Keep In-Force Group Disability Insurance Plans Fresh
With the disability insurance industrys insatiable desire for more premium and market share, the industry instinctively puts its focus and energies toward new markets and new products.
But, while the industry spends time focusing on growing the business, it cant forget the parallel need of keeping the current business in force.
By not spending time, resources and energy on that part of the business, the industry inadvertently risks magnifying its growth needs in future years. For example, if the business goal is 10% growth for in-force premium at a time when the lapse rate is 15%, the reality is the business needs to grow by 25%.
In the group disability world, the business faces several difficult factors that make this task even more daunting.
Rising medical premiums, low organic growth and a commodity market mentality combine to provide a challenging environment by any standard.
As anyone who has been in this business for a while will attest, there is no one thing a firm can do to overcome these barriers. However, while putting together a new market/product growth plan, disability firms do need to spend time on freshening up their persistency plans.
That is, the firm needs to take a proactive approach to preserving the in-force base. This will limit the reactive work the firm would otherwise have to do later. As “The Art of Wars” Sun Tzu wrote, “Plan for what is difficult while it is easy, do what is great while it is small.”
With that in mind, here are some financially sound actions a firm can take to keep its in-force group business fresh.
Identify profitable customers. This is necessary when first putting the persistency plan in place. It is important because, to be able to direct resources efficiently, the firm needs to know what groups on which to focus.
Try looking at case size, location, industry, producer (both reps and brokers), and effective year, for instance. Also, create tools to evaluate effectively the needs of the policyholder. And, assess current employee demographics, being sure to evaluate if needs have changed due to aging population, occupational changes or technological advances.
Once you have this information, here are some ideas on how to use it:
Bring older policies up to date, and offer them something new.
Since the in-force book has groups that initially were sold years ago, a significant number of older cases probably have outdated contracts or dont have new plan features. Proactively going out to these groups and keeping them up to date on their program will help build customer and broker loyalty.
See the chart for ways to update plans.
Achieve cost savings: If certain brokers or cases are at risk because they are targeted for larger than average medical premium increases, review the policyholders plan designs and offer plan changes that save dollars but still meet the financial protection goals.
Point out to employers who are cost conscious that they still can provide employees with meaningful coverage. Some simple ideas include:
Provide longer elimination periods that still protect against a severe disability.
Package a 2-year own occupation plan with a Social Security definition duration after that.
Lower benefit percentages and add catastrophic coverage.
Offer definitions of disability that provide options to return to work.
Add a rehabilitation/work incentive benefit to support return-to-work efforts.
Adjust plan offsets to reflect income from other sources that cause over-insurance.
Offer employer paid group coverage that has the option for individuals to supplement coverage with a buy-up option on the group plan. This can save the employer dollars and allow the employees the opportunity to protect their financial objectives.
There are constant uncertainties that will always be present in the DI market. These include health care costs, a fluid competitive market, inconsistent consumer acceptance and others.
In view of that, the DI industry needs to focus both on getting new customers and on retaining the ones we have.
The value of disability coverage is real. Therefore, keeping the group client base refreshed is of critical importance. That balances the needs of the employer and the employees, and it represents a victory that increases the disability firms profitability and market share.
David C. Mitchell, CLU, is vice president of client management and products at Disability RMS, Portland, Maine. His e-mail is [email protected].
Reproduced from National Underwriter Life & Health/Financial Services Edition, February 27, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.