice are 

consistent with the onset and timing 

of the disability. Also, determine 

if the changes in the claimant’s 

occupational duties, and activities 

are consistent with the restrictions 

and limitations represented by the 

claimant and the purported date of 

the disability. 

If the previously mentioned 

steps are completed and the reduction 

in earnings, work activities and 

duties are not consistent with the 

disability, or the claimant is not 

willing to produce the necessary 

documentation consideration 

should be given to retaining the 

assistance of an independent forensic 

accountant. The following are 

situational factors and potential 

issues, which a case manager can 

screen for to determine if the claim 

may require a forensic accounting 

evaluation: 

(Continued from page 9) Additionally, an individual who 

• Erratic earnings in the pre and 

post disability periods 

• Bankruptcy, divorce, or other 

legal issues 

• A trend of decreasing income 

prior to disability 

• Work activity levels inconsistent 

with income amount reported 

during disability 

• Claimant unwilling to provide key 

financial data 

A claimant who has a controlling 

interest in the business/practice and 

is unwilling to cooperate with the 

initial steps in the claims investigation 

should be considered a candidate 

for a referral to a forensic 

accountant for an independent 

financial evaluation. A good candidate 

is one who is experiencing 

situational factors such as a recent 

divorce, bankruptcy, legal problems, 

excessive debt, etc. A background 

check that includes license, 

litigation, and other database 

searches can be a cost effective tool 

if utilized early in an investigation. 

claims to be partially disabled for a 

long period of time with little or no 

change in his or her medical condition 

should be considered for a 

forensic accounting evaluation. 

This individual may have stabilized 

earnings but consistently qualifies 

for a benefit under the loss of earnings 

policy provisions. However, 

use of an experienced forensic 

accountant familiar with disability 

claims to help select the claimants 

considered for evaluations will 

result in cost effective and successful 

evaluations. 

The term forensic accounting is 

often characterized as the integration 

of accounting, auditing and 

investigative skills. Simply put, a 

forensic accountant looks at 

detailed records and is trained to 

look beyond the numbers and deal 

with the business reality of the situation. 

In the disability claim arena, 

it is the determination of whether 

the reduction in earnings is solely 

due to the disability or some other 

causation. It is important to work 

closely with the external professional 

forensic accountant. A final 

claim evaluation is a very detailed 

and focused analysis. A competent 

and experienced forensic accountant 

listens to your needs and builds 

on the analysis already performed 

by your internal accountant. The 

costs associated with retaining a 

qualified independent forensic 

accountant early in the claims 

process far outweigh the costs of 

paying claims for many years on a 

claim your company is not contractually 

obligated to pay. ■ 

Ernest Patrick Smith, CPA, CFE, is a partner 

at Callaghan Nawrocki LLP (“CN”) and has 

17 years of disability insurance experience 

and leads the firm’s efforts in the assurance, 

risk management and forensic 

accounting practice at CN. You can reach 

him at (631) 756-9500, extension 223 or by 

email at epsmith@cncpa.com. 

John K. Hoffman, CPA is a manager at 

Callaghan Nawrocki LLP (“CN”) and has 

nine years of disability insurance experience. 

Mr. Hoffman has performed many 

forensic accounting evaluations and provides 

insurance loss consulting services with 

regards to disability claims. You can reach 

him at (631) 756-9500, extension 228 or by 

email at jhoffman@cncpa.com.

page 11 





RESEARCH UPDATE 

1st Quarter 2005 

If your company is a direct writer of group 

disability benefits and wishes to be included 

in our list of companies invited, please 

contact ray.ayotte@ing-re.com. Industry 

surveys are designed only for ING Re 

clients, but participation is open to all disability 

insurers at no cost. 

Actuarial Profession Compensation 

Group Insurance Products 

ING Re took another look at compensation 

data from group insurance product actuaries. 

Our second annual survey gathered base 

compensation as of June 30, 2004 and 

incentive compensation paid in 2004 for calendar 

year 2003 results. Aggregate summaries 

were provided by company size, both 

nationally and regionally. The actuarial 

positions surveyed in decreasing responsibility 

were: 

• Group Actuary 

• Senior Actuary 

• Actuary 

• Associate Actuary 

• Senior Actuarial Associate 

Group Life Waiver of Premium – 

Claims Management Strategies 

In the insurance industry, waiver of premium 

(WOP) claims are handled by both 

long-term disability (LTD) claim unit 

departments and by Life Insurance claims 

By Ray Ayotte 

and Kathy Thiesen 

The following is a partial list of the industry surveys 

conducted during the last few months that were 

requested by ING Re clients and provided as a value 

added service to our reinsurance clients. The final 

reports were provided to all participating carriers. 

units, depending on the practices of each 

individual company. The skills involved in 

adjudicating these claims require features 

from both areas, which lead to variations in 

their administration. This survey examined 

practices from 30 participating companies 

from across the United States and Canada, 

and were compared in the following areas: 

• Organizational structure for adjudication 

of WOP claims 

• Organizational elements present to ensure 

effective management of WOP claims 

• Training for WOP claims analysts 

• Ongoing management of WOP claims 

that have reached maturity 

Disability Clinical Workforce – 

Composition, Attrition, and Retention 

Although the need to attract and retain 

the industry’s best and brightest workers 

is nothing new, the search for successful 

strategies continues. This survey took a 

look specifically at the clinical workforce 

in disability claims and examined the 

following issues: 

• Composition of clinical workforce 

in the disability area 

• Retention rates 

• Employee incentives for retention 

• Recruitment strategies 

• Use of temporary agencies 

Disability Benefits for Elective 

Bariatric Surgery 

The recent trend toward this controversial 

weight loss surgery is undeniable. An estimated 

140,000 bariatric surgeries were 

completed in 2004, with no known slowing 

of the trend thanks to improved outcomes 

and celebrity success stories. This survey 

investigated disability benefit payments for 

bariatric surgery claims under elective conditions, 

and criteria for inclusion with STD 

and LTD benefits. 

Accidental Death & Dismemberment 

(AD&D) – Benefit Enhancement 

Features 

A number of Canadian group insurance 

companies have enhanced their group 

AD&D benefits by providing additional 

benefits for certain accidental occurrences. 

This survey gathered Canadian 

group insurance industry information 

regarding coverage features for special 

conditions under the AD&D benefit: 

• Payment for plegias (hemiplegia, paraplegia, 

quadriplegia) 

• Principal sum multiplier for claimant 

benefit payment 

• Additional allowances for AD&D benefits 

Insuring Contract Employees in 

Canada 

It is common to outsource certain work 

assignments to individual contractors for 

extended periods of time. Generally, these 

workers are not eligible for benefits under 

the employer’s group insurance plan, but 

an increasing number of employers have 

requested that such contract employees, 

particularly those who are self-employed 

and do not have employee benefits 

through their contracting firm, be eligible 

for the same employee benefits as regular 

full time employees. These requests present 

unique underwriting challenges for 

insurers, particularly for disability insurance 

benefits. This survey examined how 

group insurers handled requests to insure 

contract employees under traditional 

employer/employee group insurance plans. 

Upcoming Surveys: 

• Quality Assurance Programs and 

Disability Claims 

• Training Strategies for Disability 

Claims Adjudicator 

• Corporate Ethics and Responsibility 

• Group Disability Claims Management 

Benchmarks (2005) 

Ray Ayotte, FLMI has 

more than 35 years 

of group insurance 

industry experience in 

Canada and the United 

States and is Manager, 

Research at ING Re. 

Kathy Thiesen, RN, 

Market Research 

Analyst has been with 

ING Re for five years 

and has more than 

10 years of insurance 

industry experience.




Upcoming Disability Insurance Meetings 

Following is a partial list of industry meetings dealing with a variety of disability insurance topics. If you 

know of any other disability insurance conferences that could be added to our list, please let us know. 

INSURANCE REHABILITATION STUDY GROUP 

Contact: Dan Abramowski • 612.342.7212 Chicago, IL May 2-4, 2005 

CLHIA – ANNUAL CLAIMS SECTION MEETING 

Contact: Irene Klatt • 416.777.2221 St. John, NB May 10-13, 2005 

GROUP UNDERWRITERS ASSOCIATION 

OF AMERICA (GUAA) 

http://www.guaa.com San Francisco, CA May 22-25, 2005 

SOA SPRING MEETING – HEALTH & PENSION 

http://www.soa.org New Orleans, LA June 15-17, 2005 

CASE MANAGEMENT SOCIETY 

OF AMERICA (CMSA) 

Contact: Dan Abramowski • 612.342.7212 Nashville, TN June 15-19, 2005 

http://www.cmsa.org/Conference/2004NASH/SaveTheDate.aspx 

CANADIAN INSTITUTE OF ACTUARIES – 

ANNUAL CONFERENCE 

Contact: Joanne St. Pierre • 613.236.8196 x106 St. John’s, NF June 28-29, 2005 

http://www.actuaries.ca/meetings/calendar_e.html 

ING RE ROSE SEMINAR 

Contact: Mark Taylor • 800.378.6965 Minneapolis, MN July 31-Aug. 2, 2005 


DISABILITY FORUM 

Disability Forum is published by the 

Disability Reinsurance Team of ING Re. 

This publication’s mission is to provide 

news and information to disability insurance 

professionals and thereby advance 

knowledge regarding disability insurance. 

The information contained in the articles 

represents the opinion of the authors and 

does not necessarily imply or represent the 

position of the editors or ING Re. Articles 

are not intended to provide legal, consulting 

or any other form of advice. Any legal 

or other questions you have regarding your 

business should be referred to your attorney 

or other appropriate advisor. 

Copyright © 2005 ING North America 

Insurance Corporation. All rights reserved. 

ING Re includes the reinsurance business of 

ReliaStar Life Insurance Company of 

Minneapolis, Minnesota, a member of the 

ING family of companies. No portion of 

this publication may be reproduced without 

permission from the publisher. For 

more information about articles, contact 

Ray Ayotte, Newsletter Editor, Disability 

Reinsurance, ING Re, PO Box 20, Minneapolis, 

MN 55440-0020; telephone (800) 378-6965 

or via email at ray.ayotte@ing-re.com. 

If you would like more information or copies 

of Disability Forum, or wish to submit an article 

or comment, please call us at the number 

above or write us at the address above. 

EDITORIAL BOARD 

Actuarial Services: Jeff Schuh, FSA, MAAA 

Claim Services: Mark Taylor, MS, CDMS, CCM 

Research Services: Ray Ayotte, FLMI, HIA 

Underwriting Services: Curt Zepeda

An Individual's Disabled Life Reserve – E. Pluribus Unum

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