The full impacts of health care reform won't be felt until 2014, but major carriers have lowered commissions to counteract the increase in minimum loss ratio requirements that took effect for certain products on January 1. Many producers are therefore seeking new streams of incremental revenue. As options are considered, low-cost supplemental accident products merit a look.
Not only do clients need supplemental accident coverage more than ever, but also, supplemental products are not subject to the minimum loss ratio requirements. So, for the most part, commissions for these products have remained stable.
At the same time, health care costs continue to grow, and end-user clients -- American families -- continue to wrestle with how to pay for them. As a result, many clients have turned to policies with higher deductibles in order to obtain reduced monthly premiums.
Policies have become less generous, too. In some instances, medical expenses or prescription drugs that were covered five years ago aren't necessarily covered under policies today, or covered to the extent they were before.
Further, accidental injuries can be a significant, unanticipated financial burden -- and they happen more frequently than one might think. According to the National Safety Council's Injury Facts 2011, 38.9 million people -- 1 in 9 -- sought medical consultation for an unintentional injury in 2008, the latest year for which data is available.
The cost of those accidental injuries was substantial: $693.5 billion, including $5,900 per household and $2,300 per person. It's not safe to assume that workers compensation will cover those costs either. While some 141 million workers are at risk for injuries on the job, the fact is, most accidental injuries occur off the job. And many accident victims are kids.
Protect against the unforeseen
Supplemental accident coverage can supply protection and peace of mind at an affordable price point. It's important to share that with clients because, although many consider themselves to be in good health, they worry about the cost of accidents, especially if they have active children. If a kid falls off a bike, it's easy to incur a costly emergency room bill. But when accidents happen, medical costs aren't the only expenses that clients incur.
Let me share an anecdote. A friend of mine has a 13-year-old son. Like many adolescents, this kid doesn't always listen. Call it a teenage phase, raging hormones or whatever -- but tell him not to do something and, chances are, he's going to do it. He was recently in a physical education class led by a substitute teacher who told the students not to remove their tennis shoes or run in the gym.
The young man immediately took off his shoes and urged a friend to race with him. In his socks, going way too fast to stop quickly, my friend's son slid right into the wall of the building, fracturing three bones in his foot. His parents were burdened with nearly $3,000 in medical expenses alone, since they had not met their health plan's annual deductible.
Many families wouldn't be able to cover those costs easily. According to a study released by the National Bureau of Economic Research in May 2011, 5 out of 10 Americans say they would struggle with even a minor unexpected expense. About 28% said they would not be able to cope with an unanticipated $2,000 bill if the money was due in 30 days. Another 22% said they probably would not be able to cope.
Most of the 1,900 people surveyed said they would need to rely on multiple sources for the emergency funds. More than one-third indicated they would have to ask family and friends for assistance; 29.5% said they would need to resort to credit cards, a home equity line of credit, a reverse mortgage or an unsecured loan.
Furthermore, the financial fragility cited in the study was not limited to low-income groups. The authors wrote, "The more surprising finding is that a material fraction of seemingly 'middle-class' Americans also judge themselves to be financially fragile."
Features to look for
For clients at risk, supplemental accident coverage can be a boon, serving as an affordable way to close the gap in protection when the unexpected happens. What type of features then, should agents look for in supplemental accident products? Here are some variables to keep in mind.
Payment structure. Look for a product that reimburses clients directly for actual expenses incurred, up to the benefit limit, regardless of other coverage held. For example, in the case of the fall off the bike, a direct-pay plan that doesn't coordinate with other coverage would eliminate any haggle between primary/secondary payers and could help fund repairs to the bike, travel to and from the doctor, etc.
Coverage options. Some supplemental products can be selected to protect one individual while others are available to an entire family (with the medical expenses of each member contributing to a common deductible).
Flexibility. Some products that provide simple reimbursement of covered expenses enable clients to select benefit amounts or medical providers that suit their individual needs. Riders. Some low-cost supplement products offer a critical illness rider that provides a lump-sum upon initial diagnosis of a covered condition.
Expedited enrollment. Some supplemental products now offer secure, expedited online application processes, so you can sign clients up for them at the same time as major medical policies and help reduce the risk of errors.
The take-home here is that while medical costs continue to increase and accidental injuries pose a significant financial risk for clients, low-cost supplemental accident products are an attractive complement to high-deductible health care plans. In this age of health care reform fallout and decreased commissions, supplemental accident products can also serve as a smart supplement to agent income.
Jay Drucker is vice president at American General Life Companies, where he is primarily responsible for accident and health products, including supplemental accident products. He can be reached at jay.drucker@americangeneral.com.
American General Life Companies, www.americangeneral.com, is the marketing name for a group of affiliated domestic life insurers. For producer use only. Not for dissemination to the public.
