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Enhanced underwriting improves accessibility to disability insurance coverage

By Susan Yellin | June 02 2017 07:00AM

Photo: Freepik

Disability insurance (DI) is often considered a complicated product to sell, yet improved underwriting, creative technology and new products are helping to spur the number of Canadians buying disability protection in Canada.

According to statistics compiled from the Annual Health Insurance Benefits in Canada Survey by the Canadian Life and Health Insurance Association (CLHIA), the number of Canadians with disability protection increased 15.5 per cent from 2005 to 2015, for a total 11.9 million people. Premiums, including individual, group, long-term disability and short-term disability were up 51 per cent over the same period. Claims rose 59 per cent to $7 billion over the decade.

DI has benefited from trends taking place throughout the insurance industry, including enhanced underwriting and simplified forms.

Faster and easier

The push for faster and easier insurance is coming from everyone from millennials to baby boomers who are shunning medical tests in favour of a quick turnaround in insurance. Also joining the lineup to buy DI are employees whose companies have slashed their employee benefits budgets, removing DI from the list, as well as those seeking fill-in DI at jobs where the insurance is not available until the person has worked for a company for a certain length of time, say industry professionals.

“[DI is now] simplified, quicker and meets the expectations of the client because they want things done quickly, efficiently and be on their way,” says Micah Neale, national living benefits specialist at Desjardins.

Many products have now been de-risked to the point where insurers can provide good quality plans without declining the 40 per cent of requests they had in the past, says Neil Paton, president and CEO of The Edge Benefits.

Guaranteed issue

As a result, waiting times for DI have been cut from the previous underwriting period of four months. Clients who select DI for injury alone can have guaranteed issue with a policy sent to their homes within about five days, says Paton. Those who want to add on illness as well as injury go through a simplified process where underwriting generally takes under a month, he says.

Earlier this year, Edge Benefits introduced a strategic distribution alliance with five managing general agencies (MGAs) to try to increase the number of financial advisors in Canada working with benefits such as DI. Since then, Edge’s electronic enrollment capability has gone up to about 75 per cent of all of its business, with 30 per cent of advisors using the system remotely, says Paton.

Group benefits advisors may get a boost from a new algorithm that has been developed by RBC Insurance. After six years of looking at more than 300,000 group benefit clients, the company has identified what it calls a ground-breaking discovery: as gross domestic product (GDP) rises, so too do the number of long-term disability (LTD) claims.

During economic bad times, employees tend to hunker down at work, even as they worry about the future of their jobs. “As GDP rises and economic outlook rises workers begin to feel more secure and that pent-up stress and anxiety eventually takes its toll, which results in them succumbing to illness and taking a leave from work to recoup,” says John Carinci, vice president, group and business markets, RBC Insurance.

The algorithm for the forecasts is based on RBC economic predictions. RBC Insurance’s most recent projection is that LTD incidence rates will drop by 3.2 per cent on average through the first half of this year (compared with the last six months of 2016). But by the end of this year, a more positive outlook for the Canadian economy will see LTD incidence rates rise 2.1 per cent relative to last year.

LTD incidence rates

Carcini says LTD is the third largest cost to a group benefits plan after health and dental. Now that the relationship between LTD incidence rates and the economy is known, businesses can step up to help prevent some claims by ensuring they help employees during higher periods of GDP, he says.

Overall, the DI underwriting process has greatly improved over the last while, with some plans providing higher allowable monthly limits than before, says David Szalkai, vice president and partner of individual life and disability operations at Bedard Co. Life Inc. in London, Ont.

Szalkai says some carriers are providing bump-ups for self-employed individuals who have eligible write-offs or income splitting, potentially raising their coverage to 80 per cent of income from 70 per cent. On $100,000 of coverage, the maximum amount of monthly income used to be $5,000 a month on an individual disability basis and some carriers have increased that up to about $5,400 a month, says Szalkai.

Many new products

Many new products have come about in the last few years drawing in new clients, including a debt disability product, says Desjardins’ Neale.

It’s no secret many Canadians are in debt but if there is no income due to disability and they can’t pay off that debt, they could be in major trouble, depending on the financial institution with which they are doing business. A product that has just recently taken off is a plan that doesn’t look at a person’s income, but rather their occupation. The DI plan covers only debt, such as mortgage, credit cards and car loans up to $6,000 a month, says Neale.

Stay-at-home spouses can now receive DI. Even though these spouses may not have income they need replaced, they nevertheless represent an integral part of the family unit whose absence could then cost the family a pretty penny. DI is now available for that group, says Neale, up to $500 a month.

Future earnings protection

Products for high-net-worth individuals are also coming to the fore, says Ken Hunter, managing director at Hunter McCorquodale.

One of the products deals with loss of future earnings. Take a young professional, says Hunter, who is investing both time and money into education and student loans and perhaps even loans to buy a practice. She has expectations of fairly significant earnings, but that could take a few years. In the meantime, she needs to be covered in case illness or injury derail her plans and prevent her from achieving her financial goals. Someone in a medical specialty might expect anywhere from $400,000 to $1 million in annual earnings once they have firmly established, but are only able to receive $5,000-$6,000 a month currently in disability claims. Future earnings protection recognizes that gap, says Hunter.

The DI product, which hails from the U.S., “was developed to meet the need of young professionals over and above what they can get in terms of traditional income replacement,” he says. Hunter McCorquodale has piggybacked on the American product and is offering the DI in Canada through advisors as part of the firm’s niche solutions.

While traditional DI plans are available only until age 65, many people are choosing to work past that age. Companies value these employees and want to keep them by providing them with full benefits, including DI. Hunter recalls a couple of situations where the company has hired former MPs whose contracts state the firms will provide them with DI. Hunter says his firm, unlike most others, can provide the DI with a plan it can access.

While there are new products and better technology, many life advisors – all qualified to sell DI and other benefits – tend to shy away from selling the product, says Szalkai. DI can be a complex and confusing product, with a higher decline rate plus exclusions and ratings on policies, compared with life insurance, he said.

“It’s also hard to be an expert if you don’t do it on a daily basis and you don’t make that your concentration,” he says.

Advisors’ role

But life insurance advisors must become more comfortable discussing DI as part and parcel of a client’s total income, he says.

Neale says it’s up to life advisors to talk about DI with their clients. Only then will it become part of their normal routine. “Sales will come if the advisor talks about it.”

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