MIAMI–Tougher underwriting procedures for disability insurance in the voluntary market could make the product more profitable and cut rates for healthy workers, a group disability executive says.[@@]
Ron Gendreau, senior vice president for group profitability management and underwriting at Hartford Life, Simsbury, Conn., talked about the value of “simplified medical underwriting” in the voluntary disability market at a disability conference here organized by JHA Inc., Portland, Maine, a disability insurance reinsurer and consulting firm.
Gendreau described SMU as a strategy for helping voluntary disability insurers defend against antiselection, or the risk that only the sickest workers will be willing to pay for disability coverage.
Traditionally, one of the main strategies voluntary disability insurers have used to minimize the effects of antiselection is to require that a minimum percentage of a company’s employees participate.
But for a plan that offers voluntary disability coverage on a guaranteed issue basis, “I don’t believe that 25% participation protects you,” Gendreau said.
Brokers often persuade insurers to bend rules on minimum participation levels. If a plan guarantees coverage to all applicants once participation reaches a certain level, then rates have to be high enough to protect the insurer against the likelihood that many applicants are “a claim waiting to happen,” Gendreau said.
Chuck Meintel, JHA’s chief group actuary, presented an analysis suggesting that even mild antiselection can eat up about a quarter of the projected profits at a typical voluntary, guaranteed issue plan.
Today, even though voluntary LTD exposes insurers to more risk than traditional LTD does, voluntary LTD costs only about 25% more than traditional LTD for business already in force, and voluntary LTD costs only about 18% more than traditional LTD for new cases, Meintel said.
The narrower gap for new sales means that “we have a competitive market where people are trying to buy share,” Meintel said.
Hartford Life is trying to prevent antiselection and improve group disability profits by asking applicants a series of simple questions about their health, Gendreau said.