Generally, insurance companies don't make their money from the monthly premiums you pay. That money goes to investments, meaning the company's finances depend largely on market interest rates and returns. But how might an insurance company compensate for falling rates over which they have no control? According to Ray Bourhis, an attorney whose firm took on the country's largest disability insurance firm, the answer is: If rates won't budge, maybe the claims of policyholders will.
The high interest rates of the 1980s created a boom period for the insurance industry. When market predictions foresaw continued high rates, three major providers began selling disability packages that included fixed premiums, anticipating ongoing investment revenues would cover the impact of long-term claims. But they didn't.
By 1994, companies like Provident began making their claims departments more stringent, Bourhis writes in CorpWatch. Among other initiatives, Provident began to administer independent medical examinations (IMEs) using company-picked doctors. The shift broke an intuitive and fundamental rule that should govern the insurance business: The financial status of the provider should not influence the process by which one determines a claim valid or invalid. Or, simply put, the health of a company should not determine that of its clients.
What's to keep insurance companies from abusing their claims systems? According to Bourhis, certainly not the federal government, thanks to legislation passed in 1945 that forbids the creation of any federal insurance consumer protections whatsoever. State governments, on the other hand, have regulatory agencies that conduct investigations that, at best, administer often negligible fines that merely punish the provider rather than help a wronged policyholder.
The only way for a defrauded claimant to be rightfully
compensated is if she privately sues an insurance company, facing
off with legions of legal experts. However, Bourhis writes, since
1987, when the US Supreme Court ruled disability policies purchased
through the workplace are no longer subject to state lawsuits, many
policies seem to have become immune to legal repercussions
-- Ty Otis
Go there >>Bad Faith: Fraud in the Insurance Industry