2011 Benefits Report on Disability

A post-recession repackaging of disability

Risk-averse buyers take a serious look at voluntary products

By Len Strazewski

Historically, when the economy takes a downward turn and layoffs loom, disability and workers compensation claims increase. Workers who fear for their economic security reach out for benefits they might otherwise skip if their jobs were secure.

That may have been the pattern in previous crunches, but the big recession of 2008 may have had a different effect on workers, according to two leading disability and voluntary benefits insurers.

Sheryle Ohme, senior vice president of claims operations in the Minneapolis office of Assurant Employee Benefits, a division of Assurant, Inc., in New York City, says that, contrary to tradition, the disability incident rate did not increase during the recession.

"Our best analysis is that people seemed to believe that if they left their job for a short- or long-term disability, their job or their company might not be there when they return."

Ohme, a 25-year veteran of disability claims management, says economic trends and the slow integration of health reform legislation are driving dramatic changes in income protection-related employee benefits marketing.

Employee benefits and human resources-related costs continue to increase, she notes, and the budget available to maintain or increase employer-paid benefits is shrinking. "Employers are certain that this upward trend will continue and will only get worse as more health reform provisions become effective," she says.

As a result, employers are looking for ways to provide benefits they believe their employees should have, without incurring the costs.

"There's more opportunity than ever now for employee-paid voluntary benefits and worksite marketing of insurance products with the support of employers," Ohme says. "At the same time, agents and brokers are increasingly interested in voluntary benefits as a means of supplementing their income against the expectation that commissions will drop under health reform regulation."

And they have the ear of employers as their trusted advisors. "Agents and brokers are moving more toward a fee-for-service model in which they are compensated for the value of their consulting and the products and services they can provide, rather than the commission they receive from carriers," she says.

Employees want a safety net

Meanwhile, employees have become more concerned about their own financial security. The recession made everyone sensitive to the potential for catastrophic losses of income and the damage it can do to family security, Ohme notes.

"They appreciate income protection benefits such as short- and long-term disability for the safety net they provide and have a new interest in obtaining that protection—even at an additional cost."

Assurant is responding to the trend by making its traditional product line more flexible, Ohme says, allowing for employer/employee-paid hybrid benefits in which employers pay for a base benefit that can be increased at employee cost.

Long-term disability insurance, for example, is available in two-year, five-year, and to age-65 versions. An employer could pay for the lowest level and encourage employees to increase the coverage—as an alternative to dropping LTD completely.

The range of benefits available to employees also continues to evolve, Ohme says. Last year Assurant introduced a new suite of voluntary benefits, including cancer, critical illness, accident and medical gap insurance, as employee-paid supplements to employer-paid group benefits. The voluntary products, designed to cover expenses that are not funded by group health insurance, have become recognized as significant.

The insurer also provides vision care and dental insurance as group and voluntary benefits.

"Most employers now have seen friends or families who have experienced financial losses from uncovered health bills. They understand the value of the additional benefits," Ohme says.

The insurer has also packaged long- and short-term disability insurance products into a comprehensive group-rated "serious disability" product that can be employer- or employee-paid.

The policy covers up to 80% of pre-disability earnings with a $5,000 monthly cap to age 65 and integrates with Social Security disability benefits.  To qualify for the serious disability benefit, a claimant must be hospitalized for 72 hours and must have a 75% impairment rate.

To help employers understand the new benefit options, Assurant created the Total Income Protection Kit, an educational resource to help brokers and employers understand salary continuation options so that employers can maximize their benefits and prevent unintended consequences at claim time.

"Our mission is to demystify insurance and speak to people in real terms about their options. This toolkit is another way we are helping customers better understand their policies," Ohme says. "Putting a complete salary continuation plan in place can be tricky, but this tool brings all of the plan details together in one place. Employers can realize cost savings and make sure that their employees have a salary continuation plan in place to protect their income in the event of a disability incident."

Gen Y tunes in

The recession has had another unexpected impact on employee benefits.  Benefits, including life insurance and disability insurance, are becoming a priority for Generation Y—the newest generation of workers who usually are the least interested in benefits and the toughest sells for voluntary benefits.

According to successive studies of Gen Y conducted online by Harris Interactive on behalf of Unum in Chattanooga, Tennessee, the recession has had a powerful impact on this group. Gen Y employees (ages 18 to 30) number about 75 million—nearly the size of the Baby Boomers, which was the previous largest group of workers.

"Members of this generation are entering the workforce and building careers during a time of economic uncertainty and intense debate over health care reform," said Barbara Nash, vice president of corporate research for Unum, when the study results were released in February. "They're clearly taking an increased interest in how they can build and protect their financial lives." 

The studies, conducted in August 2008 and August 2010, polled more 350 full- and part-time Generation Y employees. The results indicate that: 

• The percentage of members of Generation Y who said they are extremely/very familiar with life insurance jumped from 31% to 44%.

• The percentage that said they are extremely/very familiar with retirement accounts grew from 31% to 43%.

• The percentage that said they are extremely/very familiar with disability insurance increased from 16% to 24%.

The workplace continues to be the most reliable source for benefits information, with 68% of Gen Y employees citing it as a top resource. But they are also more likely to seek out information about financial protection benefits online than they were just two years ago, the study says.

Unum provides group and voluntary benefits including short-and long-term disability insurance, long-term care insurance, medical supplement insurance, accident insurance and life insurance.

The author

Len Strazewski has been covering employee benefits issues for more than 30 years and is employee benefits columnist at Human Resource Executive magazine. He has an M.S. in industrial relations from Loyola University in Chicago.