GUAA :: Risk Review

In the fall of 2004, the GUAA Disability Committee conducted a survey in conjunction with the Las Vegas meeting about trends underwriters were seeing that affect disability. There were 70 responses received. From the Las Vegas meeting there were 22 responses from the 126 attendees. Another 48 were received from the e-mail distribution. The e-mail list included the 126 that were in Las Vegas, so the net number was 215. The overall response rate was 20%. The LV rate was 17% and the e-mail rate was 22% of the net new names.

The survey itself identified 22 trends that affect or potentially affect the underwriting of LTD.
The trends came from several categories including:
   • Consumerism
   • Economic
   • Demographic
   • Health care changes
   • Insurance industry

People were asked to place each trend in a quartile: Bottom 25%, 26-49%, 50-74%, and top 25%.
Top and bottom categories were limited to 5 selections.

Those responding were asked to identify themselves as:
   • Line Underwriter – 20 responses
   • Underwriting Management – 28 responses
   • Other – 22 responses

In the case of Other, if an individual did not self-identify the response was placed in this category.
Perhaps half of the Other falls into this.

The top 5 trends – that is the ones with the greatest number of top 25% and 51-75% were:
   1. Competition from other carriers
   2. Aging workforce
   3. Difficulty in getting complete information to do initial underwriting
   4. Trying to compete on large cases
   5. Ability to find new buyers (avoid churning)

The ranking of all the trends in the survey are shown in the table below:

Trend (in rank order importance)	Bottom 25%	26-50%	51-75%	Top 25%	Top 50%	Top 50% Rank
16. Competition from other carriers	3%	4%	26%	67%	93%	1
11. Aging workforce	3%	20%	39%	38%	77%	2
18. Difficulty in getting complete information to do initial underwriting	3%	20%	41%	36%	77%	3
8. Trying to compete on large cases	9%	19%	37%	35%	72%	4
17. Ability to find new buyers (avoid churning)	10%	21%	37%	32%	69%	5
1. Rise in use of voluntary benefits over traditional benefits	12%	23%	30%	35%	65%	6
12. Increasing obesity in the workforce	10%	29%	26%	35%	61%	7
15. Pressure inside your company to grow disability block of business	12%	29%	32%	27%	59%	8
2. Rise in consumer driven health coverage	24%	22%	31%	24%	54%	9
9. Slower than normal job growth	10%	36%	42%	12%	54%	10
7. Trying to compete on smaller cases	21%	26%	35%	18%	53%	11
13. More post-retirement workers in workforce	16%	36%	35%	13%	48%	12
3. Rise in use of disease management in health insurance	16%	43%	31%	10%	41%	13
14. Impact on size of future market when baby-boomers leaving workforce	19%	43%	33%	4%	37%	14
6. Effect of M&A activity	21%	42%	29%	8%	36%	15
19. Impact of changes/conservatism in reinsurance markets	30%	35%	20%	14%	35%	16
5. Increases in co-pays and deductible amounts	36%	30%	25%	9%	33%	17
10. Effect of outsourcing	36%	30%	25%	9%	33%	18
20. Impact of emerging technology	13%	55%	26%	6%	32%	19
4. Rise in additional of behavioral health management	27%	43%	24%	6%	30%	20
21. New legislation and regulation (e.g. discretionary authority limitation)	19%	51%	24%	6%	29%	21
22. Effect of perception of disability industry due to some negative publicity	40%	41%	16%	3%	19%	22

The results of the survey were presented at the San Francisco meeting. After presenting the results, attendees were asked to select a trend and think about how they could deal it. They were given the choice of looking at the trend from the perspective of a line underwriter or from a more strategic viewpoint. The four groups then discussed their thinking with all the session attendees. The points they made were as follows:

Group 1 - Line Underwriter
Competition from Other Carriers Tactics
1. Training expertise
2. Cause & effect
3. Consultant/Positioning
4. Market Savvy
5. Know distributors
6. Data & Portfolio analysis

One can see from this the idea that a highly trained and prepared underwriter will be better equipped to deal with the challenges of a competitive market. At the same time, this preparation permits the underwriter to help the sales rep and ultimately the broker in positioning the underwriter's recommendation on plan, rate and any restrictions. This underwriter will also have invested effort in explaining why the underwriter needs the data he/she requests. Thus, the sales rep understands that without that information, the underwriter is forced into being more conservative. Conversely, on attractive business more information leads to more attractive rate, terms and conditions. The “savvy” underwriter will have an idea of who the broker is and if the situation being presented is a good one for the insurer from both the underwriter's experience, but also from the underwriter's analysis of the insurer's own business.

Strategic
Group 2 - Competition from other carriers
1. Create a clear value story
    a. Differentiate yourself through product & service
    b. What do you lose if you terminate
2. Know your market
    a. What do employers want?
3. Get the right rate on the street
4. Look to develop niche market and stick to it
    a. Expert
    b. Aggressive
5. Simplified administration
    a. One stop shop

From this group, one can see that the drive to differentiate can help a carrier in the quest for good business. Carriers have the opportunity to differentiate along several aspects of product and service. Of course to truly be different implies a willing ness to invest in the chosen area of differentiation. Market segmentation was a theme behind some of the points. Understanding of the segment and its needs, along with a long-term commitment to the segment may be keys to success.

Group 3 - Ability to find new first time buyers
1. Market Research
    a. Who's not buying
    b. Why
    c. Where
2. Tie into wellness programs (co-market)
3. Do we need new products to get them to buy?
4. More effective and diverse solicitation techniques
5. Alternative distribution to reach market
6. Educate public on the need
7. Promote company, create a brand identity
8. Go international
9. Product add-ons for existing customers
10. Create need through education, emphasize low cost

Trying to expand the market pie by finding new first time buyers is the goal of many carriers. Given the demographics of inforce customers, we might expect the first time buyer market to be at the small employer size segment. Several ideas here point out differences in the first time buyer market over employers who have a tradition of having LTD. Clearly, a dialogue with employers to understand their needs, education them on how to fill needs we know exist (but they may not be aware of) and the relatively low cost of LTD is desirable. This implies a willingness to invest in research and in getting the message out.

Group 4 - Ability to find new first time buyers
1. Product design
2. (Looking Beyond) Current distribution models
    a. Office Depot
    b. Chamber of Commerce
    c. Ethnic Markets
3. Partner with medical carriers
4. Use discounting for first time buyers (seek tax credit for premium)

This group also looked at the idea of expanding the market. What does not show in their list is the thinking that went behind an item such as “Ethnic Markets”. The group realized that to be effective in an ethnic niche one might need to invest in a different sales force and service personnel who could better serve that market niche. While this, at first glance may seem expensive, the benefits of being early in a market and developing customer loyalty may tip the cost benefit analysis in favor of doing this.