Your clients' employees are much more likely
to become disabled than to die--are they covered?
By Elisabeth Boone, CPCU
Rick Magro is vice president of product design and marketing for UnumProvident Corporation, Chattanooga, Tennessee.
Relentlessly rising health care and prescription drug costs ... economic uncertainty ... an aging workforce ... these are just a few of the challenges that confront companies in today's complex business environment. Even the largest firms are struggling to balance employees' needs and expectations about benefits with the ever-increasing costs of providing those benefits.
Group health insurance unquestionably is the biggest piece of the employee benefits pie, because it's what pays for everything from a routine doctor visit to major surgery. What's less well known is that up to 70% of all medical plan expenses could be attributed to disabled employees. That was one finding of a study published earlier this year by Chattanooga, Tennessee-based UnumProvident Corporation, a leader in providing income protection solutions to businesses and their employees. Rehabilitating injured employees and returning them to work can significantly reduce the duration of benefits, the study says, thus lowering an employer's overall benefit costs. Clearly, an agent or broker who can help a client control employee health care costs is likely to achieve hero status.
For independent property/casualty agents and brokers, the advantages of offering income protection solutions to clients are undeniably attractive: increased income, enhanced retention, and an anchor of stability in the tumultuous waters of the property/casualty marketplace. To some owners of smaller and mid-sized agencies, however, the income protection arena is foreign territory. (In fact, the term itself may be unfamiliar; what is now known as "income protection" traditionally was referred to as "disability income.")
"Among property/casualty agencies and brokerages, we find varying levels of knowledge about income protection," says Rick Magro, UnumProvident's vice president of product design and marketing. "Agencies without an employee benefits department may be less aware of income protection opportunities and may not think to ask the client or prospect about these benefits." Magro readily acknowledges that the owners of smaller agencies often encounter what they perceive as a barrier to the income protection market: that it's too complex for them and too expensive for their clients. "Our industry has realized this. We've created simplified income protection products and are offering new choices to help the clients of smaller agencies control their costs," he explains. "Income protection is no longer just for top executives and high-income employees."
Agencies with employee benefits departments are more likely to be aware of income protection but may not be aware of all the options they can offer. For example, group benefits (those paid by the employer) can be integrated with benefits provided through the employer but paid for by the employee. Plan design options can be customized to control costs.
Making it easy
For the agent who may be new to the world of income protection, Magro has good news. "Income protection is a natural for property/casualty agents; it's more similar to P-C coverages than to life and health insurance," he says. "It's easy to ask your client or prospect: 'What is your current income protection plan? Let's look at your needs and see how we can meet them with quality, affordable products.'" UnumProvident willingly provides guidance and support to agents, Magro says. "We have an excellent field organization staffed with representatives who will work with a property/casualty agent to educate him or her about our products and services, and suggest ways to approach clients or prospects and identify their needs."
More good news: UnumProvident has no minimum volume requirement, though a P-C agent does need to sign a contract. Commission percentages on income protection products vary, Magro says. "It could be 40% first year and 15% renewals for supplemental individual plans. Employer-paid income protection commissions range from the 15% level for smaller plans to negotiated commissions for larger groups (over 500 lives)."
UnumProvident Corporation combines the resources of three leaders in income protection: Provident, Unum, and Paul Revere. Rated A (Excellent) by A.M. Best, UnumProvident's subsidiaries represent more than 100 years of experience in this specialized market.
Integrated solutions
There's more to income protection than insurance products, Magro emphasizes. At UnumProvident, products are combined with absence management and return-to-work strategies that allow companies to maintain productivity while helping employees deal with the ramifications of illness and injury that affect family security.
Product offerings include:
* Individual income protection. Three levels of coverage and pricing are available to meet insureds' changing needs over time. Most policies have a built-in option to convert income protection to asset-preserving, long term care coverage after retirement and provide a catastrophic coverage option.
* Group income protection. Employers can choose to fund group short-term and long-term income protection policies for their employees. Group long-term coverage includes a work/life balance program to help employees during disability and in everyday circumstances.
* Voluntary workplace benefits. Employee-paid products are designed as alternatives or supplements to traditional group protection. Individuals can buy voluntary income protection, critical illness, and life insurance policies at a discounted rate through purchase at the worksite.
* Long term care. Group and individual long term care policies help employees preserve assets; benefits can be paid monthly.
Definitions of disability
The premiums for income protection coverage depend on several variables, chief among which is the particular definition of disability the insured selects. UnumProvident offers the following definitions:
* Own occ. Insureds can return to work in another occupation, with no offsets on the disability benefit, if they are unable to perform the duties of their own occupation.
* Any occ. Insureds can return to work in any occupation for which they are qualified, based on education level and prior work experience.
* Gainful occ. Insureds can return to work in any occupation where they can earn 50% to 60% of their former income, based on education level and prior work experience.
* Loss of earnings. Insuredsqualify for one of the above definitions if their earnings are diminished.
*Loss of time or duties. Insureds qualify for any of the above definitions if the amount of time they can spend at the job is reduced or if the number of duties they perform is reduced.
* Flexible. A newer approach that allows insureds to "flex" coverage among a range of definitions contained in the policy as their needs change. For instance, the more affordable "any occ" or "gainful occ" options may appeal to younger insureds, but "own occ" (working or not) may be needed when skills are more specialized.
Absence management solutions include:
* Return-to-work resources. A combination of onsite, phone, and Web-enabled return-to-work assistance is available to employers of all sizes.
* FMLA (Family Medical Leave Act) and state leave management. System and administrative support helps employers manage the complexities of federal and state leave laws.
* Integrated disability management. Occupational and nonoccupational programs are coordinated to integrate case management of workplace absences.
* Impairment-focused claim management. More than 3,000 UnumProvident employees deliver expert claim management and return-to-work support to employers.
* Comparative reporting and analysis. Employers receive trend, claim incidence, and comparative data from the insurer's vast disability database.
Return-to-work "prescription"
Disability insurance helps insure employees against lost income, but it doesn't protect the employer who must incur the costs of finding replacement workers and maintaining productivity. Hit particularly hard by such costs are small and mid-sized employers, who may not be able to absorb the duties of a worker who is out on disability and may not have the capital to invest in expert consultation. For these employers, UnumProvident has more good news: corporate return-to-work program development. Small and mid-sized employers who purchase the insurer's short-term disability (STD) and long-term disability (LTD) coverage can access the program at two levels.
* Level 1--All new STD and LTD employers receive free access to a Web site that provides resources to help employers develop their own return-to-work program. Among these resources are information and instructions on creating and implementing an RTW program; a front-line supervisor manual that explains how to bring an employee back to work quickly and safely; and free regional workshops to help employers initiate their own return-to-work programs.
* Level II--This enhanced level of service is available for an annual subscription fee to policyholders who qualify for Level 1 access and have 1,500 or fewer employees. Level II includes a customized enterprise-wide RTW evaluation with the insurer's RTW Developers helping the employer design and implement its own RTW program, as well as advanced live or real-time RTW training. Employers also have online access to RTW Developers to answer specific questions, access to Web-based training for all members of the employer's RTW team, and an electronic newsletter that presents real-life case studies and legislative updates.
Solutions in action
One organization that makes good use of UnumProvident's resources is Palmer & Cay, one of the oldest and the second-largest privately held property/
casualty and benefits firms in the country. Based in Savannah, the firm operates nationwide through 28 offices and has approximately 900 associates. Sixty percent of Palmer & Cay's revenue is from property/casualty business and 40% is from benefits. About 5% of the firm's property/casualty business is personal lines.
The firm's employee benefits unit, Palmer & Cay Consulting Group, Inc., is based in Richmond, Virginia, and operates independently from the property/casualty division, says Raymond M. Slabaugh, III, managing director, whose career spans 35 years of experience in employee benefits. As the result of acquisitions, including a firm previously owned by Slabaugh, Palmer & Cay Consulting Group has grown substantially over the last several years. "Ten years ago, benefits were maybe 5% or 10% of total revenue; now they're 40%," Slabaugh comments.
He's quick to emphasize that Palmer & Cay Consulting Group is not simply a vendor of income protection coverages. "We don't sell products; we help clients deal effectively with human resources and benefits issues," he explains. "Income replacement, in the form of short-term and long-term disability coverage, is basically a tool that is used to manage a company's human resource practices. When we evaluate a company's benefits, or non-cash compensation program, we look at all death benefits and all income protection benefits, including short-term disability, long-term disability, work comp, and all paid time off, including vacation, jury duty, and sick leave. So income protection is not a product; it's a solution. In fact, many companies today don't even use an income protection product for anything other than long-term disability; they usually self-insure their short-term disability, sick leave, and paid time off. Our job is to help the company find the best way to protect employees who become disabled as the result of illness or injury." Palmer & Cay Consulting Group also works with clients to create solutions in the areas of medical, dental, and retirement planning.
"The income protection market is poised to expand, particularly for mid-market needs ... It's a great opportunity for property/casualty agencies."
-- Rick Magro
How long has Palmer & Cay Consulting Group worked with UnumProvident? "Just about forever," Slabaugh says with a chuckle. "My relationship with the company dates back to the days when it was Union Mutual, so it's been at least 30 years. We use UnumProvident for short-term and long-term disability needs, as well as voluntary products that employees buy on their own but receive through the worksite." Examples are individual life insurance, supplementary disability income protection, and catastrophic coverage that might not be provided under the employer's group health insurance plan. "We also work with UnumProvident to structure captives for employee benefits," Slabaugh comments. "That's quite a new concept, and UnumProvident has been involved in it from the start."
"Where's your pain?"
Like Rick Magro, Slabaugh believes property/casualty agencies and brokerage firms are ideally positioned to approach their clients about income protection needs. "Our first question to property/casualty clients is, 'Where's your pain?'--and today their major pain is health insurance," Slabaugh observes. "That becomes part of a holistic review of the client's entire benefits program, a key piece of which is how they protect employees' income with respect to short-term and long-term disability and other paid time off issues. We examine how the employer's income protection program coordinates with the retirement program and Social Security. We approach clients not as a vendor but as a consultant, so we can identify their needs and develop solutions that address those needs."
At Palmer & Cay Consulting Group, it's standard procedure to work from referrals provided by the property/casualty operation, and also to refer clients to the P-C side. "We refer business back and forth not just by happenstance but as part of a planned agenda," Slabaugh says. "We meet with our counterparts on the P-C side at least once a month to share our experiences, to share information about industry trends, and to share leads about prospects and clients. Our people on the property/casualty side are trained to ask probing questions, just as we do, to uncover opportunities for employee benefits consulting."
A key crossover point for the property/casualty and employee benefits operations, both Slabaugh and Magro remark, is in the area of integrated disability plans. "When an employee becomes disabled, the question is whether the incident occurred at work or elsewhere," Slabaugh explains. "This brings up the issue of 24-hour coverage or what we call integrated disability: where did the incident occur and who should pay: the workers comp carrier or the disability insurer?"
Advice to newcomers
What would Slabaugh say to the owner of a property/casualty agency that is considering whether to enter the employee benefits and income protection arena? "I would say it's a must," he responds. "Today, any property/casualty firm that is not offering employee benefits services is threatening the firm's future, because most of its competitors are already active in this area. I'm speaking not just about the giants like Marsh, Aon, Willis, and Gallagher; I'm referring to sophisticated mid-sized agencies that serve a wide range of corporate clients."
Adds Magro: "The income protection market is poised to expand, particularly for mid-market needs. Today we offer more product choices and more service options. It's a great opportunity for property/casualty agencies." *