has revealed that long-term disability (LTD) incidence rates are directly linked to GDP. Rather than rising when the economy is at a low ebb, however, LTD claims actually drop when GDP decreases and increase when the financial outlook improves.
It sounds counter-intuitive, but there’s solid reasoning behind this theory, as John Carinci
, vice-president, group & business markets at RBC Insurance explains.
“During uncertain economic times, employees are worried about job security,” he says. ”That creates a lot of mental and physiological stress. So when GDP rises, workers begin to feel more secure, and it’s almost like that pent up stress and anxiety takes its toll and results in people succumbing to illness and having to take leave from work.”
These findings were developed over a period of six years using data from over 300,000 RBC Insurance group benefit clients. The algorithm used can help predict disability rates up to two years in the future, with RBC Insurance predicting LTD incidence rates will decrease by 3.2 per cent on average through the first half of 2017 compared to the last six months of 2016. As the economy improves in the latter half of the year, claims are then expected to be 2.1 per cent higher relative to 2016’s totals.
It has taken years of work to develop this model, and it’s something RBC Insurance is immensely proud of.
“What we felt was incredibly ground-breaking with this research was the quantitative model itself,” says Carinci. “The relationship with GDP was so strong that it explained 50 per cent of the variance in LTD incidence. It was an extremely powerful tool that provided a lot of useful insights for both business owners and their employees.”
Given the fact that one-in-three employed Canadians will be off work for 90 days or longer at some point during their career due to disability, this research obviously has great merit and far-reaching implications for the insurance industry.
The majority of long-term disability claims are stress-induced, with depression and circulatory diseases such as heart attacks common maladies.
Businesses spent almost $7 billion for LTD coverage in 2015, which is the third largest cost to a group benefits plan after health and dental. It’s a significant number, but there’s a lot more that can be done according to Carinci.
“There is a tremendous amount of value to the clients,” he says. “That’s why we thought it was so important to share the insights of this study. It helps create additional focus on things like an employee assistance program. That can help employees as GDP rises knowing that increased LTD claims is a likely outcome when we see those economic cycles.”
He adds: “Employers need to proactively take steps to ensure they have adequate staffing levels during times of positive economic growth. There should be a buffer in hiring plans to account for the potential increase in disability claims they will likely incur. We also think it is important that employers look for flexible group plans that allow for employees to return to work on a part-time basis, while still receiving benefits.”
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