Insurers should set return to work as their goal in disability claims, but sometimes a settlement is the best outcome for both parties, according to Gen Re Principal Claims Adviser Rob Frank.

“In some circumstances where [a return to work] cannot be achieved, or where both parties would benefit from a settlement, then it becomes our moral, rather than contractual, duty to offer the alternative option of a lump sum payment,” he says.

Gen Re suggests insurers rank their disability claims.

The first category includes those that can be settled within eight weeks, followed by cases that will require claims management to achieve an outcome.

Difficult claims that are unlikely to result in a return to work and cases with less than 10 years of benefits are suitable for an agreed settlement, the reinsurer says.

Usually such claims would feature severe mental health problems, insureds aged over 50, people who live in remote locations, or certain occupations.

“Insurers may assign the process of identifying and assessing suitability of a claim for settlement to a third party, to allow the case assessor to maintain their existing relationship with the policyholder,” Mr Frank says.

This also allows “a fresh perspective and review of the claim”.

Gen Re says when a claim is passed for settlement, the insured should be advised to seek legal and financial advice to consider tax implications.

“This approach offers some protection to the insurer should the settlement process subsequently be challenged,” Mr Frank says. “The policyholder should be advised that review of a potential settlement and any subsequent negotiations should not give rise to the expectation that a settlement will proceed.

“Parties are often focused on dollar amounts rather than focusing on eligibility and suitability for the settlement to be made.”

Any lump sum settlement should be supported by evidence from the most recent medical records. The insurer must also seek confirmation from the insured’s doctor that they are capable of making a reasoned decision on any offers. This is particularly important in mental health claims. 

“This would be the recommended best practice even for those cases where the life insured has not appointed a power of attorney,” Mr Frank says.

“It is recommended the same level of concern is given to those cases where there is evidence of a history of gambling, alcohol or drug abuse, episodes of mania or excessive spending.”

Any full settlement offer should have a time limit.

“In the event that a settlement figure is agreed by all parties, it is recommended that the terms of the settlement are clearly set out in writing,” Mr Frank says.