Until the early 1990s, disability insurance companies aggressively marketed disability insurance to professionals like doctors and lawyers.  The policies included many "bells and whistles" like the following:

• favorable pricing;
• the policy cannot be canceled by the insurance company so long as the insured pays the premium;
• the policy is guaranteed to be renewable each year by the insured; 
• when renewed, the premium remains level and cannot be increased by the insurance company;
• the policy protects the insured in the event he or she cannot perform her occupation;
• the policy may further protect the insured in the event he or she cannot perform his or her particular specialty such as emergency medicine, surgery, or litigation.

In the mid-1990s it became clear that the insurance companies had grossly underestimated the number of claims. Insureds who were once young and healthy began to reach the 45 to 55-year-old age range and began becoming disabled in large numbers. This increase in claims included emerging medical conditions and syndromes that the insurance industry had not considered when the policies were written. Diseases and conditions ranging from carpal tunnel syndrome, fibromyalgia, chronic fatigue syndrome, Epstein-Barr virus related conditions, and various mental disorders made their appearance in a vigorous way.

Occupations previously thought to be at low risk for disabling injury suddenly became insurance mine-fields. To aggravate the problem many of the medical conditions had few available treatments and were incorrectly viewed by the industry as purely subjective conditions with little or no objective evidence.

As claims mounted, many insurance companies stopped writing disability policies altogether and those who remained in the business drastically cut back their product portfolio.  Those still selling disability insurance consolidated. In fact, UnumProvident, the nation's largest disability insurer, is the result of a merger between UNUM, Provident and Paul Revere.  UnumProvident, now sells or administers the majority disability insurance policies in the US.  

The new policies are not as generous and now feature limitations and exclusions to limit exposure.  The policies are now cancelable, premiums may be raised in certain situations, benefits are capped at age 65, and they may require rehabilitation programs before benefits are paid. For claims involving certain mental disorders or other conditions the benefits may be limited to two years.

Consolidation and changes to product offerings however, were not enough to stop the money being hemorrhaged by insurance companies.  Some companies embarked upon aggressive efforts to cut-off payments.  

Often disability insurers go too far and engage in bad faith tactics to avoid honoring a contract. For example, between 1992 and 2002 there have been an estimated 10,000 lawsuits for denial of claims against UnumProvident.  Recently, UnumProvident was the subject of investigations by the prime-time television news magazines Dateline and 60 Minutes.

Illegal Tactics

The laws of many states declare the following tactics to be illegal:

• Giving greater weight to the interest of the insurance company over the interest of  the insured;
• Refusing to pay claims without conducting a reasonable investigation based upon all available information;
• Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
• Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds;
• Attempting to settle a claim for less than the amount to which a reasonable person would have believed that person's own self was entitled by reference to written or printed advertising material accompanying or made part of an application.

For information concerning sanctions levied against one disability insurer, UNUMProvident Corporation, in particular click here.