Research using a proprietary algorithm developed by RBC Insurance shows that group long term disability (LTD) incidence rates will rise and fall with the cyclical movement of gross domestic product (GDP). Contrary to what you may think, as GDP accelerates or the economy grows, there is an increase in the incidence of LTD claims. When GDP drops, so do the incidence of claims. Using the RBC Insurance Group LTD Forecast to predict disabilities can help businesses manage costs related to claims, retain employees and ensure adequate staffing during critical seasons, while better supporting those employees when they need it most.
Can you estimate with any accuracy when disabilities among working Canadians are more likely to occur?
And how could this knowledge help businesses and employees?
Based on new research using a proprietary algorithm, RBC Insurance has discovered that many long term disability (LTD) claims can actually be predicted through a link with GDP rates that can now help businesses anticipate, and put in place contingency plans to support employees and keep their operations running smoothly.
Given that one in three employed Canadians will be off work for 90 days or longer at some point during their career due to disability, the chances are not as low as you might think. And while most Canadians (72 per cent) think the leading cause of disability is physical or workplace accidents, in fact, a majority of long term disability claims are stress-induced, from mental or nervous system disorders, such as depression or anxiety, to circulatory diseases such as heart attacks. 1
"We've long been aware of seasonal trends to LTD claims, but what we've now discovered is a link between the incidence of claims with the rise and fall of GDP," says John Carinci, vice-president, group & business markets, RBC Insurance. "Contrary to what many think, the RBC Insurance Group LTD Forecast highlights that LTD claims increase while GDP is rising and the economy is doing better. And when GDP falls, so do LTD claims."
GDP and LTD claims
Why would this be? It may seem strange at first blush that claims increase when times are good, but RBC Insurance believes that it's similar to a prolonged adrenaline rush putting stress on the body. During challenging or uncertain economic times, workers are worried about job security and performance, creating significant mental and/or physiological stress. As GDP rises and the economic outlook brightens, workers begin to feel more secure and that pent up stress and anxiety takes its toll, which results in them succumbing to illness and taking a leave from work to recoup.
"Long term disability claims can negatively impact both employees and businesses. Employees must deal with the significant emotional and financial stress of being off, while business owners can be particularly hard-hit as they lose employees right when they need them to gear up during times of economic recovery," said Carinci.
Can predict disability rates up to two years
The RBC Insurance Group LTD Forecast was developed over six years using data from over 300,000 RBC Insurance group benefit clients. The algorithm can help predict disability rates up to two years in the future when using RBC economic forecasts. For instance, RBC Insurance predicts that LTD incidence rates will decrease by 3.2 per cent on average through the first half of 2017 when compared to the last six months of 2016. However, by the end of 2017 LTD incidence rates are expected to be 2.1 per cent higher relative to last year driven by a more positive outlook for the Canadian economy.
"For years we observed cyclical trends with the claims we were seeing but thanks to the team's efforts and many late nights developing and analyzing the algorithm's data, we have a much clearer picture around the timing of new LTD claims. We're hoping that by sharing this information we can help employees and businesses proactively manage and prepare for these claims," added Carinci.
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).2 Understanding the correlation between GDP and LTD claims will help businesses manage costs related to claims, help prevent some claims from even happening, ensure adequate staffing during critical seasons, and help employees when they need it the most to quickly get back on their feet after an illness.
1 RBC Insurance Survey 2014
2 Fraser Group- Group Universe Report July 2016
RBC Insurance® offers a wide range of life, health, home, auto, travel, wealth and reinsurance advice and solutions, as well as creditor and business insurance services to individual, business and group clients. RBC Insurance is the brand name for the insurance operating entities of Royal Bank of Canada, one of North America's leading diversified financial services companies. RBC Insurance is among the largest Canadian bank-owned insurance organizations, with approximately 2,500 employees who serve more than four million clients globally. For more information, please visit rbcinsurance.com