Guaranteed standard issue (GSI) programs are becoming increasingly common. According to Milliman’s 4th Annual Survey of the U.S. Individual Disability Income Insurance Market, 15% of individual disability insurance sales in 2009 were issued through a GSI program, up from 11% in 2004.

In a GSI program, the insurance carrier agrees to issue individual disability income policies, without substandard ratings or exclusions, to a group of employees as long as they have been actively at work fulltime for a specified period of time. Traditional medical underwriting screens are not utilized. Financial underwriting is based on an employer-provided census rather than on tax returns or other financial documentation.

Why would carriers be willing to offer coverage on a GSI basis? And what are the important drivers of profitability for these programs? The answer to both of these questions is related to the anti-selection that is inherent in individual insurance products and the practices that can be followed to minimize it.

Published in the October 2011 issue of Health Insurance Underwriter.