The economic downturn has led to reductions in disability insurance coverage for many workers – and you don’t have to look far for examples of how a sudden loss of income can wreak havoc on household finances. Many companies are seeking cost-containment strategies for employee benefits, while plan participants want financial security that can transcend disability or serious illness.

To meet those competing demands, employers need sound recommendations from agents, brokers, and consultants. A package of innovative programs that promote healthy lifestyles, comprehensively track disability claims, and effectively return sidelined workers to productive roles in the workplace isn’t just in the best interest of employees – it’s vital to keeping costs down.

Setting up the need

Disability insurance isn’t just protection against some remote form of risk. One in five U.S. workers will miss work for at least a year because of an accident or illness before they hit the retirement age, according to a 2005 Life and Health Insurance Foundation for Education study. The Council for Disability Awareness also estimates the average employee absence due to long-term disability is two-and-a-half years. The effect of such a dramatic loss on earning power can shred a family’s finances.

Prudential’s “Study of Employee Benefits: 2009 and Beyond,” which surveyed benefit plan participants, benefit plan sponsors, and employee benefits brokers and consultants, shows that workers are aware of this issue. Sixty-nine percent of plan participants said it was highly important to have financial security if a wage earner were no longer able to work because of disability or illness – an increase of nine percentage points since 2007. That outpaces concern for maintaining a healthy lifestyle, having adequate long-term health care, or financial security in case of premature death. And 48 percent of those surveyed said disability insurance was a significant factor in making job decisions.

Offering disability insurance as part of a company’s benefit package can help improve employee morale and make a company more attractive to prospective employees, but it can no longer be seen as a single, unrelated strand in benefit packages. Brokers and consultants are increasingly recommending an integrated approach – one that coordinates medical, pharmacy, absence, disability, and workers’ compensation plans.

It makes sense. Healthier employees are more productive and cost less, at least from a medical and insurance benefit standpoint. Yet many employers do not have a firm grasp of the true cost of worker absences. A 2008 Mercer survey, “The Total Financial Impact of Employee Absences,” estimated it to be a whopping 36 percent of total payroll. Direct costs – such as wages for sick, injured, or disabled workers – account for only half of the cost, while the survey found other factors included such intangible items as replacement labor costs, lost productivity, and increased administrative duties.

How to do it

Reducing absences – and that eye-opening estimate of costs – takes a multilayered approach:

  • Employee wellness and disease management programs
  • Sophisticated tracking of worker absences and leaves
  • Disability claims management to bring the right resources to bear
  • A more enlightened view of return-to-work accommodations.

If it’s done right, employees and employers will both reap the rewards.

More than half of all brokers and consultants said they plan to highly recommend integration of benefit plans by 2014, according to Prudential’s employee benefit survey. A little less than half said they planned to give the same nod to improved accommodations for employees returning from disability or other work leaves. Just over a third of companies said they planned to do a “great deal” of integration within five years.

There’s no question that specialized recommendations will be at a premium as companies reshape benefit plans for maximum effectiveness. Many corporate human resources staff members have been downsized in recent years, and some companies are out of solutions. Who will they turn to? Trusted consultative partners who can make the right recommendations for reaching desired goals.

Prudential’s survey found that 17 percent of companies said they planned to increase their use of brokers and consultants over the next five years. Sales agents who know the value of their products and can effectively communicate it will have increased opportunities during this time of change.

Employees and employers are both looking for more certainty when it comes to disability insurance. Workers want to know they have protection if they can’t earn their paycheck, either from a short-term or long-term illness or injury. Managers want to know that benefits programs work well without pinching their budgets too hard.

By taking a broad-based approach to the problem, companies – with the help of agents, brokers, and consultants – can build a foundation for disability income protection coverage that works with the economic climate.

Kimberly Mashburn is vice president of strategic partnerships, group insurance for The Prudential Insurance Company of America. She can be reached at kimberly.mashburn@prudential.com.