By Ron Gendreau
Want to sell voluntary disability insurance as well as traditional group disability insurance?
You had better understand how the carriers you work with think about the underwriting considerations. The risk profile of a case changes when employees pay even a small share of the total disability insurance bill, and the risk profile can change in a drastic way when employees pay all of the premiums.
Here are some of the underwriting challenges voluntary disability carriers face along with strategies for overcoming those challenges.
1 Open enrollments: A brokers or employers idea of an “open enrollment” often means giving all employees the opportunity to apply for coverage once a year during a predetermined time frame, with no medical underwriting, for coverage that is guaranteed to be issued to all enrollees. Without implementing risk management tools, this definition of open enrollment makes it difficult to monitor trending on the case and to manage the risk for voluntary cases.
2 Waiving minimum participation requirements: For brokers and employers who want to ensure access to coverage for employees who want it, waiving participation requirements may seem like a relatively simple request. Not so, especially in the voluntary market, where participation rates are typically far lower than in cases where an employer is paying some or all of the premium. In the latter scenario, higher participation means that the risk of the group is spread across a larger and more diverse employee base.
To deliver a competitive quote for a 100% employee-paid plan, a carrier needs to plan on a minimum level of participation. Missing that target by even a few percentage points can amount to a huge gap in a carriers ability to manage the resulting risk, especially if the open enrollment does not include risk management tools. Some carriers will turn down a case that falls short of target participation levels in order to preserve a particular risk management standard; others may choose to keep the case but require long-form medical underwriting or may determine that the percentage of guaranteed issue coverage will be lower than 100%. In any case, falling short of a minimum participation rate almost always spells bad news for the broker, the employer and the carrier.
3 Inconsistent pre-existing condition parameters: Like the definition of “open enrollment,” there are variations on periods related to pre-existing conditions. It is very important that the broker understands this because differing parameters can have a sizable impact on the risk a carrier assumes, which directly impacts the price of the plan.
Some carriers, for example, offer a look back, look forward approach to pre-existing conditions that is more liberal on the front end. In other words, they do not look as far back into a claimants medical history or as far forward into the effective date of the contract to determine if there is a pre-existing condition. This often results in a higher price because the carrier assumes more risk. Likewise, other carriers are more stringent with their look back, look forward periods; the longer the parameters are drawn out, the less risk the carrier assumes and the less the employee may pay for the coverage.
In the voluntary world, carriers need to be cautious with requests to waive pre-existing condition requirements on take-over business because it is difficult to track which employees were covered under a previous voluntary plan in order to apply credit for time served.
Astute carriers who want to deliver more long-term value and fewer surprises at renewal time use their pre-existing conditions clause as a risk management tool.
4 “Rich” plan designs: In a highly competitive market, it may be tempting for brokers to sell based on price or plan options. Particularly in the voluntary market, it is imperative to maintain a balance between delivering affordability and realistic plan design. A carrier that is committed to delivering long-term value will be focused on designing a plan that offers attractive benefits but is not too “rich,” that is affordable but not constructed on the cheap in order to skimp on benefits. Plan design is a critical area for the broker, employer and carrier to discuss and collaborate on, so that each party clearly understands the needs of the plan, the options for meeting those needs, and the impact on both price and the ability to deliver long-term value.