Navigating a disability insurance policy is challenging for the average person. They are written for attorneys, not consumers. The same can be said about the insurance companies.
Protective Life Insurance Company is the reinsurance company for Liberty Life Insurance, which was purchased by Lincoln Insurance. What’s more, Protective Life Insurance purchased Great-West Life & Annuity Company this year. The Great West purchase was the 57th acquisition by Protective, which itself is a U.S. subsidiary of Dai-ichi Life Holdings.
Protective Life Corporation is a huge corporation, with a large number of employees to service owners of its 8.6 million policies/contracts. One person’s disability claim dispute is a very small part of their business. But that’s just one reason why it makes sense to work with a disability insurance attorney.
Re-insurance is a complex area of insurance, and with Protective Life serving as the reinsurance disability business owned by Liberty (purchased by Lincoln, as above), what does that mean for the claimant? The reinsurance market for individual disability insurance has undergone several changes.
Industry leaders readily acknowledge that the disability insurance business has led to many large, well-known companies like Paul Revere, Lincoln National, and Employers Re leaving the business entirely. Other companies are consolidating. And yet reinsurance companies are still interested because, for their model, the disability business can be profitable.
We urge disability claimants to immediately open any paper mail they receive from any insurance company if they are in the process of filing a claim or if they are on claim because there are so many moving parts in the insurance world that you may not recognize the company sending you a time-sensitive letter. Missing an important deadline because you tossed an envelope from an unfamiliar company is a bad reason to lose your disability benefits.
Here’s a look at how disability and reinsurance works together. Disability income is first and foremost about risk. Will the person who has disability insurance coverage become disabled and need to file a claim? If so, how much will the exposure of the insurance company be, and can it be limited? Through the use of reinsurance, the insurance company can issue policies that are larger than it otherwise would sell, with the hope that they won’t have to pay out on all of their policies. They then reinsure these policies, hence the term “reinsurance.”
This is a way for a long-term disability insurance company to spread the risk or liability that is incurred every time they sell a long-term disability policy.
In less formal terms, the disability insurance company is making a bet with the reinsurance company that while they may sell $5 million in disability coverage, they won’t have to pay out more than $2.5 million. The reinsurer sells what’s called a “treaty” to the disability insurance company, and then both companies hope that their bets are right.
Of course, the reinsurance process is far more complex than described here. There are large departments of economists and actuaries who work on the numbers, developing pricing for both disability and reinsurance and making data-driven decisions on how this will all work. For any large disability insurance company, the use of a reinsurance treaty gives some level of protection to their risk liability.
For certain companies, the reinsurance is done on a case-by-case basis, where the company looks to see how much exposure it is willing to take on, how much risk they can reinsure, and what their profit margins will be. Others look at reinsurance on a particular type of long-term disability insurance policy that is sold or a profession that is marketed to, like dentists or chiropractors.
For Protective Insurance company disability policy claimants, how the company creates its own risk management is the least of their concerns. But we believe that the more our clients know about how the business of disability insurance works, the better off they are. They may not know that one company insures their policies with another, or that representatives from the reinsurance company are as likely to be involved in the disability claims process as people from the disability insurance company itself.
What disability claimants do need to know is that Frankel & Newfield is an experienced disability law firm with many years of experience fighting big companies on behalf of our clients. If you’d like to learn more about what we do for our clients, we invite you to call us at 877-583-2524 for a free consultation.
Secrets the Disability Insurance Companies Don't Want You to Know!