| Liability for Future Policy Benefits and Unpaid Claims Disclosure | Note 12. Policy Benefits and Claims Policy benefits and claims is the liability for unpaid loss and loss adjustment expenses. It is comprised of unpaid claims and estimated IBNR reserves related to the Company’s short-duration contracts. Summarized below are the changes in the total liability for policy benefits and claims for the years indicated (in thousands). Amounts incurred below do not include expenses for policy benefits and costs incurred for the Company’s life, annuity and other long-duration contracts. In addition, certain loss adjustment expenses related to short-duration contracts that are included in amounts incurred below are classified as selling general and administrative expenses on the Consolidated Statements of Income. 2020 Specialty DBL and Group All Other Health PFL Disability Lines Total Balance at beginning of year $ 42,228 $ 23,438 $ 80,079 $ 19,057 $ 164,802 Less: reinsurance recoverable 1,717 664 23,322 11,290 36,993 Net balance at beginning of year 40,511 22,774 56,757 7,767 127,809 Amount incurred, related to: Current year 89,379 78,443 34,109 18,189 220,120 Prior years (4,283) (3,478) (1,689) (3,284) (12,734) Total incurred 85,096 74,965 32,420 14,905 207,386 Amount paid, related to: Current year 57,262 43,949 12,355 12,174 125,740 Prior years 26,666 18,971 18,318 2,394 66,349 Total paid 83,928 62,920 30,673 14,568 192,089 Net balance at end of period 41,679 34,819 58,504 8,104 143,106 Plus: reinsurance recoverable 1,776 430 22,472 11,448 36,126 Balance at end of period $ 43,455 $ 35,249 $ 80,976 $ 19,552 $ 179,232 2019 Specialty DBL and Group All Other Health PFL Disability Lines Total Balance at beginning of year $ 38,363 $ 21,080 $ 82,222 $ 18,450 $ 160,115 Less: reinsurance recoverable 1,335 719 24,712 11,356 38,122 Net balance at beginning of year 37,028 20,361 57,510 7,094 121,993 Amount incurred, related to: Current year 82,678 65,452 31,463 16,531 196,124 Prior years (5,879) (6,489) (5,192) (2,734) (20,294) Total incurred 76,799 58,963 26,271 13,797 175,830 Amount paid, related to: Current year 49,669 42,803 11,794 11,053 115,319 Prior years 23,647 13,747 15,230 2,071 54,695 Total paid 73,316 56,550 27,024 13,124 170,014 Net balance at end of period 40,511 22,774 56,757 7,767 127,809 Plus: reinsurance recoverable 1,717 664 23,322 11,290 36,993 Balance at end of period $ 42,228 $ 23,438 $ 80,079 $ 19,057 $ 164,802 Since unpaid loss and loss adjustment expenses are estimates, actual losses incurred may be more or less than the Company’s previously developed estimates and is referred to as either unfavorable or favorable development, respectively. Net favorable (unfavorable) development in the Specialty Health segment, as depicted in the tables above, is comprised of the following lines of business for the years indicated (in thousands): Specialty Health segment: 2020 2019 Short-term Medical $ 1,425 $ 1,850 Occupational Accident 1,460 2,054 Fixed Indemnity Limited Benefit (1,280) 166 Limited Medical 407 474 Critical Illness 434 325 Group Gap 616 132 Pet 618 128 All other specialty health lines 603 750 Total Specialty Health segment $ 4,283 $ 5,879 In 2020, net favorable development in the various lines of the Specialty Health segment shown above is primarily due to better than expected claim development. Unfavorable development in the Fixed Indemnity Limited Benefit line in 2020 is primarily due to higher than expected claim severity on a small number of older policies. In 2019, favorable development in short-term medical business was due to paid claim activity that was below anticipated levels as medical investigations were completed and the reliability of claim payment patterns at a newer claim administrator emerged. Additionally, favorable development occurred in the occupational accident line, in run-off, mainly due to some claims settling for amounts less than anticipated and due to a lower level of employer liability claims than anticipated in relation to historical levels, and favorable development in other various lines of Specialty Health business is primarily due to better than expected claim development. The net favorable development in the DBL and PFL business of $3,478,000 and $6,489,000 in 2020 and 2019, respectively, is primarily due to both favorable adjustments to prior year DBL premium refund reserves and better than expected DBL claims experience. In 2020, favorable development of $1,689,000 in the group disability business is primarily due to a reduction in the number of open claims and a reduction in the severity of new claims, specifically, new claims in the LTD line, partially offset by an increase in the overall frequency and severity of claims in the STD line. In 2019, favorable development of $5,192,000 in the group disability business is primarily due to better than expected claim development in terms of duration and net payments in the LTD business. All other lines, primarily life and other individual health products and including our medical stop-loss business in run-off, experienced favorable development in 2020 and 2019 that is primarily related to the group term life business due to continued improvements in experience. Specialty Health Segment The following tables provide undiscounted information about net incurred and paid claims development by accident year for significant short-duration contract liabilities for policy benefits and claims in our Specialty Health segment. All amounts are shown net of reinsurance. In addition, the tables present the total IBNR plus expected development on reported claims by accident year and the cumulative number of reported claims (in thousands, except number of reported claims). Refer to Note 1 for information on the methods we use to estimate IBNR plus expected development, as well as changes to those methodologies and assumptions. Five years of claims development data is presented for lines that are included in our Specialty Health segment since a majority of the claims are fully developed in that time. Certain information about incurred and paid claims is presented as supplementary information and unaudited where indicated. Specialty Health Segment –Claims Development December 31, 2020 Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance Incurred But Cumulative For the years ended December 31, Not Reported Number of Accident 2016 2017 2018 2019 Plus Expected Reported Year (unaudited) (unaudited) (unaudited) (unaudited) 2020 Development Claims ( Actual ) 2016 $ 85,426 86,466 86,244 85,399 $ 85,759 $ 798 538,115 2017 87,070 77,214 77,194 77,379 611 631,101 2018 74,652 69,206 71,394 3,105 673,634 2019 82,926 76,032 4,512 652,408 2020 89,379 32,117 602,536 Total $ 399,943 Specialty Health Segment –Claims Development Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the years ended December 31, Accident 2016 2017 2018 2019 Year (unaudited) (unaudited) (unaudited) (unaudited) 2020 2016 $ 45,454 78,611 82,983 84,238 $ 84,961 2017 49,289 73,667 75,918 76,768 2018 46,574 64,947 68,289 2019 49,670 71,521 2020 57,262 Total $ 358,801 Outstanding policy benefits and claims payable before 2016, net of reinsurance 537 Total policy benefits and claims, net of reinsurance $ 41,679 The claim frequency information consists of the count of claims submitted. Each claim was counted as one claim whether or not multiple claim lines were submitted with that claim, and each claim was counted whether or not it resulted in a liability. For those portions of business that did not have claim records readily available, a reasonable count assumption was made based on a comparison to the known records of a similar business type. Cumulative claim count information is not a precise tool for calculating claim severity. Factors, such as changes in provider billing practices, the mix of services, benefit designs or processing systems could impact this type of analysis. The Company does not necessarily use the cumulative number of reported claims disclosed above in its claims analysis but has provided this information to comply with accounting standards. The following is supplementary information about the average historical policy claims duration for the Specialty Health segment as of December 31, 2020: Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) Year 1 Year 2 Year 3 Year 4 Year 5 Specialty Health Segment 62.3% 31.2% 4.2% 1.3% 0.8% Included in the preceding rollforwards of the Company’s liability for policy benefits and claims are the policy benefits and claims activity associated with the Company’s health insurance lines. These are embedded within the Specialty Health segment. The table below summarizes the components of the change in the liability for policy benefits and claims that are specific to health insurance claims for the years indicated (in thousands). Specialty Health Segment Health Insurance Claims 2020 2019 Balance at beginning of year $ 31,259 $ 26,068 Less: reinsurance recoverable 1,113 851 Net balance at beginning of year 30,146 25,217 Amount incurred, related to: Current year 38,602 51,479 Prior years (2,208) (3,517) Total incurred 36,394 47,962 Amount paid, related to: Current year 20,659 25,738 Prior years 19,352 17,295 Total paid 40,011 43,033 Net balance at end of period 26,529 30,146 Plus: reinsurance recoverable 1,766 1,113 Balance at end of period $ 28,295 $ 31,259 The $26,529,000 net balance of the Company’s health insurance claims liability at December 31, 2020 shown in the table above is all IBNR plus expected development on reported claims. Group Disability, Life, DBL and PFL Segment The following tables provide undiscounted information about net incurred and paid claims development by accident year for significant short-duration contract liabilities for policy benefits and claims related to our DBL, PFL and group disability policy claims (in thousands). All amounts are shown net of reinsurance. Refer to Note 1 for information on the methods we use to estimate IBNR plus expected development, as well as changes to those methodologies. One year of claims development data is presented below for our DBL and PFL claim liabilities as substantially all of the claims are developed in under one year. At December 31, 2020, the liability for IBNR plus expected development related to our DBL and PFL business was $34,819,000 and: (i) relates to the current accident year; and (ii) includes an accrued liability at December 31, 2020 for a potential risk adjustment payment of $24,000,000 associated with the PFL rider due to expected better than industry claims experience. Prior year favorable incurred development of $3,478,000, and amounts paid related to prior years of $18,971,000, were recognized during 2020 year on DBL and PFL business. While most of this is recognized in the first few months of the year, some of it is recognized during the remainder of the year due to the ability of claimants to take intermittent leave under the PFL benefits. The incurred claims and claim adjustment expenses, net, for the 2013 accident year include the acquisition of $15,384,000 of disability policy benefits and claims liabilities from a Receivership. Claim frequency information consists of the count of unique claims where a benefit has been paid, whether that benefit was paid for one month or multiple months. Any claims where a benefit has not been paid are not in the count. Cumulative claim count information is not a precise tool for calculating claim severity. Changes in reinsurance and other factors, such as those described in Note 1, could impact this type of analysis with regards to our group disability business. The Company does not necessarily use the cumulative number of reported claims disclosed above in its claims analysis but has provided this information to comply with accounting standards. Unpaid claim liabilities related to our group disability policies is presented at present value. The following is additional information on unpaid claims liabilities presented at present value (in thousands): Carrying Value of Aggregate Amount Unpaid Claim Liabilities of Discount December 31, December 31 2020 2019 2020 2019 Group disability $ 58,504 $ 56,756 $ 9,780 $ 10,382 Discount rates for each of the years ended December 31, 2020 and 2019 ranged from 2.5% to 6.0%. Insurance benefits, claims and reserves on the Consolidated Statements of Income for the years ended December 31, 2020 and 2019 include the accretion of interest amounting to $1,448,000 and $1,524,000, respectively. The following is supplementary information about the average historical claims duration for our group disability business as of December 31, 2020: Group Disability Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 16.7% 18.1% 5.8% 2.7% 2.0% 1.8% 1.4% 0.9% 0.6% 0.4% The following table reconciles the above disclosures of undiscounted net incurred and paid claims development for significant short-duration contract liabilities to the liability for policy benefits and claims on the consolidated balance sheet (in thousands). December 31, 2020 Net outstanding balances: Specialty Health Segment $ 41,679 DBL/PFL 34,819 Group disability 68,284 Other short-duration insurance lines 7,827 Policy benefits and claims, net of reinsurance 152,609 Reinsurance recoverable on unpaid claims: Specialty Health Segment 1,776 DBL/PFL 430 Group disability 22,472 Other short-duration insurance lines 11,448 Reinsurance recoverable on unpaid claims 36,126 Insurance lines other than short-duration 277 Aggregate discount (9,780) Total policy benefit and claims $ 179,232 |
