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New products are coming out that should help brokers mine new disability markets.

Consider: Group long-term disability protection historically has been viewed as an employer-paid product for more highly paid professionals or what may be viewed as low-risk industries.

Workers in perceived higher-risk industries and professions have not been widely targeted for LTD for various reasons but fundamentally because traditional products may not adequately address this segments unique demands from a cost or design standpoint. In an attempt to contain costs and risk, those traditional products include longer qualifying periods, shorter benefit durations, lower benefit amounts or more restrictive limitations on pre-existing conditions. That formula may help with cost and risk, but it also can make the product less attractive and therefore a tougher sell.

This underserved market began to get some attention from carriers as voluntary plans started becoming more popular. While many employers were interested in making LTD coverage available, they just didnt feel they could take on the expense. So, attempting to make a bigger pie, carriers started offering voluntary LTD plans. Often, however, they tried to control costs and selection in pretty much the same way they always had.

Innovative carriers have taken an alternative approach to selling voluntary LTD to this segment by developing products that control costs through definition of disability. By limiting qualifying claims only to those with the most serious disabling conditions, such products can offer benefits comparable to traditional coverage with fewer limitations and no health questions. Thats a very attractive combination and the new opportunity: affordable rates and generous long-term benefits through age 65.

Some employers are very reluctant to shift costs for disability or other ancillary benefits to employees. For these employers, it is vital to work with a carrier that can provide options to customize a true group plan to make it affordable. For example, an important selling point is that a disability benefit can be offered according to eligibility class. Many employersespecially in the small and medium categoriesmay be surprised to learn that employees can be offered different levels of benefits according to factors such as management status, income or tenure. The cost savings of such a package can be a real eye-opener for small-but-growing employers.

The extension of disability sales into these markets, whether in true group or voluntary channels, is good not only for the disability insurance industry but also for society. Disability insurance satisfies a real need, protecting breadwinners and families from a significant risk that can lead to severe financial hardshipthe loss of income because of inability to work.

It is incumbent upon the industry to help employers see the value of these products. Statistics from independent sources about the likelihood of disability, how disability impacts mortgage foreclosures and retirement and so on, prove the point. They can serve as effective selling tools for the broker. But the business needs to do a better job of getting the information out there.

Large companies with well-staffed human resources departments may already be aware, but small and medium employers may need to be educated about the significant risks employees could face in event of serious disabilityloss of vehicles, homes or more without paychecks or replacement income from a disability policy.

According to a 2002 study by the American Council of Life Insurers, only a small percentage of small group employers even know how likely disability is to strike. The study says: “Small employers are greatly misinformed about the likelihood of a worker suffering a serious disability between (ages) 35 and 65Nearly half of the respondents significantly underestimated the risk of suffering a disability, reporting a 1 in 50 chance.” In fact, according to the Commissioner Group Disability Table from the Society of Actuaries, nearly 1 in 7 individuals will become disabled for 5 or more years before age 65. For ages 35 to 65, the likelihood increases to 1 in 5.

According to a 2003 LIMRA International study, “The Changing Group Insurance and Healthcare Marketplace,” most small employers (fewer than 100 employees) dont offer LTD benefits. This suggests the industry either hasnt taken the time to convince small employers of the value of LTD or it just hasnt done a very good job. Even given the greater penetration of LTD among larger employers, “Employee Benefits in Private Industry in the United States, 2003,” a compensation survey conducted by the Bureau of Labor Statistics, reveals that in total, employees are less likely to have LTD than other insurance benefits, and only 36% of full-time employees are covered.

When employers and employees see the value of the product, however, they will buyas long as they also see markers of quality, such as those offered by carriers focused on the best possible outcome for the person with a disability claim, and that handle claims fairly and in a timely manner. Carriers using creativity and innovation to develop groundbreaking products will open up new markets. When those efforts are coupled with a focus on education and need, the pie gets bigger for all, and all will benefit from it.

is vice president of voluntary marketing for Assurant Employee Benefits (formerly Fortis Benefits), Kansas City, Mo., His e-mail is neal.lucchi@assurant.com.


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.