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Life Health > Life Insurance

Debunking The Myths Of Disability Underwriting

By Kevin G. Mealey

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When it comes to selling disability income insurance, I’m not sure which is the bigger obstacle: the overall lack of awareness among the general public about this much-needed income protection product or the persistent belief in DI underwriting “horror stories” on the part of producers.

As an underwriter, hearing objections about how “difficult” and “risky” it is to subject clients to the “intrusive” DI underwriting process can be tough to take because, indeed, I occasionally have to be the bearer of news that may be disappointing to producers and their clients.

But I’d like to offer my take on the matter. Hear me out and, by the end of this article, I hope you’ll agree that, more often than not, such objections are based on myth, not reality…and that buying into those myths could be a grave disservice to the clients who trust you to help them protect their financial well being.

Myth #1: Disability underwriting is more difficult than life underwriting.

Disability underwriting is different than life underwriting, for all the reasons that morbidity is a profoundly different actuarial notion than mortality.

There are no gray areas with mortality. You’re either dead or you’re not. Years of mortality data have resulted in actuarial tables that are stunningly accurate predictors of how many people are likely to die at a given age.

Morbidity, on the other hand, has many more variables to take into account. Predicting when, or whether, a pre-existing medical condition or occupational factor will lead at some point in the future to a non-lethal disability–not to mention predicting how long that disability will last–is a much less exact science.

Keep in mind, too, the possible total indemnity a DI carrier may face with a disability claim. Thanks to advances in medical science over the last two decades, disabilities that used to be fatal can be managed for years. What may look like a $5,000 benefit to you could represent millions to your DI carrier over the lifetime of a claim.

All of which means that DI underwriters require a different level of information than their life counterparts.

Myth #2: I have no control over the outcome. Everyone knows disability underwriting is ruled by a bunch of home office underwriters who’ve never been in the real world.

I’ll meet you halfway on this one: You’re right that the vast majority of home office underwriters have never walked in your shoes. Indeed, most (and I count myself among them) know themselves well enough to know that they could never do what you do each and every day; they’re simply not cut out for the competitive world of sales.

What they are cut out for are details. The more details to absorb and deliberate over, the better. But, since we’ve already established that they don’t have what it takes to go out there and gather those details themselves, they rely on you to be the company’s eyes and ears.

You’ve heard the term “field underwriter.” When it comes to a high-risk product like DI, home office underwriters really do consider you to be their peers in the “real world.” As you’ve no doubt gathered by the points I’ve raised above, we depend on you to represent the risk of each application accurately. The more you can tell us about your client, the better job of underwriting we can promise you.

Myth #3: Disability underwriting is a lengthy process.

Submitted properly, a DI policy can be underwritten and issued almost as quickly as a life policy. Like many in the industry, my company has invested tremendous resources toward reducing policy issue cycle time–defined as the measure of time from the point at which an application is received until the policy is issued and mailed–so that policies are placed more quickly.

We also have established a “jet issue” unit–essentially a hybrid of our new business and underwriting areas–to more swiftly process applications from our top-tier, high-volume DI producers. But efforts in the home office are only part of the solution.

The speed of DI underwriting is greatly enhanced by the consistent field practice of these three basic principles:

1. Make sure your applications are complete (i.e., legible and all questions answered).

2. Avail yourself of your writing company’s preferred vendors for paramedical exams, credit checks and the like.

3. If a situation seems ambiguous, assume that the underwriter will require additional explanation. Append a letter or make use of the agent’s comment section on your application, if available.

It’s astonishing how many times these fundamental tenets of sound field underwriting are overlooked…and how much time is wasted when agents don’t take these steps.

Myth #4: The process of disability underwriting may impair my relationship with my client.

Actually, most successful DI producers tell me that the process of disability underwriting actually strengthens their relationships with their clients.

That’s because disability underwriting may be one of the most efficient ways to assess your client’s overall financial picture, enabling you to identify unmet protection needs that may lead to future sales (and we all know that multiple sales serve to strengthen client relationships). For example, your client’s business situation may open the door to other DI-related sequential sales, such as overhead expense or disability buy-out.

Myth #5: My client will find the underwriting process too intrusive.

Satisfied clients generally take their cues from their agents. If you set realistic expectations about the disability underwriting process from the outset and keep them informed throughout, your clients aren’t likely to experience any unpleasant surprises.

Take the opportunity to assure your clients that, aside from you, only the underwriter assigned to the application will see their information, and that federal and state privacy laws and regulations guarantee that everything will remain confidential.

Myth #6: The DI policies that aren’t declined outright are rarely issued as applied for.

This may be one of the most pervasive DI underwriting myths out there. My company’s decline ratio is less than 15%; the fact that we paid more than $155 million in DI benefits last year alone is evidence that hundreds of thousands of policyholders successfully have secured coverage with us. And I happen to think in this respect we’re fairly representative of all DI carriers.

Furthermore, the majority (about 65%) of policies that do get issued by us are done so on a standard, non-rated, no exclusions basis–as applied for, in other words. And, we work very hard with our field force to find ways to reduce wastage–defined as the percentage of new disability applications that do not result in issued or paid policies because the underwriting information is incomplete or the issued policies are not paid–to improve the placement ratio even more.

Myth #7: A rated or ridered DI policy will undermine the trust I’ve worked so hard to earn among my top life clients.

Again, agents who do a good job setting expectations with their clients only can strengthen their relationships with those clients. It can be something as simple as:

“You may remember that those herniated disks in your back had no impact on the underwriting for the life policy we set up two years ago. Here’s why they may be an issue as we apply for this DI policy [refer to "Disability underwriting is more difficult than life underwriting," above]. We should probably expect a rider…but here are some of the 5,000-plus other conditions you will be covered for….”

Fans of the film “Meet the Parents” may recall the recurrent “circle of trust” theme that runs throughout the plot. While I’m in no way suggesting that your relationship with your underwriters is analogous to the highly farcical trials faced by Ben Stiller’s prospective son-in-law at the hands of Robert DeNiro’s controlling father, I do think there’s a similar circle-of-trust dynamic at work with disability underwriting: You’ve worked hard to establish a relationship with your clients based on trust. They not only trust you to give them the best advice possible, but they trust you with their confidential medical and financial histories as part of the disability underwriting process. Your home office, in turn, trusts that you’ll not only accurately represent the risk of each application, but you’ll also accurately represent the ins and outs of the DI underwriting process to your client. And, finally, you trust your underwriters in the home office to be open and honest with you as they negotiate the decision-making process at their end.

As the DeNiro character says of the circle of trust, “around and around it goes.” When it comes to DI, that’s definitely a good thing and integral to a successful partnership between you and your home office underwriters.

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