Insurance Carrier Performance Guarantees Can Benefit All Parties

October 23, 2013 ( - Employers want to get absent employees back to work in a productive capacity as soon as they are ready and able to return to work. That concern makes sense.

According to Mercer’s 2010 study, “The Total Financial Impact of Employee Absences,” combined direct and indirect costs of absences average an equivalent of 35% of base payroll. In other words, the total for incidental and extended absences was more than half the cost of health care as Mercer measured them in a 2009 study.  Add to this the fact that most employees on disability are anxious to return to work and their former level of productivity.

The high cost of absences illustrates the need for employers to carefully select an outsourced insurance carrier as their partner for disability insurance and absence management. The presence of performance guarantees (PGs) can help companies identify carriers that will follow through on the commitments they make and the services provided to employees. PGs achieve this goal because the guarantees and the risk of noncompliance penalties motivate carriers to process claims promptly and facilitate employees’ return to work, either full-time or in part-time arrangements.

PGs 101 

PGs can cover multiple points, although they usually focus on processing times and customer satisfaction. The carrier’s commitments could include decision times, resolution times and the financial accuracy of adjudications versus the contract’s requirements. Employers can negotiate other metrics with the carrier to meet the employer’s specific requirements.

PGs generally appeal to larger employers with 1,000 or more employees, although smaller firms use them occasionally. One reason for participation among larger firms is the problem of measuring performance accurately with small groups. For example, a 1,000-life group will typically generate 60 to 80 short-term disability claims in a year. If a group is much smaller than that size, it’s hard to consistently measure performance because there normally will be significantly fewer claims.

The Employer’s Role 

The employer’s role goes beyond negotiating PGs with the carrier because it’s in the employer’s best interest to facilitate the claims-review and adjudication process. For example, speed-to-decision is a common PG. That decision doesn’t occur in a vacuum, however. Prompt evaluations and decisions require cooperation from employers, employees and physicians.

Employers can facilitate decision times by ensuring employees file claims in a timely manner. This involves making employees aware of their obligations to see doctors and submit required medical information on time. These steps help the carrier collect critical information more promptly, which accelerates the claims process and ultimately employees’ return to work.


Independent audits of claims cases that the carrier has processed allow employers to assess PG-compliance. There are several different methods for conducting audits. Plan consultants and insurance producers may offer to provide the audits as part of their relationship with the employer. For example, the consultant/producer usually evaluates multiple carriers’ disability and absence management programs, including PGs. As part of the relationship, the consultant/producer might offer to perform audits at the vendor’s site on the employer’s behalf. Another option is to work with a firm that specializes in PG audits. Employees at these firms frequently have claims work-experience at insurance carriers.

Multiple Benefits 

Performance guarantees increase employers’ confidence that the insurance carrier to which they’re outsourcing key capabilities will follow through on contractual commitments. In today’s competitive environment, PGs can help employers and consultants differentiate among the insurance carriers providing disability and absence management services.


Eric Hamilton, vice president, Disability Products and Absence Management, Prudential Group Insurance


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.