How Does Multi-Life DI Work With Guaranteed Issue?
Multi-life disability income insurance is marketed and underwritten in two ways.
For the smallest cases, the sales process remains very personal and “product-centric.” Everyone in the group may need to be fully underwritten, while modest “list bill” discounts may be available.
For larger groups, Guaranteed Standard Issue (GSI) may be available in addition to significant premium discounts. Just about everything from the sales process to policy issue is done differently when multi-life DI is offered on the basis of GSI. The process takes place at a case level, with a focus on the convenience of no individual underwriting and much less focus on product issues.
Understanding of the key requirements for GSI business will help producers sort out the real opportunities from the cases that will not support a GSI offer.
To begin, recognize that while individuals are not underwritten in the GSI arrangement, the case does have an underwriting process. This process is referred to as “case-level underwriting.” It is as important as medical underwriting in an individual sale situation.
Case-level underwriting is driven by the concept of “spread of risk.” Simply stated, a GSI offer needs to be supported by an adequate number of people in a group to assure that enough premiums will be collected on healthy people to support the potential claims of unhealthy people in the group. For this reason, very small groups are usually not eligible for a GSI offer.
In general, the industry looks for a minimum of 15 to 20 lives to achieve an adequate spread of risk when a case is “non-contributory” and the entire covered group receives employer-paid coverage. When a case is “voluntary” and eligible employees must pay for their own coverage, an adequate spread of risk is generally based on the minimum assumption that 25% to 35% of the eligible group will purchase coverage.
The eligible group for a voluntary offer needs to be big enough to get a desired level of at least 20 participants. This means the group may need to have at least 70 to 75 individuals to start with. Of course, larger groups need to generate a bigger number of participants in line with the 25% to 35% minimum goal.
The demographics of a group are also important in multi-life DI case-level underwriting. Offers are effectively “sized” to the overall characteristics of the case.
Key characteristics include ages and occupations of members of the group proposed for coverage. The average age of the group as well as age cohorts (e.g., the number of people aged 40 to 45) are considered. Income is always important in DI. While a groups average income may be high, of greater significance is the spread of incomes within the group. A group consisting primarily of high-income earners is more favorable than a few very highly paid individuals and a large group of modest wage earners. Gender mix is also a consideration.
A census that provides this gender, age, income, state of residence and job title for each eligible participant is used to do the analyses described above.
The existing disability benefit programs need to be disclosed in detail, including any salary continuation plans and group short-term or long-term disability benefits. Since GSI offers are commonly subject to a companys issue and participation (I&P) limits based on an individual insureds earned income, other disability benefits will affect how much coverage is available. The taxation of existing disability benefits and any benefits made available through the DI multi-life offer will also be a factor; there needs to be room within the I&P limits to make coverage available.
Finally, the business itself needs to be “profiled” for case-level underwriting. Key considerations include: the nature of the business, locations (states) of business operations and the prospects for future business growth.
Multi-life DI underwriting for GSI is obviously different from individual underwriting, but it is no less rigorous. However, the benefit and simplicity of selling DI coverage without individual medical requirements make it all worthwhile.
Mark R. Ameigh, CLU, is manager of the Multi-Life Case Management Unit at Berkshire Life Insurance Company of America, Pittsfield, Mass., a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. His e-mail address is [email protected].
Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 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.