Disability insurers seeking to achieve a higher rate of adoption of their product in the marketplace acquired a welcome ally last November. A bipartisan group of U.S. Senators and House members formed the Congressional Income Protection Caucus to highlight public policy issues related to the financial risk of disability. The caucus acts as a Congressional clearinghouse of information on disability and will call attention to the availability and benefits of private market disability insurance.

Caucus founders are Sens. Kay Hagan (D-N.C.) and Mark Kirk (R-Ill.), and Reps. Carolyn McCarthy (D-N.Y.) and Stephen Fincher (R-Tenn.).

Mike Simonds, president and CEO of Unum US, says, "It's hard to find issues where you can get agreement across the aisle in Washington these days. But this appears to be one where no matter where you are on the political spectrum, people understand the importance of the issue and are anxious to help."

Unum has worked closely with the caucus founders, and Unum executives have met with other legislators to educate them about the private disability market.

"It's kind of unusual in Washington to have a chance to spend a lot of time with legislators or federal officials talking about the importance of our industry without its being connected to something like an existing piece of legislation," says Simonds.

Legislators are interested in the potential savings to taxpayers demonstrated in the results of a study Unum commissioned a couple of years ago that was conducted by Charles River Associates. This study showed that throughout the industry about 575,000 families per year were saved from impoverishment because of ?private disability benefits.

"Those are families that otherwise would be hitting the social safety net," says Simonds. "The research showed that the savings in public assistance costs from those 575,000 families was between $4.5 billion and $5 billion per year."

Unum also shared with the caucus members the results of a 2012 independent study, co-sponsored by Unum and the Consumer Federation of America (CFA), which showed that 77% of working Americans would suffer great or moderate financial hardship if they were unable to work for three months. The study also showed that workers have a general misunderstanding of the cause of disability-most thought of it as accidents, whereas 90% of long-term disabilities are caused by illnesses, according to the Council for Disability Awareness.

Another common misconception about disability that needs to be addressed, says Simonds, concerns the cost. "If you sit down with someone and explain a long-term disability benefit that's going to pay 60% of your pre-tax income until you either recover from your disability or reach normal retirement age, and ask them to estimate the cost, they'll estimate it at 100% to 200% higher than what it actually is."

Part of the reason potential buyers overestimate the cost of disability coverage, he believes, is that they have more top-of-mind awareness of the costs of regular health care coverage. They assume disability will cost in that same range, when in reality it is far lower.

"The disability provider needs to present illustrative pricing so the buyer can see a range of what it is likely to cost," says Simonds. "It's also important to spend a minute to educate the worker that 'Yes, this can happen to you.' Based on figures from the Social Security Administration (and our figures bear out the same), you have more than a one in four chance of being disabled for more than six months over your working life."

According to another independent study commissioned by Unum and the CFA in 2013, there are misunderstandings about disability insurance even among those who have the coverage as part of their benefit package. Mathew Greenwald & Associates performed the study for the two organizations by completing 407 phone interviews with Unum's recent claimants.

While (not surprisingly) the vast majority of claimants (93%) felt fortunate to have the coverage and (95%) would encourage others to get the insurance through their employer, almost as high a percentage (87%) said employers should do a better job of explaining the plans they offer. Almost a quarter of them (23%) did not even know they had the coverage prior to their disability. Clearly, there is a lot of education work to do around disability insurance. Simonds points out that with disability insurance, the interests of the employer and employee are aligned. Other products, such as critical illness and accident, are focused on providing the employee with crucial funds at a difficult time. Disability, with its goal of returning an employee to productive work, becomes a team effort benefiting employer and employee.

"Auto-enrollment should only be used for the right benefit. We think that for both short-term and long-term disability, it's hard to argue against paying a few dollars a week to protect your income." -Mike Simonds President/CEO Unum US

"The vast majority of employees want to get back to work, and get life back to normal. The employer wants that employee back to work to maximize productivity too," Simonds says.

It can involve a lot more than just writing checks, he notes. Unum works with disability claimants to develop a range of adaptive technological tools to facilitate return to work. "It can be something simple like a larger keyboard or modified workstation, or voice recognition software-whatever can adapt to that employee's needs."

Market trends
Simonds, whose company is the largest provider of disability in the United States, according to a 2012 GenRe report, sees signs that the disability business may be starting to get past some of the headwinds it has faced in recent years. The untapped market is huge. The Bureau of Labor Statistics reports that only 33% of private industry workers have access to employer-provided long-term disability insurance.

"Industry-wide, disability insurance growth stalled during the financial crisis and subsequent recession," he notes. "It started to come back, but then through most of last year employers were almost completely focused on health care and trying to figure out their strategy in relation to the Affordable Care Act. Toward the end of last year we started seeing our product growth pick up, and we're optimistic that we'll get added momentum this year."
He notes one encouraging development regarding disability enrollment. "We've had a number of our larger clients come to us and request an auto-enrollment process for disability. They had previously set up auto-enrollment in their retirement plan and seen how successful that can be. So now they are doing the same thing with disability, making it very easy for employees to opt out if they choose to. Because there's a certain inertia in their decision making, we find employees would actually prefer to have their employer enroll them, if the company thinks it's a good idea, so the employee has less work."

Simonds notes that 85% of Unum disability beneficiaries surveyed as part of its 2013 study conducted with the CFA agreed that employers should automatically enroll new employees in disability insurance. It's one of the areas up for discussion that Unum has brought to the attention of the legislators in Washington.

"Auto-enrollment should only be used for the right benefit," says Simonds. "A tax-advantaged 401(k) obviously is one place it makes sense. We think that for both short-term and long-term disability, it's hard to argue against paying a few dollars a week to protect your income."

The author
Thomas A. McCoy, CLU, recently retired as editor-in-chief of Rough Notes magazine.