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February 23, 2005 at 07:00 PM
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.
