Good news for advisers selling disability income insurance: Sales of traditional and voluntary DI are headed upward. But even more exciting is the undercurrent of optimism and excitement among major insurers and disability management experts about the future of disability benefit programs.
Persistent economic doldrums and workforce downsizing are prompting employers to look at benefits and productivity management in new ways. This is opening the door for solutions-minded broker-advisers to showcase disability in an entirely new light.
STD and LTD sales
The Gen Re "2011 U.S. Group Disability and Group Life Mid-Year Market Survey," released Oct. 3, shows that new long-term disability sales premium grew by 4% to more than $769 million between mid-year 2010 and mid-year 2011. That was a welcome reversal from the 21% drop reported a year ago by the reinsurer. Of the 30 LTD carriers surveyed by Gen Re, 17 reported an increase.
New sales for short-term disability decreased slightly (1%) year-over-year, but that is an improvement from the 8% drop a year ago. Annual sales premium for carriers reporting STD totaled just over $369 million. Gen Re also revealed that LTD earned premium remained level with just over $4.8 billion reported, while STD grew by 2%, totaling over $1.7 billion in earned premium at mid-year 2011. Compared to the same time period last year, the number of employers offering insurance remained level for LTD. STD, however, showed a 2% increase in the number of covered employers.
The pace of DI sales contrasts with the market potential. Research released in June by The Hartford showed that only 49% of U.S. workers have short-term disability insurance and 44% have long-term disability insurance. This represents a drop of 6% and 3%, respectively, over last year's survey in the number of Americans with the coverage, The Hartford stated.
There's still some under-penetration in disability coverage, especially at the non-management levels, says Kathy Plummer, director of Product and Market Development at Unum. "Financial consultants are beginning to address the need for some type of disability coverage, and for most workers, this will come through their employers."
Sunny Voluntary vista
When looking solely at sales of voluntary DI products, the upward trend line is steadier, indicates Bonnie Brazzell, vice president at Eastbridge. "Longer term, the disability line has been growing; the compound annual growth rate between 2000 and 2010 was about 3.25%. That's not blowing it out of the water, but it is steady, consistent growth."
Increasingly, that growth rate has been fueled by voluntary LTD sales. "It used to be that voluntary disability was almost always STD," Brazzell says. "But as employers are trying to control overall benefit costs and moving more toward employee-funded, that has changed. In 10 years we've gone from maybe 1% to 2% of sales being LTD to maybe 5%."
Indeed, while a large amount of disability insurance sales on the group side are still employer paid, the voluntary DI horse is the one more carriers and brokers are betting on.
"We see the shift to voluntary disability as something very important that we're aggressively supporting," says Laura Marzi, assistant vice president in The Hartford's Group Benefits.
Jeremy Franzen, manager of product development, group insurance, Mutual of Omaha, agrees. "We're still continuing along the line of more voluntary, employee-funded products. As employers continue to struggle with paying for medical insurance, the benefits cost burden will continue to be moved to the employees," he says.
"More employers are going to voluntary, especially if they haven't offered disability insurance in the past," notes Plummer. "It requires a different set of tools, however, because you're selling directly to the consumer. We've put a lot of research and resources into discovering what resonates with people and how to make purchasing as simple yet as comprehensible as possible."
However, not everyone views the shift from employer- to employee-paid as a positive trend.
Michael Klachefsky, national practice leader for Workplace Possibilities, The Standard's program for helping employers prevent and manage disability in the workplace, says Workplace Possibilities usually serves group as opposed to voluntary disability plans. "Employers that switch to voluntary disability plans may have little ability to control absenteeism. If you stay with employer-paid group disability, you may be better able to manage absences and decrease their duration."
Klachefsky worries that employers are focusing on health care costs to the exclusion of absence and disability. "They need to look into these other two silos because they are quite big. The cost of health care equals 13% to 16% of payroll. But the cost of absence and disability, including vacations, is about 35% of payroll. If you remove vacations and holidays, the cost of incidental absence and extended disability is still approximately 9%. When you compare this to health care costs, it's a big number. Some employers are paying attention to this, but too many just think about it as a cost of doing business."
One reason disability costs are getting less attention than health care costs is because there are no red flags for employers on the claims side. In a recent survey of more than 3 million claims for nearly 48,000 employers, the Integrated Benefits Institute found that the rate of active and new STD and LTD claims has been steady or declining.
"What may be surprising is the flatness, particularly in STD, in the past few years," says IBI President Thomas Parry. "This may well have to do with the fact that people are seeing employers downsizing, and they're worried about their jobs being available when they come back from disability leave. Those who may have filed claims before could be sitting tight and waiting to see what happens."
The bad economy may be having another impact on claims as well.
"There's an overall change in the types of claims we're seeing," says Craig Gray, vice president and head of Return to Work Solutions at Aetna. Instead of the typical straightforward diagnosis of a muscular-skeletal problem, for example, the diagnosis often is ill-defined.
"Very often there is a co-morbidity-something else going on," he explains. "My educated guess is that it is related to the economy. Non-medical drivers are complicating what we usual think of as a disability, which is making it harder to understand individual claims and meet the people where they're at. It often takes more investigation to connect the dots. But helping these individuals is where the real rewards are."
Another claims driver could be the growing presence in the workforce of older employees who have more disabling injuries and diseases.
"People who are older and go out on disability tend to have longer [absence] duration," says Jennifer Hader, director, Product Strategy & Management for Cigna's disability line of business. "In 2011, almost 20% of our new claims were filed by people age 60 and over, compared to 16% five years ago. We're not seeing a significant trend yet, but disability tends to have a longer tail."
However, Paul Taylor, vice president of Group Disability for MetLife, feels the impact of the aging workforce may be overstated. "An aging workforce doesn't necessarily mean there will be an uptick in claims," he says. "There are offsetting medical advantages that will help us manage disabilities and get people back to work faster."
Not just return-to-work
It's those counterbalances that insurers are zeroing in on. Now is the time to help employers maximize productivity by reducing absences and to close the barn door before the claims horse gets away.
"We're certainly focused on mitigating the claims trend," says Cigna's Hader. "We're more knowledgeable today about what integrated [medical and absence management] programs can do; this approach can result in 20% fewer absences than a disability program alone."
Like most major health and DI benefit providers, Cigna utilizes health plan data to help reduce disability claims and costs. "We also have reached out to dental and pharmacy; in fact, we just added a pharmacist to our disability team," Hader says.
Unum is seeing a resurgence of employer interest in return-to-work programs, says Kristin Tugman, director, Return to Work. "We're making sure that all of our vendors are partnering on how disability management should interact with disease management and employee assistance programs."
Aetna's Gray says that insurers are focusing their absence management efforts on three fronts: technology innovations that improve claims handling; medical-disability program integration and advanced return-to-work programs that promote quicker returns and help workers stay on the job rather than take leave. "Smart insurers realize they have to intervene early, even before a claim has occurred," he remarks.
The Standard has taken the novel approach of putting specialists - either nurses or vocational/occupational experts - into the workplace to identify return-to-work and stay-at-work opportunities that normally would be missed. "Our Workplace Possibilities program is different because we put boots on the ground," says Klachefsky. "Right now, we're working with 80 employers, and about a quarter or a third of our interventions at those sites involve helping employees stay at work."
IBI's Parry points to other untapped opportunities. "We still aren't seeing employers focus on return-to-work on the non-occupational side," he says. "That has to change and will." He also notes that the focus on stay-at-work programs as part of family-medical leave is increasing. "The move to onsite clinics is in some sense a good stay-at-work strategy as well."
Another possible productivity-boosting path not yet well traveled is using wellness programs to aid in disability and absence management. "We're in the beginning phases of this," says Cigna's Hader. "There's clearly a connection; a person out on disability may well have a chronic condition and issues such as smoking or weight loss that need to be addressed. The STD leave period may be an excellent time to identify and engage those people in wellness programs."
Unum is taking return-to-work in another intriguing direction: using it as the foundation of a productive aging program, says Tugman. "If you understand the minimum work output necessary, you can create a stay-at-work program that becomes a bridge to retirement," she says. Existing programs, including disability management, disease management, wellness, EAP and others, can be used to assist and engage older employees and keep them on the job, allowing employers to leverage their knowledge, she explains.
Integration of medical, wellness, disability and EAP programs will only pick up steam as health plans search for new ways to make their business case to employers, says Parry. "If you can focus on health improvement, your value proposition changes. The creative health plans will realize the tremendous opportunity they have to link what they do to a much bigger view of health and health impact."
Approaching disability insurance sales by talking about premium costs amounts to little more than hot air. What will put the wind in your sails is education - let employers know about the total cost of absences and how disability insurance policies and absence management programs can help.
"Advisers should focus on the larger problems associated with disability - the aging workforce, the upcoming labor shortage, regulatory issues and different types of impairments that are on the rise, such as behavioral health claims," says Tugman of Unum.
"Employers need to understand that disability and absence can be a lever in bringing down the overall benefits spend," says Aetna's Gray. "Brokers selling disability should look for opportunities to have insurers play a bigger role in their clients' workforce management and keeping employees on the job and productive."
The great news is that employers are hungry for this information, says MetLife's Taylor. "Employers are interested not just in return-to-work, but stay-at-work programs and how to avoid absence altogether. I've been in the business for 24 years, and I've never seen the level of interest that I've seen in the last 12 to 18 months."
Policy design and pricing
To whet employers' and employees' appetite for disability products, insurers are designing more hybrid policies that take the best from group and individual products as well as from STD and LTD.
"We're seeing more mid-term disability plans that bridge the STD and LTD world," says Eastbridge's Brazzell.
"STD is typically 12 months and LTD is more to age 65. Insurers now are offering mid-terms of five years duration in order to provide more value to employees. These products serve both short-term and long-term needs and purchasers don't have to pay for two policies.
"Insurers are also designing plans that marry the strengths of group and individual products, in particular, the lower rates of group DI with the portability of individual policies, notes Jeremy Franzen of Mutual of Omaha.
As the pendulum swings toward employee-paid DI, a key concern for carriers and brokers will be how to make the buying process easier for consumers, says Unum's Kathy Plummer. "Flexibility will be critical; for example, having one plan that covers all employees may be easier for the employer, but harder for the employees. Allowing employees to purchase in increments depending on their salary may be more relevant to their lifestyles," she says.
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