Fewer income protection claimants are returning to work post-claim and the number of claims on policies with longer deferred periods is rising, according to research from the Faculty and Institute of Actuaries.
Ross Ainslie, product actuary at GeneralCologne Re, said that in 1991 the recovery of claimants reached 48% of the expected rates on policies with a 26-week deferred period, falling to 39% of the expected rate by 1997.
"Between 1995 and 1997, recoveries look around 10% worse than between 1991 and 1994," he said.
While the shift does raise some concerns, Ainslie said that income protection providers are unlikely to re-price as a result.
"Actuaries will need to see a few more years data before they make any decisions," he said.
However, with rehabilitation and active claims management becoming an integral part of income protection, he is hopeful that this trend should reverse.
"Until the early 1990s, many claims departments were simply sending out cheques. But offices are now investing heavily in teams to help manage claims. Companies such as Norwich Union and Permanent Insurance have gone to a lot of effort to check claimants and help get them back to work. But this is not coming through in the data so far."
While he said it was impossible to tell what has caused this trend, Ainslie said the tax treatment of benefits might have played a part.
"In 1996, the tax treatment of benefits changed and so benefits are now paid free of tax. This has meant that many policyholders are better off being disabled," he said.
The findings are based on a report from the Faculty and Institute of Actuaries, entitled CMIR18, which spans the 1990s up to 1997 and is the first set of comprehensive, up-to-date data on income protection that will help insurance companies with pricing. Figures for 1998 are expected to be added later in the year.
The report also showed how claims incidence is rising on policies with a 52-week deferred period. Claims for 1995-1997 are 15%-20% higher than in the years between 1991 and 1994, which may lead to prices being reviewed.
This increase may be attributed to ASU policies covering mortgage payments for the first year of sickness being sold in conjunction with an IP policy with a 52-week deferred period. As benefits are paid immediately, there is less of an incentive for claimants to return to work.
Ainslie said: "Clients can get settled into a disabled lifestyle very quickly this way." However, he added that claims experience on policies with deferred periods of four weeks is looking good.
"This may be because claims come through much quicker and so companies are more thorough."
