2011 Benefits Report on Disability

Opportunities in disability

By Dave Willis

In the 1990s, disability insurance carriers went through a rather rough period, recalls Dan Steenerson, CLU, ChFC, RHU, president and CEO of Disability Insurance Services, San Diego. "This caused a number of carriers to exit the marketplace," he says, noting that those that remained have done well over the last decade or so.

In today's marketplace, adds Larry Schneider, disability insurance specialist at Disability Insurance Resource Center, Albuquerque, carriers are making the contracts a little richer. "They're offering higher benefit amounts," he explains. "At the same time, underwriting is more precise. Carriers have more tools at their disposal and are more tenacious in gathering and using information."

Better risk data allows for more focused underwriting. "With individual long-term disability for some of the higher paid executives or doctors, we've seen carriers loosen up some underwriting requirements," observes Doug Mantz, vice president of sales at The Farmington Company, Farmington, Connecticut. "Some have been more liberal."

Some carriers are differentiating products with catastrophic coverages, notes Steenerson. For example, some will, in addition to a base benefit of, say, $5,000, pay an additional $8,000 if the insured can't perform two daily living activities. It's a relatively inexpensive rider.

Disability seems to be gaining visibility—and acceptance. "People are very interested," explains Dave Rarey, regional sales director in the New York City office of Trustmark Voluntary Benefit Solutions. "They've become very sensitive to income protection during these challenging economic times, maybe more than ever. A top priority is making sure their income is protected."

Mantz, whose firm offers long-term and short-term voluntary coverage, also sees strong client interest. "Over the past three years, short-term has overtaken all of our other product lines by a wide margin," he notes. "Some 70% of our business is with hospitals; the employment base is pretty stable, and their spouses may not have the same job security."

According to Andrew Frend, the head of business development for group life and disability for ING, whose company sells individual worksite and true group disability products, there's some regional market disparity. "The West Coast and the Northeast are known to be more group markets, whereas the Southeast and, to a degree, the Midwest are considered more mature worksite markets."

Group voluntary is attractive for a number of reasons. "There has definitely been growth in the group voluntary product," notes Frend. Employee premiums come from taxed dollars, but the benefits are tax-free. "A guy who used to work for me in Idaho would always say, 'You'd rather pay tax on your seed than on your harvest.'"

Frend says healthcare reform has shifted the distribution community's focus away from disability, which also affects the market. "Customer demand has been for more knowledge and expertise in the medical arena, and disability has become, to an extent, peripheral," he explains. "Less demand makes the marketplace even more competitive."

Successful disability carriers are those that position themselves as true experts in the field, he adds. "They can be there to respond to questions and be creative with plan design with consultant partners and customers."

Absence management continues to generate employer interest. "They're asking, 'What can you do beyond paying disability claims?'" Frend notes. "Carriers are realizing there's a great opportunity for them to de-commoditize themselves by offering more than strictly disability management."

Wellness and preventive care are beginning to enter the mix. "Disability carriers are taking a look at the same trends medical insurance providers have been addressing," Frend adds. "They understand that higher obesity levels and overall erosion in population health not only affect medical costs, but intuitively they recognize these may also cause disability claims to increase. Carriers are looking to sharpen risk assessments to make room for wellness—or lack thereof—within certain employee populations."

The move toward more thorough risk assessment has led some agents to shy away from the product. "The underwriting is more difficult," Schneider explains. "It goes beyond, for example, what life insurance might require." It's more like writing a health insurance policy—on steroids.

"When you look at disability insurance, they throw in two more major pieces—occupation and duties as well as financial information—which dictates how much you're going to cover," explains Schneider. "Those two details often aren't part of life insurance underwriting, unless you climb Mount Everest or something."

Some agents who didn't leave the disability insurance marketplace gravitated to carriers or products that don't require as much underwriting. "There's less frustration, fewer declinations and nearly as much commission," Schneider adds.

Ready opportunity

Steenerson says agents who don't sell disability insurance are "really missing the boat." That's because the average persistency on the product is around 12 years—twice that of life insurance policies. "You're getting paid a renewal commission every year, but you don't have to rewrite it, rates don't go up, and you don't have to service the policy as much," he explains. "Every older agent I've talked to in the last 30 years said if they could do it over, they'd sell more DI because the renewals are so high."

Business owners represent an ideal target market, Steenerson says. "Only 23% of all business owners have some form of disability insurance," he says. "It's very low—the lowest group out there." One agent he knows focuses on plumbers—not the most glamorous of professions, but a lucrative one.

"Some plumbers make seven figures," Steenerson explains. "They're not out cranking wrenches; they own the firms. The agent's mantra is, 'Sell to the masses, live with the classes.' It's his natural market. Agents need to go to their natural market and talk disability. Your best prospects are your current clients."

He believes agents have an obligation, if you will, to address disability if they provide other types of insurance. The courts agree, he notes. "In one case, a client had life insurance, an annuity and health insurance," Steenerson explains. "The client became disabled, but the agent hadn't offered disability insurance. The client sued and the judge ruled in the client's favor." Today, some agents use hold-harmless letters on disability, like P&C agents do for flood or other catastrophic coverage.

Steenerson recommends multi-life cases as a door opener—and money saver. "For instance, there can be savings for females of up to 47% on policies covering three or more individuals," he explains. He has seen agents include clerical employees on a female-owned small business policy and have the cost come in significantly lower than the cost of an individual policy.

When selling DI, Steenerson advises agents to frame the product as paycheck protection. "We tell agents 'Don't say disability, say paycheck protection,'" he explains. "This gets to the heart of what we're doing—we protect the individual's paycheck in the event he gets sick and can't return to work."

Still, disability insurance offers more than just paycheck protection. "There are several options out there, if somebody thinks outside of the box," Schneider explains. "There are buy-sell agreements funded by disability insurance, key-man insurance, and business overhead. I'll sometimes ask prospects: 'Do you want to be partners with the disabled partner's wife?'"

Steenerson says covering business expenses is a strong selling point. "The last thing a business owner wants is employees searching for new jobs because the owner is sick," he says. "Insurance can make sure salaries continue until the owner comes back or the business is sold" as a going concern. An added benefit: premiums are tax-deductible.

Mantz finds employers similarly interested in helping employees, even if they can't foot any or all of the bill. "Voluntary benefits have become much more popular in recent years," he says. "Employers want to provide any benefit they can with little or no cost. By virtue of their size and buying power, they can negotiate to get something for their employees that employees couldn't get on their own, whether that's reduced rates for individual coverage, underwriting concessions, guarantees, or something else."

Agents looking to tap the market should find an able partner. "Most retail brokers and agents probably don't have the resources to conduct a large scale enrollment," Mantz notes. "We have capabilities that let us put a program in place with multiple products and multiple carriers, but with a single source for administration and service."

Get involved

Steenerson says a good partner can offer more than administrative support. "Finding a knowledgeable disability insurance distributor is invaluable," he says. "It's a great resource for learning about the product, the marketing and underwriting and how to add it to their portfolio." Partners often include marketing information, sales ideas and webinars on their Web sites.

"Most carrier representatives will take time and educate a producer," says Rarey of Trustmark Voluntary Benefit Solutions. In addition, they're generally available for some handholding. "If an agent is working with a prospect, he or she can work with the carrier to see what the employer currently provides, to determine where there are gaps that need to be filled."

Frend concurs on the role partners can play in plan development. "Engage carriers to help craft a plan in the most efficient and effective way," he says. "There are a lot of creative folks who have experience engineering benefit dollars to provide the best return on investment." One example of such creativity: Shifting the cost of disability insurance to employees, because of the tax benefit, and using the money the employer saves to increase its healthcare contribution, establishing an FSA, or increasing the 401(k) match.

Schneider advises agents to examine policy language carefully when comparing various products. "The most important component of a disability policy is the definition of total disability," he says, "because that's what governs how the policy pays." Beyond that, he suggests tapping the International Disability Insurance Society for education. "We're having our conference in Chicago this fall," he says. "Anyone who wants to get their feet wet, meet vendors and peers, and learn a lot should attend."

Agents can get their feet wet right away, explains Steenerson. "A great way for the average agent to understand the product is to call a DI distributor and order a proposal on themselves," he says. "Get it, read it through, see how it's going to insure you, and see what riders are available. It helps internalize it." That said, he adds, an agent could also write disability coverage on himself and keep the commission.

However they do it, agents should try to include disability insurance in their portfolio. "Agents and brokers operate in a very competitive market," says Rarey. "If they're not meeting their client's needs, someone else will. The last thing they need is to let a competitor get in the door by solving a client problem."

Start in relatively familiar territory, advises Steenerson. "Consider going in talking about a business overhead expense policy," he explains. "For a property and casualty agent, that may be easy, because it complements a BOP policy."

Schneider, who has written books on selling disability insurance, offers some additional practical advice: "Get out there and pound the pavement. Take the lumps, because every lump will get you closer to becoming an expert. There is nothing like a couple of bumps on your head to make you remember what you should have done."

The author

Dave Willis is a New Hampshire-based freelance writer and regular Rough Notes magazine contributor.