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Benefits Special report
Disability's role in the product mix
Difficult economy helps buyers visualize need for income protection
By Dave Willis
Although Bob Risk, vice president of sales for Lincoln Financial Group’s Group Protection Division, has always believed in the importance of disability programs, among many people in the industry, he says, “It has always kind of been the ‘other’ benefit—medical, 401(k), and, ‘oh yeah, we have disability.’” With people losing jobs and income, that’s changing.
Neal Lucchi, senior vice president of worksite products and services for HM Insurance Group, says his firm has seen growth in disability insurance and related products. “A number of products—critical illness, accident and disability—share the same characteristics,” he explains. “If someone has a health event and an asset protection issue that arises from it, they all help meet a need.”
Awareness and interest
According to Peggy Hayes, director of marketing at American Public Life Insurance Company, employer interest is up in voluntary group disability. “Employers are stretched with their benefit allocation,” she explains. “As health insurance costs increase at three times the rate of inflation, they need ways to provide rich, valuable benefits without increasing the bottom line.”
Many are moving to a voluntary plan or offering employees a way to supplement a smaller employer-paid benefit, Hayes adds. Lucchi sees this too. “There is a tendency for more employers to add disability on an employee-contribution basis,” he says. “We expect to see continued growth in this area.”
Employees are interested in disability insurance as well, notes Hayes. “Twenty years ago, you had to educate people on why they needed it,” she explains. Today, people realize they’re living on the edge. “Five years ago, they could consider getting a second mortgage and drawing money out of their house, or they could max out credit cards as temporary float,” she explains. “They can’t count on that anymore.”
Focused, up-front communication helps employees understand both the statistical likelihood of having a disability as well as the implications. “It’s pretty much intuitive to say, ‘Am I living paycheck to paycheck, and do I have enough savings to sustain a significant time off work?’ or, ‘How likely is it that I might sustain a disability that would keep me out of work for a significant amount of time,’” Lucchi says. “Disability insurance is, for most people, an affordable option.”
Focus on product
Risk, whose firm has expanded its voluntary disability presence, sees more disability insurance activity among property and casualty agencies. “A lot of brokers, especially bigger ones, have employee benefits specialties,” he explains. “These are often the fastest growing departments in the agency and, they say voluntary benefits represent their biggest opportunity.”
Health care reform and its potential impact on revenue are helping to drive the shift. “Brokers are concerned about what is going to happen to their health insurance commissions in the future,” Hayes adds. “They’re looking to diversify. Disability insurance isn’t going away.”
Agents and brokers who find greatest success use disability insurance as part of an overall employer solution. “Employers are not looking for a product,” she explains. “They’re not looking for disability insurance. They want a balance of benefits, a way of providing a strong package that is affordable and that they can budget for year after year.”
Risk sees a considerable amount of product variation among carriers, including in the employee-paid arena. “A lot of changes over the last several years have been add-ons—whether it’s an EAP program or some other tag-along to the program,” he explains. In employee-paid, carriers offer the ability to buy up to cover what the employer doesn’t cover, either at the start or later—and without medical underwriting. “Companies seem to be more accommodating to a workforce that is paying more and more of the benefit costs,” he notes.
Another shift is in post-disability options. “Our philosophy is to try and get people back to work as soon as possible,” Risk explains. Flexibility in terms of care giving, as well as rehab options, can be part of the mix. Getting employees back to work not only benefits the employee, but the employer, too. In general, most people really do want to work. They want to get back to work, and we try to help them do so.”
Need, passion and understanding
Lucchi says the buyer’s biggest objection is the notion that disability will not happen to them. “Even when you talk about statistical data—something factual—there’s a tendency to say it will happen to someone else,” he notes.
Considering “what-ifs” can temper this. “Get people to think about their own financial circumstances and ask, ‘If this happened, how well are you positioned to deal with several weeks of no paycheck?’” Lucchi suggests. “Most people realize they couldn’t make it work. For agents, it’s about putting on a financial planning mindset and showing how the benefit could be part of a safety net of benefits to help with one of the more real risks people face.”
He also believes enthusiasm helps drive success. “Enrollers and brokers and agents who are most successful are those who demonstrate to consumers a real passion for the product,” Lucchi explains. “That could be because they’ve had a personal situation with disability or, in my case, I exude genuine belief in the product because I’ve seen it make a difference to so many people who had it. Believe in the product.”
Communication is also key. “Especially when you’re in a worksite environment, you really need to think about how clearly the product can be explained,” Lucchi notes. He has seen carriers market to employees some rather complex products that were originally designed for employers. His firm takes a different approach. “We intentionally designed ours so when we meet with an employee, we can say, ‘This is the definition of disability, and if you are unable to do your own occupation, you have a benefit,’” he explains.
Dotting the “i”s
Explaining product and managing client expectations is even more critical when selling non-worksite, individual disability insurance. For Phil Burchman, vice president of sales at Morstan General Agency, that means gathering and sharing a lot of information. It’s not too much of a stretch to say, at least in some situations, that getting an individual disability policy issued today, “is probably equivalent to getting a mortgage.”
Underwriting sophistication plays a key role in this. Burchman cites an example: “If you wrote a disability policy 15 or 20 years ago, carriers would ask the applicant’s income. You could satisfy that with a letter from an accountant,” he explains. “Today, you’ll need a year or two of complete tax returns, including all schedules. There is nothing on an application that isn’t checked out every which way possible.”
Financial justification requires special attention, Burchman adds. “Clients are smart, but they need to understand the difference between gross and net,” he explains. “Just because they gross a certain amount, you have to take into account, from an insurance standpoint, just what you’re insuring. You can’t have it both ways. You can’t protect something you’re not declaring.”
Applicant health is another issue—which Burchman says calls for frank discussion with applicants. “If someone has gone to a doctor because they hurt their back playing tennis—something that might appear to be innocent—carriers may exclude anything to do with that,” he explains. “Managing the client’s expectations is especially important.”
Agents and brokers play a particularly important role in individual disability product suitability. “Different carriers have a specialty or a product that lends itself to a particular profession or occupation,” Burchman explains. “It’s our job to match up the individual with the right carrier. While price is a factor, with disability, more so than anything else, the fine print is crucial to whether or not the contract will pay when you need it.”
The right partnership
Risk echoes the importance of good fit. “Agents and brokers need to be comfortable with the carrier or partner they work with,” he explains. “They need to recognize this is a process. It’s more than just filling out an app, writing a check and you’re done.” This is true for all forms of disability protection, including worksite.
“Enrollment is a process, as well,” Risk adds. “Agents and brokers need to focus on service—and down to the employee level, not just employer. It’s a different mindset. It goes beyond enrollment to ongoing individual support, as well.”
Lucchi’s firm built a specialty distribution channel to deliver this focus—and service. “Their focus is worksite products only,” he explains. “We feel strongly that we want brokers and agents to be able to count on those reps and their expertise—with employers and employees, and not just on the products themselves.”
Product is still important, though. “Our goal is to produce excellent short-term and long-term products that are viable, that give brokers a wealth of choices and options, so when they go in and interview prospective employers, they address the employer’s situation,” notes Hayes. “Beyond that, we make sure we support the broker with hand-holding, having someone in the home office whom they can call to ask any question, without having to worry about getting bounced around.
Part of the portfolio
Agents and brokers need to recognize—and capitalize on—the value of disability insurance, Risk believes. “When you compare it to medical, disability has always been a great value,” he notes, “but with so many people out of work and realizing they can’t really do without an income, it’s even more important. Whether employer-funded, which is still the majority of the business, or employee-paid, it’s still a wonderful benefit and certainly very affordable for what you get.”
Lucchi encourages agents and brokers to highlight the product more. “If they have groups that don’t have any form of disability, they should have the conversation,” he says. “It should be among the options every agent makes available, and it should probably be very high on their list, especially where nothing is in place already.”
Hayes echoes the “menu” focus. “Successful brokers ask employers about all of the benefits that are part of a package, and they look for ways to supplement it, in many cases with voluntary employee products,” she says. “Of course, disability is one of the foremost products within that category.”
Within the last several weeks, Hayes witnessed a perfect example of how that works as she accompanied a broker on a client visit. “The broker had just placed our product with a hospital account he’s had for 20 years,” she notes. “We spent two days walking through the buildings. It was amazing how many of the employees knew his name. That is an incredible testament to his long-term focus on meeting their needs, even as they change.”
It reinforces her belief that working with accounts—and employees—is not a once-and-done proposition. “Go in with an eye toward the future,” she explains. “It’s not the business you sell in the first year that makes your living. You can make a commission check off what you sell in the first month, but you make a living by treating customers right, doing the right thing by them, and giving them good choices and good options.”
And, of course, disability insurance is one of those options.
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