Dealing With Some Common Problems In Voluntary Disability Programs

Examples of such conditions are medical underwriting, limited benefits, and pre-existing condition exclusions on new enrollees or increased benefit amounts.

Complex Product Design: Offering a voluntary disability product with several options or choices may seem like a great way to tailor a product to each individuals needs, thus making it more attractive and encouraging high participation.

Instead it often has the undesirable effect of creating significant anti-selection risk. If the product is perceived as too complicated to understand, participation is likely to be low. In addition, those employees who do enroll may select against the carrier by choosing the richest option.

Disability is already a complicated product; with a voluntary plan it is even more important to keep it simple.

Bad Distribution Fit: Another common mistake is to assume that all worksite products and worksite brokers are the same.

Simply rolling out a voluntary disability product through your existing distribution channel may not be effective.

Whether using employee benefit brokers, worksite brokers or worksite specialists, the chances of success vary greatly depending on how well a distributors practices, experience and compensation requirements line up with a carriers target market, product design and service needs.

Producers who spend little time on voluntary products will require significant training and support from the carrier.

On the other hand, producers who specialize in worksite products typically will offer several types of services to the employer and carrier such as handling enrollments, consolidated billing and even claims administration.

The choice of distribution method, its cost, and the value it adds need to be considered when designing and pricing a voluntary disability product.

Inadequate Enrollment Methods: Participation levels and profitability are tied directly to the effectiveness of a carriers enrollment methods.

One-on-one meetings are preferable, but group meetings may suffice if there is sufficient support from the employer and adequate marketing materials.

The success of either method hinges on the ease and simplicity of the enrollment process for the applicant. Employees are not apt to sign up for fully contributory coverage if the carrier makes it difficult for them.

Effective enrollments can be accomplished by taking advantage of technology such as personalized enrollment forms, laptop illustrations and enrollments, enrollments conducted through the Internet or intranets, call centers, interactive voice response systems, electronic kiosks and electronic signatures.

The presence of any of these problems in a voluntary disability program can result in quickly disappearing profits under the weight of first-year expenses and adverse selection. But these challenges can be met with proper planning, product design and discipline.

, F.S.A., M.A.A.A., is actuary, disability reinsurance, for ING Res group reinsurance operation in Minneapolis, Minn. He works with both short-term disability and long-term disability products.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 19, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.