How to Thrive in the Employee Benefits Market This Year

Every business needs to stay abreast of market trends and demographic shifts. But many independent insurance agents have failed to take advantage of two major workplace evolutions that have occurred over the past 30 years.

First, thanks to technological innovation and global competition, the “hire to retire” era has been replaced by increased downsizing and outsourcing on both a national and international scale. As a result, today’s workers must be more self-reliant about seeking out and securing employee benefits that aren’t tied to their current employer.

And second, given that employees are moving from employer to employer more frequently, including accepting stints as self-employed consultants, discussing long-term disability insurance with your clients is vitally important.

Making the Case

You can start the long-term disability conversation with three basic insurance concepts: risk, peril and hazard. Try posing the following questions to your clients:

WHAT’S THE RISK THAT A PERSON WILL BECOME DISABLED DURING THEIR WORKING CAREER?

Contrary to popular belief, disability is actually very common in the U.S. According to the current statutory morbidity basis—the National Association of Insurance Commissioner’s 1985 Individual Disability Tables A and C—one in eight workers will be disabled for five or more years during their working careers, with illness or chronic conditions causing 90% of disabilities.

Disability is also becoming more frequent: According to the Social Security Administration, a fourth of today’s 20-year-old individuals will become disabled for an extended period of time before reaching retirement age.

WHAT’S THE PERIL OF EXTENDED DISABILITY?

Economists worry that a significant proportion of Americans do not have meaningful savings. Social Security does not begin to pay benefits for seven months after an incidence of total disability, and even in states that mandate short-term disability benefits, they typically end after six months and cap the maximum benefit amount. That means disability is a serious peril for many Americans.

WHAT’S THE HAZARD OF EXTENDED DISABILITY?

Serious illness may be only a remote possibility for younger people. But today, many people both young and old lead active lifestyles that involve hiking, biking, running and other athletic pursuits—all of which open the door for plenty of hazards that can result in a disability, whether as a result of a personal accident or an injury sustained from a third party.

Have you ever had a conversation with your clients about what would happen if a distracted driver hit them while they were running, biking or in their car, for example? Carriers are seeing an increase in the frequency and severity of claims caused by distracted drivers. Considering the number of uninsured/underinsured drivers, the financial consequences could be devastating.

What’s Stopping You?

With these trends in mind, long-term disability represents a cross-selling opportunity for agencies that are property-casualty dominant—in both personal and commercial lines. But if you’re like many independent agents, you may have a few misconceptions about offering long-term disability insurance at your agency, including:

• I have to be a long-term disability expert to wade into this market.
• Most employees receive long-term disability benefits through their employer.
• Consumers don’t perceive a need for long-term disability insurance [see sidebar].
• Long-term disability is finicky. It’s hard to get cases bound.
• Claim adjudication can create friction if a claim is denied.

First of all, independent agents must be able to have a conversation about long-term disability. A great way to start is asking your clients if they have this type of insurance, and if so, what is the level of benefit?

Many employees don’t know, so the pragmatic answer is to ask them for a summary of their benefits. A number of long-term disability MGAs are very interested in working with independent agents, and can help you review a client’s information, design a plan and proposal, get the case through underwriting, and bind a policy.

“Most agents don’t realize they are doing a disservice to their p-c clients as well as their agency by not approaching their clients about disability insurance,” says Bryan Walton, specialist with Crump Life’s Time Financial—a life, disability and annuity MGA that focuses on working with independent insurance agents. “It’s understandable that they may feel they are not equipped to serve their clients’ disability needs, but they just need to have the right partner that knows how to support them. The key is having that relationship of trust with the client.”

Pick Your Packaging

You can now approach a case on an individual or group basis, or you can use a hybrid approach that provides a group policy and a “carve-out” or “buy-up” to make sure executives have access to an individual long-term disability policy.

A major advantage of employer-provided group long-term disability coverage is that for groups five and up, it can be on a non-medical guaranteed-issue basis, up to certain monthly benefit levels. That means employer-provided coverage avoids the hassle of medical underwriting.

Equally important, long-term disability coverage is much less costly when provided on a group rather than individual basis. That’s because the larger the group, the greater potential for adverse selection—the reality that less healthy employees may be more inclined to purchase insurance than their healthier co-workers.

But many small businesses, especially technology companies, don’t offer long-term disability benefits—which gives you a significant opportunity to deliver a benefit many millennials will value.

Members of the younger generation are typically more interested in “experiences” than their parents, and that means they’re more susceptible to the hazards of active and globetrotting lifestyles. But smaller businesses find it difficult to compete with larger, established companies when it comes to providing comparable employee benefits. Make sure your small business-owning clients consider whether it makes sense to put in place a funded disability buy-out plan in the event that one of the owners becomes disabled and is forced to sell their ownership in the business.

Several innovations in long-term disability benefits are helping remedy the needs of self-employed and younger employees. For example, Berkshire Life, a subsidiary of the Guardian Life Insurance Company, provides policy riders that provide up to $2,000 a month for a 10- or 15-year period to help an insured meet their student loan payments.

Berkshire can also help with the income of someone who works from home as a consultant when their disability does not allow them to perform the material duties of their occupation. This coverage is intended for home-based business owners in some occupations who do not have to leave their homes on a regular basis, or who have clients come to their homes to conduct business.

Now is the time to have the long-term disability conversation with both your personal and commercial lines clients. Whether you’re working with a company, self-employed consultant or you’re simply fulfilling a personal need, the risk of an extended disability is very real. Educate your clients—before a competitor beats you to it.

Dave Evans is a certified financial planner and a former IA contributor.