Middle Market DI In A Challenging Economy

Published in the March 2011 issue of BrokerWorld magazine by Bradley Buechler, FSA, MAAA FSA, MAAA, has been employed with Mutual of Omaha for 19 years.

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Today’s economy has been rough on disability income (DI) specialists. Through the third quarter of 2010, according to LIMRA, group long term disability sales throughout the industry were down 18 percent and group short term disability sales were down 11 percent. LIMRA also showed individual DI sales down 4 percent over the same period, with larger percentage decreases probable in the middle income markets.

The buying public views income protection as a discretionary purchase, somewhere in between basic shelter and monthly spa visits on the importance scale, so sales are directly related to discretionary income and an individual’s perception of his wealth.

In many middle income markets, workers are understandably apprehensive about their employment stability or, worse, are unemployed.

So where do you find middle market DI clients in a down economy?

Start with a report released by the U.S. Bureau of Labor Statistics (BLS), published in the November 2009 Monthly Labor Review, that shows occupations with the largest anticipated job growth between 2008 and 2018. The BLS starts with the employment statistics from the start of the period and projects how these characteristics will evolve over time. It then ranks occupations according to the number of total jobs added to the economy.

According to the BLS report, occupations with either very high or high median annual wages (which currently includes nearly 20 million people in the United States) are expected to increase by nearly 3.3 million jobs over the next 10 years. And these high wage, high growth jobs are predominantly in the middle market, which is not surprising, given the sheer number of workers involved.

The list of relatively stable and growing occupations includes: nurses, teachers, software/systems engineers and analysts; accountants, auditors, management analysts, bookkeepers, auditing clerks; secretaries and administrative assistants; and carpenters and truck drivers.

Voluntary Market
The most efficient, productive way to prospect in the middle market is by offering voluntary coverage to businesses looking for ways to retain valued employees. Voluntary DI doesn’t cost the business owner anything, so your sales pitch is typically to an individual who never has to take out his checkbook—an easy low- or no-cost way to provide valuable coverages to his or her employees.

Within the voluntary space, individual DI products have advantages over their group-chassis brethren, the most significant of which is that the individual product can always revert to individual underwriting if participation requirements are not met, so you should always be able to place some coverage.

Also, individual plans can often be easier to port and are less susceptible to “churn,” because the premiums are level for life. As a result, other brokers have more difficulty “better-dealing” you later and rolling the business to a new carrier, because the employees would have to purchase more expensive coverage at their now higher current age.

By enrolling those 5, 10 or 20 employees at the same time, under a convenient new business process, you’ve turned a meager $800 annual premium into a $4,000, $8,000 or $16,000 total case. Not bad. Plus, mustering at least 10 enrolled lives potentially opens the door to guaranteed standard issue (GSI) underwriting, which is the ultimate in new business convenience.

Offer an income protection solution to businesses in these more stable or expanding employment sectors, with discounted premiums and simplified underwriting under the convenience of payroll deduction, and you’ll find many will be receptive.

The Sale
Whether one-on-one or in group meetings, ask your prospective clients to list their most valuable assets: home, car, health insurance, retirement savings, plasma television. Whatever they include on the list are assets that hinge upon their ability to earn an income.

Next, you need an income protection solution as diverse as the market you’re serving. Middle market DI is not a one-size-fits-all selling proposition.

Finding a carrier with LTD, STD and accident-only STD will ensure clients are occupationally qualified, can easily understand the products, and can dial in a premium that is affordable and reasonable in relation to the income the product is intended to protect.

LTD tends to be sold to workers in office or clinical settings looking for long term, comprehensive protection. It works well in two-person income situations where savings or spousal income can provide during a longer elimination period. It’s a product solution intended for someone with no existing coverage or as a supplement on top of an existing group LTD plan.

STD is a great product for clients who don’t have a lot of savings and are more concerned about meeting short term financial obligations than they are in purchasing a robust, long term income protection package with lots of bells and whistles.
It resonates in gray- and blue-collar, sole breadwinner households with limited savings to meet short term needs, but can also be layered in front of an individual or group LTD plan in white-collar markets.

Accident-only STD is a great product for price sensitive buyers in blue-collar occupations. It can also be used as a reflex product for clients who can’t medically qualify for LTD or STD. It is near-guaranteed issue, even when individually written, so medical declines are uncommon.

DI can also be positioned as asset, not necessarily income, protection. Rather than replacing a targeted percentage of income, you can dial in a monthly benefit equal to the client’s monthly mortgage payment. It’s a way to reflex back on the price with clientele for whom times are tight, yet still achieve a meaningful level of benefits that serves a very specific, tangible purpose. Then you can go back to upsell them to a more substantial benefit once the current employment anxiety dissipates.

After the Sale
Your clients should understand that DI protects future income, not current income. Why is this an important differentiation? Because it helps to cement in your client’s mind that he is essentially a money-making machine. When the machine breaks down—which it is prone to do—DI is the back-up generator that switches on to carry the burden while he recovers.

Understanding the current versus future income distinction may prevent your client from making a costly mistake if he does find himself temporarily unemployed. The tendency of many in this situation is to lapse their DI coverage. After all, they’re not earning an income any longer, so why should they retain the coverage?

But your clients are still at risk for disability even when they are not working because DI is insuring their future earning potential. Most carriers define compensable benefits by looking at prior earnings, often as far back as two calendar years. It surprises most people to learn that if they suffer a disabling injury three months after being laid off, they are entitled to the same benefits as if the disability had occurred while they were actively employed. But your client has to keep the coverage in force.

Don’t Let the Economy Get You Down
American ingenuity always prevails, and the U.S. economy will eventually work its way through its current challenges and return to full employment. While the job market is on the road to recovery, make your time as productive as possible by focusing on those occupational sectors that are stable and growing in spite of the latest economic cycle. Offer your clients an income protection solution appropriate for their unique set of circumstances. And reinforce the role of DI as insurance for their future earning potential, their most valuable asset.

And, above all, don’t let the economy get you down.


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