Insurers' disability-outsourcing trend picks up steam

Jan 30, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Another large insurer has jettisoned its individual-disability products and services in favor of outsourced offerings.

Allstate Corp. of Northbrook, Ill., will stop offering its homegrown individual-disability policies tomorrow. Its 13,600 agents and representatives will instead have access to individual-disability policies through The BISYS Group Inc., a New York-based financial products outsourcing firm.

"Production was low, and the economies of scale needed to be successful were not achieved," said Mike Boot, an actuary with Allstate Financial Group. "The decision was part of our ongoing philosophy to focus on our core products."

Allstate joins Lincoln Financial Group in Philadelphia, New York Life Insurance Co. and Prudential Financial Inc. in Newark, N.J., as major national insurers that have outsourced all or part of their individual-disability businesses.

"I think this will be a good thing, because it provides me additional individual-disability markets that will be competing for my clients' business," said Herb Katzeff, an Allstate personal financial representative in White Plains, N.Y.

Allstate will continue to service in-force individual-disability policies and will continue to write group disability coverage through its Allstate Workplace Division in Jacksonville, Fla.

The insurer's sales force will receive education, access to wholesalers, product information, sales illustrations and required forms from BISYS. Last year, Allstate dropped its long-term-care offerings, and this month, BISYS started offering LTC products that the insurer's representatives can sell.

"Agents' reaction to the change varies, but we've generally gotten positive feedback. Compensation and sales awards will be relatively similar to what they had before," Mr. Boot said.

"Outsourcing disability has become a trend, as this is high-risk coverage for insurers, with claims that can be on the books for many years," said Sean Norton, a senior vice president in the Salt Lake City office of BISYS. "For instance, someone who becomes disabled at age 30 can have a claim lasting for 35 years or more."

Several broker-dealers are also using BISYS to place individual-disability coverage for clients, Mr. Norton added. Among those are LPL Financial Services in Boston and San Diego, and Mutual Service Corp. in West Palm Beach, Fla.

"Other contracts with broker-dealers are in the process of being negotiated and will probably be announced this month," Mr. Norton said.

"An extremely liberal definition of disability and dealing with stress-related claims caused many disability insurers to start hemorrhaging losses and prompted them to exit the business," said Philip Harriman, a partner with Lebel & Harriman LLP. The Portland, Me., firm manages about $700 million in client assets.

"Disability insurance has always been very difficult to underwrite, because everyone says they can't work," Mr. Katzeff added.

"Producers will receive compensation comparable to what they got from Allstate," Mr. Norton said. They will also have access to expanded product offerings, he added.

"Most producers like the idea that there is one point of contact for several insurers," Mr. Norton said.

BISYS offers individual-disability products from Assurity Life Insurance Co. of Lincoln, Neb., MetLife Inc. of New York and The Principal Financial Group Inc. of Des Moines, Iowa.

Coverages, premiums and services are the same as are available to producers that approach the insurance companies directly, Mr. Norton added, with BISYS compensated by policy overrides.

"Assurity is a good market for high-risk business, and MetLife can handle all levels," Mr. Katzeff said.

"Principal is a leading company for placing individual-disability coverage for my professional, white-collar clients," Mr. Harriman said.

BISYS' training webcasts are also useful, said Mr. Katzeff, who has worked with the firm on LTC insurance. There is also DI Boot Camp conference call training that includes a disability coverage quoting system, an explanation of policy terms and conditions, and sales ideas.

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