Semantics are supremely important in making or breaking certain lines of insurance.

Case in point: accidental death and dismemberment policies, known as AD&D.

Some people might actually be put off by the gruesome term "dismemberment," observes Ron Neyer, assistant research director for Windsor, Conn.-based LIMRA International's distribution research area.

But that's also how this product stands out in a producer's employee benefits portfolio.

Kent Anthony, president of Sterling, Kan. -based First Group Insurance and past chairman of the Independent Insurance Agents & Brokers of America's National Technical Affairs Committee, considers the "dismemberment" part of the AD&D acronym more valuable and having broader appeal. He describes the accidental death part as a "false sense of security rider" for supplementing life insurance when benefits are paid only if the insured dies from an accident and not from an illness.

"People need to understand what they're buying," he explains, adding that advisers also need to correctly sell AD&D as a product enhancement and not a substitute for any type of coverage. While blue-collar workers in professions such as construction and mining that feature greater occupational hazards may be more prone to accidental death than others, he says any employee could face dismemberment in the form of, say, a lost limb, blindness or hearing loss.


Odds of dying

While AD&D is considered a "classic" product with broad penetration that people love to buy, not to mention one that's easy to implement on a voluntary basis, and a money maker for insurance carriers, "it very seldom even delivers a benefit," cautions Tinker Kelly, president of Nashville, Tenn.-based Voluntary Employee Benefit Advisors, and an EBA Advisory Board member. People may think they are going to perish in an accident, but he says "the reality is that is not how people die."

Just look at the numbers. For example, Americans have a one in five chance of dying from heart disease and one in seven chance of dying from cancer, whereas the odds are one in 36 for an accidental injury, according to research from several leading sources that include the National Center for Health Statistics, Centers for Disease Control and Prevention, American Cancer Society and National Safety Council.

This presents a communication challenge for brokers and advisers.

"The real danger is sending a signal in delivering the perception to people without any other life insurance coverage that they are covered when they're really not," Kelly explains.

He says another problem is that "it's expensive to explain benefits, particularly life insurance benefits."


Appealing to youth

Still, there are other selling points to AD&D that could get overlooked. Unlike a number of other voluntary products, there's typically no medical evidence of insurability with this product. Jim Gemus, a senior vice president of Prudential Group Insurance based in Roseland, N.J., believes it is a particularly good fit for younger employees who generally lack life insurance and may think more about dying from an accident than a chronic illness.

The same could be said about the dismemberment component. Although people in general die much more often from illness or disease than from an accident, "offering additional coverage for accidents has marketing appeal," says Walt Podgurski, chairman and chief executive of the Workplace Benefits Association and publisher of Insurance Broadcasting, which is owned by EBA's parent company, SourceMedia.

Given the fact that AD&D has become a standard part of many group life and health insurance plans, he believes producers who do not offer such coverage will find themselves at a competitive disadvantage, especially because the additional premium to add the benefit is very small in relation to other benefits.

Podgurski says AD&D has traditionally been sold as an add-on product to life insurance coverage and isn't currently being offered on a stand-alone basis to any large extent. Another sales avenue for this product is the association market, which traditionally has had long-standing deals in place with established brokers during the past 40 years, according to Mona Buckley, CEO of the Professional Insurance Marketing Association, headquartered in Chicago. She describes the AD&D policy as a common product-enhancement tool for cross-selling and up-selling to customers or prospects.

For producers who aren't already plugged into the association space, which she describes as "fairly saturated with brokers or agents," the chance of a producer new to the affinity marketplace landing any significant association clients is "slim" unless it's a small group at the local level. Buckley doubts many carriers have an appetite for small programs, noting that AD&D represents a minor revenue source for brokers and advisers. "Most carriers and brokers have difficulty justifying marketing costs for a low ROI," she says.


Customizing coverage

AD&D dates back more than a century ago in the U.S. before workers' compensation became prevalent and, despite its foibles, has withstood the test of time, Kelly notes. "Many people have had it for so long over the years that they just never replace it," he says. "They just kept it in there forever." While it's profitable for insurance carriers, Kelly says it's a low commission item for brokers.

Neyer senses that AD&D may fly farther beneath the radar vis-à-vis other employee benefits because more comprehensive types of coverage offer some of the same protection, though he hastens to add that participation is comparable to other voluntary plans. He points out that one definite sales niche is with employees who have little or no life insurance or accident protection.

Various plan features, along with an ability to customize coverage, may help the brokerage community goose sales of AD&D products. Stephen Pontecorvo, vice president, group life for MetLife in New York, says the insurer offers many optional benefits on policies that are portable in most instances and include business travel accidents.

They include anything from child or parental care and educational assistance to COBRA, rehabilitation services and physical therapy. "That may go a long way toward grabbing their interest a little bit more," he says.

As a product that compliments life insurance and other types of insurance coverage, Pontecorvo believes AD&D can enhance the value of an employee benefits package for just pennies on the dollar and, ultimately, lead to improved loyalty - a finding borne out by MetLife's latest Annual Study of Employee Benefit Trends.

There also can be a synergistic fit between AD&D and disability insurance because of the need for income replacement in the event that an employee becomes disabled. "I think it's nice for them to know that there is going to be a lump-sum payment even if they can work," Anthony says.

Difficult times have served as a teachable moment for producers that sell AD&D coverage. "When recession comes, people start looking for less costly ways of solving their problems, and that becomes an issue if they think that they are getting life insurance by buying the accidental death [portion of an AD&D policy]," according to Anthony. "I worry about people's misconception, assuming that they have more than they actually have there.

"That being said," he continues, "it's better than nothing and is one of the areas that they may be able to buy when they wouldn't be able to buy the other products. So I think in recessionary times it is a good product to look at for employers to add to their plan because it's not going to cost them an arm and a leg like maybe a disability policy would."

Shutan, a contributor to Employee Benefit Adviser, is a freelance writer based in Los Angeles.




AD&D, according to LIMRA

LIMRA International reports that 12% of all organizations with at least 10 employees offered AD&D in 2002 - a percentage that rose to 17% in 2006, but then dipped slightly to 16% in 2010.

While LIMRA researchers note that the 44% of employers offering this benefit has remained stable, those employers are less willing to fully pay for such coverage. For example, 59% of the product line was employer-paid in 2002 before falling to 50% in 2006 and 42% in 2010.

The 28% of AD&D policies offered on a voluntary basis in 2002 climbed to 37% in 2006 and remained the same in 2010. A related data point showed that 13% of AD&D was offered on a contributory basis in 2002, which remained the same in 2006 before edging up to 21% in 2010.

AD&D adoption has been somewhat of an anomaly across various industries. For example, the 11% rate that LIMRA International reports among construction and mining firms in 2002 plummeted to just 6% in 2006 before shooting up to 16% in 2010, while a similar arc was reported among manufacturers (11%, 10% and 19%, respectively). But in the wholesale/retail trade sector, the 14% rate LIMRA reports from 2002 shot up to 24% in 2006 before falling back to 14% in 2010, while a similar pattern was seen in the services sector (13%, 19% and 16%, respectively).

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