JHA Speaker: Stand Firm On Prices

Bonita Springs, Fla.

“We’re in the worst economy in our lifetime, and I don’t think it’s going to get better in the next year,” Reed Holden, president of Holden Advisors Corp., Concord, Mass., said at a conference here.

Holden spoke about strategies for maintaining realistic prices in the face of a brutal recession during the annual disability insurance conference sponsored by JHA, Portland, Maine.

He called for a calm, analytical response to the recession. “My advice to you is, as quickly as possible, get over it,” he said.

“Getting over it” should mean improving products and services and working hard to find genuinely qualified prospects, not cutting prices to unprofitable levels, Holden said.

“You can’t price your way out of a recession,” he said.

One way to increase sales reps’ ability to sell based on something other than price is to train them to understand the products they are selling, he continued. Another way is to put more effort into using simple screening questionnaires and other techniques to filter good prospects from those who are not actually likely to buy, Holden said.

“Not all customers want and are willing to pay for value,” Holden said.

Building sales reps’ confidence is also important, he said. Effective sales executives “are not banging the ‘we’re going to die’ drum,” Holden said.

If executives at a disability insurer think the reps are focusing too much on price, that may be a symptom of other company problems, Holden added.

He recommended that executives who are dissatisfied with their sales reps try going out on sales calls for a day. “You have no idea what it’s like out there,” he said.

Holden recalled working with a client company in the electronics industry that thought it was having problems because its sales reps were too quick to discount. In reality, the reps were discounting because the company was unreliable and failed to support them adequately, Holden said.

He also emphasized the importance of firing bad customers, including customers who spend a disproportionate amount of time complaining.

“The squeakiest wheel is usually the least profitable,” Holden said.

Disability Insurance Experts Ponder Recession Impact

Bonita Springs, Fla.

Thinking beats cowering, a top disability insurance market watcher says.

Drew King, president of JHA, Portland, Maine, called for a calm, analytical response to the recession here at his firm’s annual disability insurance conference.

“I encourage you not to be part of the herd,” King said at the general session that kicked off the conference. “Let’s not go in the bunker.”

Instead of adopting a “duck and cover” strategy, disability industry executives need to decide what they think the situation is and make choices based on how they think the recession is going to end, King said.

“And it will end,” he added.

JHA is a disability insurance risk management and consulting arm of General Reinsurance Corp., Stamford, Conn. Its conference draws many of the movers and shakers in the disability market.

This year, because of the economy, “we’re a little bit smaller,” King said.

But he estimated premiums from in-force coverage increased 2% for group long-term disability in 2008 and 2% for group short-term disability. JHA also surveys the group life market, where in-force revenue may have increased 4%, he said.

Past recessions have led to increases in disability claims. So far, however, the current recession has not had much, if any, effect on claims, several speakers said.

One theory is that policies and claim management strategies have improved. Another is that workers are too worried about job security to file disability claims, Gerard Lynch, president of General Re-New England Asset Management Inc., Farmington, Conn., said at a conference breakout session. His Gen Re unit manages assets for insurers.

A third theory is that, because of challenges such as credit card debt, “people were too leveraged to go out on claim,” Lynch said.

In the future, the recession and government efforts to end the recession could hurt the disability insurance market, Lynch predicted at the general session and the breakout session.

Governments “will throw as much money at this as they possibly can,” Lynch said. “From their point of view, inflation is a small price to pay for political and economic stability.”

That means that, after a year or two, inflation is likely to rise, and asset classes such as oil and grain are likely to do well, Lynch said.

Meanwhile, because companies, individuals and governments will have to reduce use of debt, the employers that will be the best disability insurance prospects probably will be in sectors that have not heavily used debt and other forms of leverage in recent years, Lynch said.

“We’re going to have a blue-collar boom in this country,” Lynch said.

Another speaker, Kevin Riley of JHA, said during a breakout session that the recession could affect disability insurers by reducing the number of workers who need coverage and by reducing the remaining workers’ income.

Some employers are responding to tough times by keeping their most experienced people and laying off newer workers, according to a disability insurance company executive who attended the session. When employers follow that strategy, that can increase the average age and the overall risk level of a group disability case, he said.

Clayburn: Vermont Notice Could Push Up Disability Rates

Bonita Springs, Fla.

A new disability insurance mental health parity mandate could shake up the Vermont disability insurance market.

Steven Clayburn, a senior director at the American Council of Life Insurers, Washington, talked about the mandate at a regulatory affairs session, at a disability insurance conference here organized by JHA, Portland, Maine.

In September 2008, Vermont released a bulletin that would require disability insurers to offer the same benefits for insureds with mental health disorders as they offer for those with comparable physical health problems.

Clayburn said the ACLI fears the mandate could increase the cost of disability coverage 15% to 30% at a time when employers and individuals already are looking for excuses to cut insurance spending.

The ACLI succeeded in persuading the state’s regulators to ease the mandate in some ways, such as pushing back the original Nov. 1 effective date and acknowledging that the mandate would not apply to disability coverage renewals, Clayburn said.

But there are limits on what the ACLI can do, he added. Filing a lawsuit against an insurance department, for example, is expensive and time-consuming, and it may hurt a trade group’s ability to work with an insurance department on other issues, Clayburn said.

Winthrop Cashdollar, executive director of disability insurance at America’s Health Insurance Plans, Washington, who was in the audience, said he agreed that suits are to be avoided.

“We have to understand where we can get to,” Cashdollar said.

Sometimes, the best possible outcome is getting a law, regulation or policy to a point where the insurance industry can live with it, even if it is still imperfect, Cashdollar said.

JHA Attendees Eye Group Life

Bonita Springs, Fla.

The recession probably will hurt group life revenue, but whether the recession will increase the ratio of claims to premium revenue is unclear, said participants at a session on group life during the disability conference here.

JHA, a Portland, Maine, disability consulting and risk management arm of General Reinsurance Corp., Stamford, Conn., set up the session to emphasize its growing group life survey data operations.

Layoffs could reduce the number of workers in the workforce, causing volume to go down, said one speaker, Bob Hardin, a group actuary at JHA.

If an employer kept experienced employees and laid off the younger workers, that could increase the average age of its workforce and make the employer a less attractive group life risk, Hardin said.

Some group life executives in the audience agreed the average age of group life insureds might increase, but others said they expect to see employers keep the younger employees and lay off the older employees.

Also at the group life session:

–One attendee complained that direct group life writers appear to be doing too little to track and control concentration of group life risk in specific locations or to reinsure against catastrophic losses.

–Group life executives in the audience said their companies do try to avoid excessive concentration of insureds in a single location, but they said the current limit of about $40 million on private life reinsurance arrangements makes it difficult to reinsure large group life operations. The large group life insurers need reinsurance arrangements with maximums in the billions, not millions, the audience members said.

–The type and quality of the enrollment process can affect the nature of the products and services sold. At Unum Group Corp., Chattanooga, Tenn., for example, the non-commissioned benefits enrollers have been so successful that Unum often can offer voluntary group life without requiring a minimum participation level, said Puddy Holmes, a reinsurance consultant for Unum.

–Audience members said workers insist on a fast, smooth enrollment and underwriting process. Even something as minor as asking an applicant for voluntary benefits for a paramedical exam leads to a dramatic increase in application abandonment rates, an audience member said.

After the group life session, Paul Botkin, a senior vice president at Aon Consulting, an arm of Aon Corp., Chicago, said some carriers that complain the most about price-driven group life competition are doing the most to drive prices down. Some of those carriers may be offering low group term life prices as part of successful efforts to sell voluntary benefits. “The employer is focused on what the employer has to pay,” Botkin said.

If the employer gets a good deal on group term life, the insurer may then be able to sell dental insurance, supplemental insurance and other products to the employees, Botkin said.

But one risk of efforts to low-ball group term life is that the carrier may have to increase premiums sharply when the policy is renewed, to reflect the actual claims experience, Botkin said. Another risk is that a carrier may be unable to handle a catastrophe, Botkin said.

Benefits brokers and consultants have to make sure employers understand when group life prices appear to be unrealistic and encourage them to shop for the best value rather than the lowest initial price, he concluded.