Benefits Products & Services

Tales from the small business disability market

Guardian Life’s clients are sounding board for disability changes; a producer’s view of the needs

By Thomas A. McCoy, CLU

“The results were somewhat embarrassing for us,” says Larry Hazzard, vice president of product strategy for Berkshire Life, a Guardian Life subsidiary that handles Guardian’s disability and long term care products.

He is talking about market research Guardian conducted last year on its small business disability customers, their attorneys and accountants as well as disability producers. The research involved disability product features and how they tied into client expectations.

“It showed us how an insurance company can operate as though we’re in a castle behind walls. Listening to the business owners, we almost had to slap our foreheads, and say, ‘Duh. I can’t believe we didn’t think of that.’”

Guardian is one of the largest writers of disability for small business owners. The majority of its business comes from independent brokers appointed through the company’s 80 offices located throughout the United States. No minimum premiums are required for these appointments.

Based on what small business owners told Guardian, the company made changes to two of its disability products for the small business market. Larry Hazzard explains the kinds of insights the Guardian research provided, and how they have been able to take advantage of those insights.

“When we asked the small business owners to tell us about the challenges they face, they would consistently tell us how a significant amount of the money they made was reinvested in their business,” he says. Because of this need for continuous cash flow, the company could see that the waiting period to receive funds from a disability claim could pose a hardship.

“A claim with a 30-day elimination period could turn into 60 or 90 days before they received their first check,” says Hazzard. “That’s because after the elimination period, they would accumulate expenses and show proof of those expenses during the next 30 to 60 days. They needed that money sooner because so much money is being reinvested into the business.”

As a result, Guardian modified its Overhead Expense (OE) policy, which reimburses a disabled owner for ongoing business expenses. Now the policy has an accelerated benefit feature, which provides half a month’s benefit immediately upon completion of the elimination period, and allows for completion of paperwork at a later date.

The OE policy is sold to a variety of business owners and is particularly popular with dentists and other medical practitioners.

Guardian also introduced a supplemental rider to this policy, which provides an extra month’s worth of funds to be used when the expenses of the business exceed a month’s disability payment.

The business consumers surveyed also guided Guardian toward another hot button issue—this one pertaining to the insurer’s disability buyout (DBO) policy. The policy enables business partners to pay a lump sum to an owner who cannot return to work. The claim amount is based on the value of the owner’s business interest.

“They told us, ‘I know if I go on claim, when the insurance company goes to value my business, they’re going to do anything they can to minimize the value of it.’ They fully expected that. That led us to say, ‘Okay, let’s put our valuation formula right in the contract, so they know there’s no flexibility or opportunity to minimize value.’”

Another upgrade of the disability buy-out policy is a transfer of coverage option, which allows entrepreneurs to get their existing DBO coverage reissued if they leave one business to start another

Disability for business owners generally falls outside of the employee benefits spectrum, but it is a product that could be a logical extension of services for P-C agencies, either with in-house producers or in partnership with outside specialists. P-C agency owners also should be familiar with the product as a means of protecting their own businesses.

While the economic downturn has hurt small business disability income sales, it also has brought new opportunities for serving business owners’ disability needs, according to Jamie Fleischner, CLU, ChFC, LUTCF, president of Set for Life Insurance by KF Financial, Inc., in Greenwood Village, Colorado. She has disability clients in all parts of the United States and, in addition to her own clientele, handles disability client referrals from other brokers.

“In general, we’re seeing a lot of start-ups of new businesses, such as consulting. These people previously worked for large companies where they had a lot of their benefits taken care of, and then there were layoffs or other changes. So, they are having to take care of their own individual disability or business disability needs.

“A typical person we’re seeing in this scenario is a 50-year-old male with children, someone with a well-established business or reputation for their work—whether it’s consulting, engineering or whatever. They are somewhat familiar with the disability product because they have had it when they were working for a company. They know they are not invincible anymore, as opposed to someone in their 20s or 30s.

The medical profession, which is part of Fleischner’s client base, is not as affected by these trends, she says, although some dentists have been hurt because of people losing their dental insurance or having less cosmetic work done.

Fleischner’s experience with medical professionals involved her in a unique claim situation about a year and a half ago.

“I wrote a policy on an orthopaedic surgeon during his residency. He had done a fellowship, and when he was getting his real job, he increased his policy. Within a week of increasing his limits he was injured in a horrific car accident and was burned from head to toe on the right side of his body.”

In addition to the policy’s regular benefits available for him, it provided him with options for additional benefits, which he would no longer be able to purchase with a new policy, Fleischner says. “He isn’t able to practice as a surgeon any more, but he can still see patients in a clinical setting.”

Fleischner believes that women represent an attractive growth niche for disability products. “Considering the high percentages of women in colleges, medical schools and law schools, that is where a lot of growth will come from,” she says.

Fleischner says the country’s recent economic woes may leave a legacy of caution that will prove to be a positive for the disability market. The memories of job losses and foreclosures due to the economy are hard to shake.

“Even when the economy is good, you could lose your job if you’re sick or injured, and your own financial future could collapse just as easily. If you’re not protected, you’re in just as precarious a situation as you would be if you were working for a company that downsizes. That hits home to a lot of business owners who might think, ‘I’m safe; no one can fire me.’”

Disability insurance on business owners provides a safety net, just as health insurance does as part of an employee benefits program. Whether the P-C agency offers disability insurance to clients through its own producers or by partnering with experts at other firms, the growth potential is there.

It’s one more step toward completing a business owner’s risk protection program.