Putting Policies in Perspective

For most people, there are two main forms of disability income insurance to consider: employer-sponsored policies and private insurance policies. Employer-sponsored policies (called "group" policies) are relatively inexpensive to purchase and generally remain in effect for as long as the individual continues to work for the company. However, there are often significant limits on the benefits provided by group policies, so it's important to determine whether the coverage is enough to address your potential spending needs. (Government-sponsored disability income insurance programs and policies also exist, but they generally have strict eligibility requirements and therefore don't apply to many people.)

Private insurance policies are paid for by individuals and provide coverage when group policies don't apply or don't provide enough income. On the surface, a private policy is usually more expensive to purchase than a group policy. However, a private policy's potential to provide much greater benefits over time may make it a more prudent long-term choice. And considering that group policies often end up providing inadequate benefits, even those workers with group coverage should consider purchasing a private policy in order to fill the income gaps frequently associated with group-only coverage.

Keep in mind that some people may be eligible for disability benefits through other sources -- such as worker's compensation programs, Veterans Administration pension programs, state vocational rehabilitation programs, and Social Security, among others -- but coverage and availability vary significantly.

The Most Important Insurance Policy of All?

n fact, some may argue that disability income insurance is the most important type of insurance policy you can purchase -- more important than homeowner's, health, auto, or even (in certain cases) life insurance. That's because disability income insurance protects one of your most important and valuable assets: your ability to earn income. After all, it is your ability to earn income that allows you to have a car, a home, and a particular lifestyle, as well as to purchase the various insurance policies that safeguard your net worth and the financial well-being of your loved ones.

Why Disability Income Insurance?

If you were unable to work for an extended period of time due to an injury or illness, how long would you be able to pay your bills and meet your day-to-day expenses? Do you know how much income you would receive from outside sources -- and for how long?

A long-term illness or injury could wreak havoc on even the soundest financial plan and can occur at any time. With that in mind, your best defense against such a financial catastrophe may be the purchase of a disability income insurance policy with enough coverage to compensate for your lost wages.

Disability income insurance replaces part of your income if you become unable to work due to an injury or illness. It provides you with cash that you can use for paying your mortgage or rent, buying groceries, and meeting your daily living expenses. Even if you don't have an immediate need for disability income insurance, it also gives you some peace of mind that comes from knowing that you have a financial plan already in place.

Buying Life Insurance: What Kind and How Much?

Conventional wisdom says that life insurance is sold, not purchased. In other words, some people are reluctant to discuss the importance of owning life insurance, and others are simply unaware of the need to have life insurance. Although many large companies provide life insurance as part of their benefits package, this coverage may be insufficient.

Who needs life insurance? If there are individuals who depend on you for financial support, or if you work at home providing your family with such services as child care, cooking, and cleaning, you need life insurance. Older couples also may need life insurance to protect a surviving spouse against the possibility of the couple's retirement savings being depleted by unexpected medical expenses. And individuals with substantial assets may need life insurance to help reduce the effects of estate taxes or to transfer wealth to future generations.

Your Attention, Please: Insurance CIOs Must Focus on Core Capabilities and Minimize Distractions

In today's tech-centric world, an insurance CIO is confronted with a multitude of proven solutions for improving the business via technology. Add to that the myriad "shiny objects" that appear in the foreground to tempt distraction. Amid all this, it's no surprise that CIOs struggle to sort through priorities, solution alternatives and even job responsibilities.

While every company has unique needs, there are a few areas of focus that just about every CIO should be thinking about:

Related Resources

• Business Analytics for Insurance Risk
• Business Analytics for Insurance Claims
• Cloud Computing for the Enterprise

Leveraging Data

Improving data management and analytics is an absolute must for most carriers, particularly in the P&C and health payer segments. When analyzed and correlated meaningfully, data becomes information to help functional leaders and CIOs collaborate on priorities for technology initiatives. Opportunities abound in the areas of market share growth, retention, risk selection, pricing, product development, service delivery and reducing operational expenses. IT's role is to unlock and organize data and make it available to the business in a flexible manner. Business leaders in turn must put that data to work, and must navigate land mines such as legislation that might preclude, for example, community rating and other techniques designed to manage P&C risk and pricing.

Implementation and Management Practices

Fewer companies are building their own systems. More are buying and integrating packaged systems. But whether you are building or buying, your implementation practices should be evolving. For example, agile principles are changing the way systems are specified, selected and implemented. In the agile approach, business and IT counterparts come together in a highly collaborative setting with incremental objectives and short time frames for completing them. A common frame of reference is developed quickly, and there is a priority on working together in person. Good ideas get pursued more quickly.

Likewise, missteps are identified before major damage can occur. Course corrections are much easier and less costly. You don't have to adopt every practice of the agile approach, but understanding the principles will help you evolve toward reduced implementation times and improved business outcomes.

Shiny Objects

I know of one entrepreneurial CEO who is famous for falling victim to evangelists on long plane rides and then rushing back to his CIO to extol the virtues of the latest gizmo or silver-bullet methodology. And then the CIO has to tamp down the excitement, taking valuable energy away from the real business at hand.

Today, for example, cloud computing is very shiny. The principles are indeed important (though not new), but the hype is deafening. Bottom line: If you are operating any commodity systems or infrastructure, there is probably a provider out there that can host it for you less expensively. The truly valuable promise of cloud is that far more robust systems are now available remotely and reliably, and seamless integration with existing systems is relatively simple. Numerous industry-specific (policy admin, billing, etc.) vendors offer hosted solutions that are easy to ramp up and integrate.

Another very shiny object today is social networking. How many resources are being squandered trying to figure out what to do with it? Before committing resources, be clear about expected outcomes and benefits. How would using social networking improve your customer/agent/employee experience, and how would it benefit your market presence? If the answers are all qualitative, there's a problem.

Fundamentals

The economic downturn ironically has led to simpler decision-making. Some projects are simply off the table. New projects are scarce. Compliance and security projects are marching on. Budgets are flat or shrinking. But the fundamentals of successful IT projects are the same. A recent roundtable of CIOs identified those fundamentals as leadership, clear objectives, having the right team, open communication and relentless oversight. A CIO is responsible for installing and maintaining those fundamentals.

Our industry is steadily becoming more dynamic in applying technology. Our CIOs and solution providers are leading that charge. We are thus faced with an ever-growing number of options and alternatives to enable the business. Those technologies and management practices that serve core operational needs and satisfy customers are the ones that truly warrant a CIO's attention.

Insurance Update: Coverage Options Expand

In the midst of all the troubling news about insurance and insurance companies, there’s a ray of sunshine: disability insurance is no longer playing hard to get. Of course, that’s because sales are down substantially in most categories, according to John Ryan of Ryan Insurance Strategy Consultants in Greenwood Village, Colorado. "In the physician and dental markets, things are status quo, but in all other areas sales are down significantly: 30% to 35%," Ryan says.

Such a drastic drop in sales has led to a concerted effort within the disability niche to write new business. This has led to easier underwriting, a drop in price, and more benefits for less money. "Except for the economy," says Ryan, "things are looking great—all the disability companies are making enhancements now," probably because sales have been down so much. The second half of 2008, all of 2009, and even projections for 2010 have led to strong efforts to promote new business in the field.

Underwriting has been relaxing gradually since 2005, Ryan explains, and now with higher benefit limits as a percentage of earnings, "good times are back in the disability area."

Companies offer two basic types of policies: one with a guaranteed price and one that’s guaranteed renewable. Guaranteed renewable policies, which can’t be canceled but don’t carry a price guarantee, run about 35% cheaper for those who don’t worry about future rate increases, or who are willing to bet against them. Women, Ryan points out, pay 30% more than men for policies, so a guaranteed renewable policy is usually good for them. Guaranteed renewable would also be good for older clients, he explains, because it’s less likely that a rate increase would have as much of an impact on someone who’s 50 as on someone who’s 30." Guaranteed renewable policies present a way to get quality coverage at a deep discount. Not many companies offer them, he says, adding that Standard Insurance of Oregon offers "the best guaranteed renewable product in the business right now."

Good News, Bad News
Other currently popular types of disability protection include retirement protection, for which the disability policy insures retirement plan contributions. That’s a frequent choice, Ryan says, particularly among medical professionals. Another is overhead expense disability insurance, useful for both medical professionals and business owners. The policy covers both household expenses and the overhead of a business or practice. If an owner is not coming back, he needs a way to keep the business healthy until he can sell it. Even if he is, this coverage will keep things going till he’s able to return.

The news isn’t all good, of course. Ryan says that disability policies that offer a lifetime benefit payout, as opposed to one that stops at age 65 or 70, is far preferable. But he believes that option is on its way out. He explains that Guardian and its subsidiary Berkshire, as well as MetLife, have been the strongest remaining companies offering a lifetime benefit payout. Berkshire and Guardian have already had substantial rate increases—about 30%, Ryan says, for the lifetime extension—and MetLife "is in the process of doing the same." "People can still get a real value," he continues, from MetLife if they want lifetime benefits, "but they have to do it quick, because in about half the states the [increased] rates are already filed." The window, he adds, will be closed by January 1, if not sooner. "And it won’t be long before both drop their lifetime feature," he warns. "I would say by 2012 it won’t be available anymore."

Insurance & Technology's 2009 Elite 8 Strive to Lead Their Companies Beyond the Financial Crisis

If the familiar adadge, "What doesn't kill us makes us stronger," is true, then the executives who comprise Insurance & Technology's 2009 Elite 8 outstanding insurance technology leaders must have incredible powers. The past year has presented an array of trials and tests that have challenged the management of all financial institutions, big and small, and insurance IT organizations have been on the front lines as carriers simultaneously seek to improve governance and compliance, find efficiencies and cost savings, enhance distribution, and strengthen customer relationships (and profitability).

But while many executives might find managing IT in the new highly scrutinized world of financial services to be extremely daunting, I&T's Elite 8 leaders are rising to the challenge with enthusiasm and determination. Rather than complain about how hard it is to deal with tight budgets, an unsettled regulatory environment and untested new channels, the executives profiled in this special issue welcome the opportunity to solve problems, deliver effective solutions and stretch the talents of their workforces.

In fact, at a time when many in financial services are scaling back, not only are these executives leading aggressive initiatives in emerging channels, including mobile and social networks, they also are staying on course with ambitious projects such as replacing core systems, developing service-oriented architectures and reinventing corporate governance. It hasn't been business as usual, the Elite 8 honorees emphasize, but it hasn't been cause for siege mentality, either. Why? It's true that insurance has been spared some of the pain and loss that's occurred in banking and capital markets, but it is more likely that the ability of the Elite 8 honorees (and their teams) to get business buy-in for these kinds of big-picture initiatives stems from the fact that they've already inculcated and applied the right lessons about alignment, deliverables and teamwork.

The 2009 Elite 8 will be recognized at I&T's upcoming 11th Annual Executive Summit (Nov. 1-4, The Wigwam Golf Resort & Spa, Phoenix), where we will examine strategies and best practices that are helping insurance companies to look beyond the financial crisis to the challenges and opportunities they face in the new world of financial services. In this environment, it inspires confidence to know that there is real muscle and prowess among the senior ranks of insurance IT.