In the 1980’s many insurance companies recognized that there was a lucrative market in selling long term disability insurance policies to young healthy individuals. These policies were designed to insure an individual in the event that they became disabled and could not perform the duties of their own occupation. These non-cancelable policies often had relatively generous terms with regard to the definition of disability, a lifetime payout and a built in cost of living adjustment.
However, the lucrative cash cow became a financial nightmare for disability insurance carriers such as Unum, Paul Revere, Provident Life and others. Poor underwriting policies and under pricing in a competitive market, lead to a massive number of these policies being written on the expectation of substantial investment returns based on the high interest rates at the time. However, by the 1990’s claims on these disability policies began to increase at the same time interest rates and investment returns began to drop.
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Provident Life publicly admitted to the Securities and Exchange Commission that one of its principle solutions to its losses was to “improve its claims handling procedures,” a thinly veiled euphemism for increased claims terminations and denials. Since insurance carriers could not control investment returns or the fact that their policy holders were aging and filing more claims, they did they only thing that was in their control, refuse to pay claims.
The industry devised a series of measures designed to control claims costs. These included systematically searching for “misrepresentations” in the policy holders initial applications, requiring “objective” evidence of disability even though the policy didn’t require it, redefining a claimant’s “own occupation”, using ERISA preemption offensively, use of biased insurance medical evaluations and an increased use of video surveillance.
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The result of these “cost control” measures is that to this day thousands of individuals that had paid their disability premiums for years have been left in financial ruin because of their own insurance company’s broken promises. Marc Whitehead & Associates is a national law firm dedicated to helping the disabled with long-term disability insurance denials.
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