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Len Cavallaro: Sage Series Episode 2



In episode two of our first season, what we’re calling the “Sage Series,” industry legend Len Cavallaro joins us for a discussion on his experiences in the healthcare professional disability insurance market. 

Some Highlights From the Transcript:

  • Discussion on specific risks that come from a carrier covering physicians, dentists, and other healthcare professionals ~ 3:50
  • Only specific carriers want to tackle the highly-specialized healthcare professional disability insurance market ~ 7:21
  • What a corporation that employs doctors wants out of a disability insurance policy may differ from what a doctor would buy for herself ~ 8:22
  • What provisions should a healthcare professional NEVER sacrifice ~ 13:51
  • Do brokers underutilize carriers? ~ 24:01
  • How can a broker communicate the specific disability risks that healthcare professionals face to a CFO of a large company? ~ 34:26
  • If you’re selling value, then sell the value and sell the value as hard as you can. Don’t add a price filter to your pitch ~ 40:03


Len answers many of our questions including:

  • You’ve had a wealth of experience with several great companies.  What has been the common thread that you’ve seen with how carriers approach the healthcare provider market from a DI standpoint?
  • Where do you think brokers might benefit from leveraging carriers more?
  • In general, would you say that carriers consider healthcare professionals a “good risk” or does it vary by carrier?  Also, does it change over time with the same carrier?  If so, why?

James Crook (02:15):

I can’t tell you how grateful we are that you agreed to join us for our podcast today.

Len Cavallaro (02:46):

That’s mutual, thanks.

James Crook (02:49):

Wonderful. We’ve got some questions for you, and we’re excited to get this conversation going, so here’s our first question. You’ve had a wealth of experience with several great companies, a lot of different carriers that deal in this healthcare professional market. What has been the common thread that you’ve seen with how carriers approach this healthcare professional disability insurance market?

Len Cavallaro (03:12):

Looking at the broader industry, the common thread is an understanding that the risks around assuring healthcare professionals are unique for both parties. For many carriers, that’s reflected in mitigating their own risk with contractual or underwriting limitations. For relatively few, it’s meant embracing the risk that healthcare professionals face and building products to mitigate that financial risk, and that includes pricing the product accordingly.

James Crook (03:50):

Got it. What are some of those risks that are specific to healthcare professionals?

Len Cavallaro (03:55):

There’s no question that the industry has struggled over the years at different times, some more than others, with high indemnity amounts and the experience and how that impacts the block financially. So you can pay a whole bunch of $1,500 a month claims, but you get a few $15,000 to $20,000 a month claims and the impact on reserves. For a lot of the carriers’ actuarial models, everything they do isn’t based on that kind of a concentration of volume. So that’s what’s unique to the carriers. The other thing that’s unique from the carrier’s standpoint is, especially the physician market and the surgeon market, the level of physicality is not something that they’re expecting to see in their highest-rated general professional class or CEO class and those types of things.

Len Cavallaro (05:07):

So that makes it kind of a unique risk, almost in some ways analogous to a blue-collar risk. That’s some of the other side of it for the healthcare professional. It’s almost the razor’s edge that their income rests on and the things that can happen that can really impact their ability to earn what they’ve earned. The degree of specialization is so high that it’s not an easy transition to move over to something else and then be able to replace that income, even if they have the education, intelligence, training, those types of things. So it’s a much more delicate balance for them, and being able to protect their earnings is more difficult than in the more general population.

Joe Sevcik (06:07):

Len, you touched on this a little bit, and this is a really broad question. But would you say that for the most part, carriers consider healthcare professionals a good risk, or does that really vary by carrier?

Len Cavallaro (06:24):

It varies by carrier, and a lot of them…it’s not even so much, do they consider them a good risk or not, it’s, is it a risk that we understand and can we accommodate? Because it’s more than just the product and the pricing, it’s how you handle the claims and what kind of expertise you need to be able to handle those claims appropriately. I think a lot of carriers look at that and say, there’s a degree of knowledge and specialization that we don’t have. An analogous thing in the group benefits world is you’ve got some carriers that are really good at public employee types of groups, the governmental groups, because they understand all the nuances and the different programs or retirement programs and how they all work.

Len Cavallaro (07:21):

For a carrier that doesn’t look at that and says, “I get it that there’s a way to make money in that market, but we don’t have the resources on hand,” do we want to make that kind of an investment to a long-term commitment? Really, the issue is not so much that somebody looked at that market and said, “That’s a horrible market. You can’t make any money there.” It’s a specialized market. And are we suited to be able to take on and do everything you need to do to be successful in that market?

Joe Sevcik (07:55):

Yeah. I have a couple of follow-up questions on that. I have often heard from brokers that carrier reps might come into their office and say, “Hey, we’ve got really hot rates right now on physicians, so let me quote some of your physician groups.” With the experience that you’ve had in some of the different carriers, can you shed a little light on how that happens or why that happens, that sort of thing, why the rates might get hot?

Len Cavallaro (08:22):

Yeah, I can. What’s kind of funny is a company that I was working for was running sales, and our approach to the physician market really wasn’t any different than any other market. There are certain underwriting nuances, and we did have some language that could be beneficial to physicians, for example, own-occupation, but not to the extent where we really recognize specialties and all those types of things. Our maximums were limited, not specifically for doctors, but just the general broad limits. So because of that, we’re offering a benefit that a corporation that employs doctors might buy, but maybe doctors wouldn’t themselves.

Len Cavallaro (09:15):

Some of the studies that we were doing and some data that we’re looking at showed that for the physicians’ SIC codes, our average cost was much lower than some of the other markets. It caused a little bit of a panic amongst the actuarial types in our company, saying, “Oh my God, are we buying up all this risk?” I said, “No, what we’re not doing is we’re not attracting. That’s a more specialized risk.” Those physicians are saying, “We need these contract provisions. We need to have this in there and that in there.” So our groups are going to behave more like a traditional broad market group insurance thing.

Len Cavallaro (10:00):

The rates coming out of that company would be much lower on a per 100 basis, but it’s really not the same product. I think that’s the thing that brokers really need to understand is, is it the same product? There are lots of ways to save money on insurance. And one way to save money on insurance is to buy less of it. If I buy a $15,000 a month benefit, and instead of that, I buy a $5,000 a month benefit, it’s going to be cheaper. But the other way to save money and buy less insurance is to buy a $15,000 a month benefit with a much more restrictive contract that won’t pay claims and a lot of scenarios that are important to healthcare professionals.

Len Cavallaro (10:46):

The problem with buying less insurance that way is, on a case by case basis, you don’t know how that’s going to work out. So if I buy a contract that is really designed for physicians, and it meets their needs and all the Is are dotted and Ts are crossed, and yes, if I want to buy $5,000 versus $10,000, I’m going to save money. But at least I know that the $5,000 I bought is going to do what I intended it to do. Buying $15,000 and not knowing whether that was going to be $15,000 or it was going to be zero, that’s not a great way to buy less insurance.

Joe Sevcik (11:24):

Yeah, that’s a great point, and we’ll probably want to probe on that a little bit more here in a second or two. But before we leave this topic, though, just from a broker understanding standpoint, when the actuarial team looks at the risk, would you say from your experience that they say, “Hey, we need to dial back a little bit on healthcare professionals,” when they have a significant loss experience or when they feel like maybe the total book is being overrepresented to too high a percentage of healthcare professionals, or is it a mix?

Len Cavallaro (12:04):

Sometimes a big claim gives them an aha moment, but it’s really more the broader sense of it. Are we getting too much of a concentration? In general, back in previous lives, we would cut the experience by SIC code and say, “Oh, the physician market is driving a lot of claims.” Then we went back, and we cut it by indemnity amounts, by maximum benefit. And there, it didn’t matter what the SIC code was, that the highest indemnities tended to drive a higher claim rate. And part of it is, it’s a concentration risk, and it only takes one of those claims instead of a big reserve rate versus 20 of something else.

Len Cavallaro (12:54):

So it really depends on whether that carrier is trying to find reasons to say, “How can we approach this market?” Or just trying to say, “When I cut it by SIC codes, I don’t like it.” But it’s not necessarily the SIC code; it’s the fact that that SIC code has more high maximums. And again, it all comes down to that you can price any risk. But if what you want to do is play a price game, that’s not the market to do that. Both sides get hurt by that, the insured and the insurance guy.

Joe Sevcik (13:34):

Yes. Just to clarify one point, I’m sure all of our listeners will know this, but SIC code is just S-I-C code.

Len Cavallaro (13:41):

Oh, sorry. Yeah.

Joe Sevcik (13:42):

No, that’s okay. Somebody’s listening and going, are they talking about a diagnosis? But no, it’s a S-I-C code. So thanks. Yeah, James, go ahead.

James Crook (13:51):

Yeah, absolutely. You just talked about how a healthcare professional, if they wanted to, could save money by buying a $15,000 policy but maybe keeping out some of those provisions that a healthcare professional really needs. What are some of those provisions that a healthcare professional wouldn’t want to sacrifice?

Len Cavallaro (14:21):

There are two main areas that are important to disability contracts in general, but specifically for healthcare are all about the definitions of disability. What is different about healthcare professionals is the degree of specialization. So if someone’s built a career at being really good in a very narrow sense, not all physicians but a lot of them, what it takes to derail that career may not be a big thing. I remember having a meeting with a group of orthopods. One of the physicians said, “Listen, this guy over here, he mostly does general orthopedic work, and it would take a lot to maybe disable him from being able to swing them out and break bones.”

Len Cavallaro (15:01):

They talk in very graphic terms sometimes. He says, “But I do microsurgery. If I develop a hand tremor, I’m out of business.” And so it’s those types of things and being able to understand what the impact of something may be to one person versus another person and their ability to earn an income. So it’s really understanding that and the degree of specialization. The other one, especially since so many physicians are their own businesses, is definition of earnings. So how are they paid? What are the different business organizations? Are the retained earnings what gets passed through?

Len Cavallaro (15:46):

The standard definitions of earnings of salary plus bonus, which is shocking to me, are not always addressed. It’s a carrier that’s really specialized in the physician market. They’ve probably taken that into consideration. If you’re dealing with more of a generalist carrier, you may have some language that might be favorable on the definition side, but they really aren’t able to when earnings are important, whether it’s a proportion of earnings loss that’s being figured, or with group insurance, you’re really defining and insuring a stream of earnings. If you don’t define it in a way that really mirrors how that money is flowing in that organization, you’ve got some real problems at claim time.

James Crook (16:32):

Those are some great insights. Piggybacking on that, I don’t know if you have anything that you can share with us specifically, but do you have any claims disaster stories about maybe a group of physicians where they ended up taking something more focused on price than the quality aspect that you’re talking about?

Len Cavallaro (16:57):

It came up in a very disability-focused organization that paid attention to physician groups and was a primary market. It’s amazing how it’s evolved even further since then. So we avoided a lot of those disasters, but I can tell you about cases that we took over just in time. One I’m thinking about in particular was a plastic surgeon who started having problems in the cervical spine area that were really affecting his ability to perform surgery for any length of time before the pain started and even, if you can believe it, double vision, which obviously wouldn’t be good for him. We had taken over their group. It was a university hospital practice setting.

Len Cavallaro (17:55):

We’d taken over their coverage, and we put in, at the time, state-of-the-art own specialty language and some of the other things that we had in our contract that made it a little higher quality. He called me on the phone. He didn’t know who else to call. We’ve got the sales office, maybe not the best place to go for a claim question. But he started talking about, “Well, I stopped working for a few weeks and then came back and tried it for a few weeks. We tried to change the environment and the operating position, and that still didn’t work. I’ve gone back and forth with this over the last eight or nine months, and I really have come to the conclusion, I don’t think I can do surgery anymore.”

Len Cavallaro (18:35):

And I wanted to see what to do next.” So I encouraged him to file the claim. One of the things I pointed out is that we had an accumulation to the elimination period that allowed some of those periods of disability to count toward his elimination period. I said, “You may find that you’ve already satisfied that,” and he had. We had own specialty coverage in that contract, maybe not as nuanced as some of the contracts are today but still recognizing the fact that he was a surgeon and that he couldn’t operate. The plan he had before where it recognizes his occupation as a physician (and he really could do everything else) the only thing he couldn’t do was surgery. So a lot of his normal daily activities he was able to do.

Len Cavallaro (19:27):

Some of those recreational activities he was able to do, one of which included flying airplanes acrobatically. He was also offered some positions, some administrative staff positions, and he really didn’t want to do that. “I earned my living being this surgeon.[KM1] ” And with our coverage, he didn’t have to do that as long as he was unable to be a surgeon and he was not working otherwise, then the claim was paid. So our coverage plus some of the individual policies that he’d had came together and enabled him to pursue his life the way that he wanted to do it. Had he not had that own specialty language, he would have either been forced to go back to doing something that he didn’t want to do, or he would afford what I think what was at $12,500 a month tax-free benefit.

James Crook (20:22):

Wow, that’s a great story. Joe, go ahead.

Joe Sevcik (20:25):

So, Len, you’re painting a pretty complicated market here, where there’s a lot of nuances and a lot going on. And brokers often can’t specialize in just one profession. There just isn’t enough of it in their market. What’s the best way that you think carriers can help brokers to navigate this?

Len Cavallaro (20:52):

There are a couple of different ways. One, for a broker who can invest in being an expert or have somebody in their agency be that expert, carriers can offer training. Brokers ask for training across the industry. What carriers tend to provide is marketing, and that’s not what they’re looking for. One area outside the professional market, it would include the professional market, that you see now going on is the Paid Family Leave laws have gotten really complex, and a lot of carriers are doing a very good job of providing education that’s not a product push. That gets going because it’s such a broad thing, and it’s something that impacts everybody, and it’s caused by legislation.

Len Cavallaro (21:43):

When it comes down to specializing in the marketplace, I don’t think a lot of carriers do a really good job of saying to brokers, “Listen, if you want to learn about the physician market and realities of that, we can help.” So that’s one way. But if it is more of a generalist and someone who needs to bring expertise to the table, then the way the carrier can help is by bringing true expertise. And yes, a carrier is going to bring it with an eye toward saying, “This is why our products work.” But it even gets down below the carrier to the rep and finding that rep that you can depend on to give you the expertise and the straight story. I recall a time that we were working on a case years ago.

Len Cavallaro (22:29):

It was a very large physician group, and we had what we thought was a great solution. They were looking at another solution that, quite frankly, we didn’t think was so good, and it was very complicated, very hard to understand. We’d had several meetings with this doctor group over time, and we really felt that they were exposed. And so we went back for the third time, and we said, “Listen, you folks need to have disability coverage. You need to have these robust amounts in a program. We think our program is the best. But whether you go with us or you go with the competitor, our advice to you would be to make a decision this week and move forward with it. If it’s not us, we’re fine with it.” And we left.

Len Cavallaro (23:17):

And of course, later in the week, we got called back, and they asked us to come in because we were willing to say, look, no decision is the worst thing you could do. The broker and the client were impressed that, as the carrier, we were more concerned or equally concerned that they get what they needed, even if they didn’t get it from us. So that’s the kind of relationship you need with your carrier or really your carrier rep, that person who’s really going to be able to say, “This is what’s going on.” These are the realities. These are the things that your clients are concerned about. This is why your client can’t delay. He needs to do this today. These are the stakes. They can bring that expertise in.

Joe Sevcik (24:01):

Yes. Other than having the carrier rep come to one of the meetings, is there an area where you think brokers underutilize carriers, that there are these resources that are fairly widely available, and for one reason or another, they’re underutilized by brokers?

Len Cavallaro (24:24):

Yeah. I don’t think they realize that good carriers and good reps are more than willing to invest the time to come into a broker shop and provide education, not just for the brokers but to the staff, to whoever else needs to have it and do it in a way that’s a step back from pushing a particular product because most carriers who are specializing in this market have a wealth of information, and their solutions are a reaction to what they’ve learned about that market.

Len Cavallaro (25:04):

Carriers and reps can bring that in and approach it at that level that stops short of saying, “Let me tell you why it has to be mine,” but these are the realities. These are the things that we’re trying to address when we build a product. And these are the things that regardless of who you’re doing business with, you need to make sure that you’re taking into consideration and you’re addressing. Most reps would be thrilled to be able to provide that service to brokers.

Joe Sevcik (25:37):

Yes.

James Crook (25:38):

Hey, Len. I want to jump in with the question here. We know that you’ve done quite a bit of work in the voluntary space. Can you comment on how voluntary is taking hold in the healthcare professional market? Is it different than the general market?

Len Cavallaro (25:56):

When we’re talking about voluntary, we’re thinking about the stuff that comes after healthcare disability insurance and life insurance. So you’re getting into the critical illness, the hospital indemnity, the accident insurance. In general, that market is geared more toward the rank-and-file employee than senior management or healthcare professionals. I don’t think carriers have done a great job of looking at healthcare professionals and saying, “Which of these are voluntary coverages, and how can they be put forth in a way that would be impactful?” A lot of carriers are trying to figure out how to get that product out to the masses.

Len Cavallaro (26:46):

Accident insurance and the hospital indemnity insurance are really for folks who are trying to supplement it to be a higher deductible plan and in case certain things happen. For physicians, they’re much more likely to be in an HSA or something like that, where they’re not necessarily looking to fill in that $5,000 or $10,000 deductible. The one that’s different to me is critical illness, and critical illness can be available in very large face amounts. Sometimes we find in the rest of the industry that people conflate disability and critical illness, and I would not spend a penny on critical illness until I get fully funded my disability.

Len Cavallaro (27:35):

But the thing that’s different about critical illness is that once a diagnosis happens, and a lot of the diagnosis are things that could lead to disability, a payment is made in a lump sum up front. So you can look at it as a way to cover that elimination period, or you can look at it as a way to… If somebody has a heart attack these days, which generally would trigger a critical illness benefit, they may never qualify for long-term disability. If it’s a three-month elimination period and rehab is going the way it’s supposed to go, you could be back to work never having gotten to the end of the elimination period. Long-term disability isn’t meant to pay in the short term.

Len Cavallaro (28:19):

But if they had a critical illness benefit that provides a lump sum of $50,000, even $100,000, that may go a long way for covering some of the other financial impacts in the short run of having disability. So I like the idea of marrying together critical illness and disability. The big difference, though, is that with critical illness, you don’t have to be disabled; you just have to have the diagnosis. But it’s just that one lump sum, and everything that creates a disability, though may not be something that was a critical illness. But there’s a significant overlap, especially as critical illness products have migrated from having four or five triggers to having 20, 25 triggers.

Len Cavallaro (29:08):

So I do think it’s an area where somebody with a little creativity could really shape the story for physicians to say, “This may fill a gap.” It’s not for everybody, and that’s why the voluntary piece of it is good. Everybody needs disability insurance. Critical illness, it may vary from person to person in the amount that they think that they need, but being able to attach that to that whole thought of what happens if my health takes a significant turn to be important.

Joe Sevcik (29:41):

You’ve touched on this already, but maybe you could go into a little bit more detail. How do you think the healthcare provider market or industry is changing and evolving? Where is it heading? And based on that, what advice would you give to brokers in terms of the best way to position themselves for success in the market?

Len Cavallaro (30:05):

The arc of this business over the years has been astonishing. Way back, when it came to my side of the world, to get any kind of sizable benefit out of a Group LTD, you couldn’t even get a $5,000 monthly benefit anywhere. You’d have to do what we called a [inaudible 00:30:27] formula: 60% of the first $5,000 of income and 40% of the balance till you get to $5,000 because the carriers were worried about replacement risk. And back then, physicians were the highest category in terms of best risk. They’re the part of that best risk, the “4A risk” we used to call it where I was, given those limits on maximums where you couldn’t write enough of that, and the experience on that stuff was great.

Len Cavallaro (30:58):

And the reason why it was great is because the income replacement was really so low, especially for higher earners like physicians. And then carriers got all excited saying, “This risk is so wonderful. We can chase it as much as we want.” So they chased it with a combination of richer contracts and lower prices, and it was a bad combination. So in the early 90s, that whole thing collapsed, and that’s where you saw a big contraction in the number of carriers that were staying in that marketplace. Some carriers always stayed with it, but a lot of carriers left it entirely and then started tiptoeing back into it.

Len Cavallaro (31:39):

So the upshot of that is what we have now are a relatively small number of carriers who really focus on it, but they go deeper than we did back in the initial rush to see how many doctors we could insure and really start thinking, but in real life, how did these things play out if someone was making a living doing joint replacements? Even though they’ve got more general training, if they get disabled in a way that keeps them from doing that, how does that play out? And taking it all the way through the contract, all the way through, how it would work if they tried to come back to work, or could they come back to work and make income doing other things, and how long might that last in making those transitions?

Len Cavallaro (32:27):

So I feel like the contraction happened. Now, there are enough carriers, a critical mass of carriers who are interested in that marketplace that keeps that development going. I read a lot of the stuff that you guys put out and publish about the independent practice versus the corporate. I still think that that is an untold story. There’s a great desire for physicians to be on their own where they get to control what those decisions are, but also, at the same time, you’re finding more physicians find themselves in the place of an employee, and they don’t. They have preferences. They’d like their coverage to be of a certain quality, but they might not have that final say on that.

Len Cavallaro (33:21):

So the carrier who’s really still focusing on that market has to be a little bit bifurcated, has to be able to say, look, in those cases where the physicians are driving the decision, and they want to get into that level of nuance and demand that, “Hey, I want my coverage to be robust,” you have to be able to fit that need. But at the same token, when it’s being driven by a more corporate entity, the product has to have enough flexibility where you can say, “Alright, listen, the decision makers are going here.” In working with a broker, you can help them understand that, if we’re in this situation where the doctors aren’t the decision makers at this level, there’s an opportunity for you as the broker to go in and put individual product in place that can help bolster what their overall disability picture is. So it’s pretty broad, and the carrier who wants to be in that market can’t pick one half of that or the other.

James Crook (34:26):

That’s really interesting. How does a carrier, and by extension, the broker (if the broker cares) when it’s that corporate entity, how can the broker communicate everything you just talked about and the specific risks healthcare professionals face to the CFO if one of these corporate entities who may not have really lived those specific risks of that the healthcare professionals does?

Len Cavallaro (35:07):

Besides providing the information, this is where the broker really shines and where the broker adds the most value to the entire process. In my experience, not just in the healthcare professional market but in lots of other more specialized markets, the most successful brokers are the ones who understand the environment around surrounding that risk. So understand what it is to be a teaching hospital, what it is to be a large multispecialty practice, what the rhythms are, and what the concerns are there.

Len Cavallaro (35:39):

Because before they can get to the point where they can say, “Well, this is what’s important to your docs,” they have to understand what’s important to the entity and be able to couch it in terms of saying, “By taking better care of the doctors, by giving the doctors what they want, here’s the positive impact it’s going to have on your entity.” To understand what’s the seasonality, what’s the right time to approach different groups and talk about what those things are, but to be able to go out to dinner with the CFO and be able to have a conversation about what the other issues that that person is facing, that level of having that relationship and having an understanding of what’s important to the person you’re selling to is huge. If you try to go in and brush past that and say, “But let me tell you about what the doctors need,” I don’t think that that’s a great strategy.

Joe Sevcik (36:42):

Those are great comments. And as you’re making those comments, all I could think about was looping back to some of the earlier points you made in the conversation where brokers, it would behoove brokers to try to develop some level of expertise, or have somebody in their shop that specializes in this so that they understand some of the unique needs. It’s not just another high-income profession; it’s a high-income profession with some of the blue-collar risks and that sort of thing. So it’s really not a market you want to just try to play around, and you want to develop some expertise, it sounds like?

Len Cavallaro (37:21):

Yeah. And the risk to the professional, to the insurance professional is higher these days when people are really depending on your advice and counsel, knowing your market. This is a market that will expose that. If you make poor recommendations, you don’t know what’s available versus what they have in place, or maybe even what you put in place, there’s a certain amount of risk to the professional. I don’t think it’s for dabblers. I agree.

James Crook (38:01):

Len, you’ve provided us with such great information. Something I’m curious about: are there any mentors or professionals that helped you develop into the professional you are and also helped you to learn how to specialize in more of these niche markets?

Len Cavallaro (38:18):

Yeah. I have really been very fortunate through the course of my career. One of the things I’ve figured out as I reflect back is that those folks that, maybe in a single interaction, provided you with an epiphany that really stuck with you through time, and then there are these folks that you worked with and alongside, who by observing how they work, you learn so much and that really helped shape your career. When it comes specifically to what we’re talking about here, when I got my start, I was a group rep, a generalist group rep, and our company had a very well-developed DI practice that really did focus on professionals in general and doctors specifically.

Len Cavallaro (39:11):

And as our group product started taking shape, our contract predilections tended to richer contract and better definitions and those types of things. It occurred to me that joining forces with my friends on the individual side might be a great way for us to work together. So I got to ride shotgun with a lot of great salespeople who really taught me what it meant to approach a market. The one person I’m thinking of is a guy named Chris [Sido 00:39:45]. He was perennially our leading individual DI rep. We were working on some cases. We started working on some cases together. As much as I was getting into, let’s sell the quality thing, we had one particular case where my rate was literally five times the in-force plan.

Len Cavallaro (40:03):

It was a good plan that we had. So we’re going to meet with the broker, and I’m going through and I’m explaining how the contract works and all this great stuff. I’m having a good time. But I get to that last thing where I got to flip the page over, and I know I’m going to show him a number that’s five times that the plan that he has in place. I was hemming and hawing a little bit, and Chris reached past me and flipped it over and said, “So that’s the cost of there, Ken. And as you can see, it’s several times what you’re paying with carrier X over here. But you and I both know that that other contract really isn’t worth the paper that it’s written on for your clients.”

Len Cavallaro (40:41):

And the broker said, “Yeah, you’re right, Chris.” And I thought, wow, that was amazingly easy. The lesson there was, if you’re selling value, then sell the value and sell the value as hard as you can. Don’t put that price filter on there or assume that somebody is not going to pay the additional for the value that you’re bringing. That really changed my approach to selling in general, and it certainly made selling a whole bunch more fun. I guess the other person that was maybe in a broader sense was my boss, the CEO of a company I was working for, a guy named Bob Bates who really, the way he approached business and life, and basically it was this, is that a genuine concern for people and a commitment to outstanding service is the best business strategy that you could have.

Len Cavallaro (41:47):

He was committed to that. Because of that, the companies that he ran were incredibly successful. He had that level of conviction. I guess that’s maybe the other thing I’ll go back to Chris and talk a little bit about it too, is that Chris and I used to both get in the office very early. We shared space. I’d hear him on the phone or be out with him on calls. He worked very hard. He believed in his product, and he had a level of conviction that was really off the charts. And listening to him interact with brokers or clients, he truly really, at a very core level, could not understand why they would say no to him, that what he was offering was such the right thing.

Len Cavallaro (42:36):

It wasn’t a fake thing. It wasn’t something that was theatrical. He was truly perplexed if someone said no. You could watch someone’s demeanor change to resistance. And then it’s like, wow, this guy is really…he really means this. We may be missing an opportunity here if we don’t follow his recommendation, that level of conviction in what you’re doing, and having that conviction really born out of a high level of knowledge.

Joe Sevcik (43:12):

Boy, those are great stories. As you were telling them and you were talking about your hesitancy to flip the page over with the one client, it popped into my mind that you can’t be afraid of your own pricing and not expect the broker to be. Do you know what mean?

Len Cavallaro (43:32):

Right.

Joe Sevcik (43:32):

If you’re afraid of it, the broker is going to be afraid of it. Whereas if you’ve got that conviction that you’re talking about and knowing what you’re selling is worth it, then absolutely, the broker will pick up on that as well.

Len Cavallaro (43:44):

Yeah, it’s a very good point. And again, I’m lucky to have examples to see it play out in real life.

James Crook (43:52):

Yeah, absolutely. Len, one of our last questions for you: do you have a career highlight or really memorable moment you’d like to share with us?

Len Cavallaro (44:02):

Well, again, I’ve been lucky to have several as my career has gone through different stages and phases of things I’ve worked on. But again, sticking on what’s kind of in our topic here is, and this goes again working with my friend, Chris Sido. When we decided that joining forces would probably benefit us both, we spent a lot of time coming up with an approach to the marketplace. We would sit in the conference room, and we’d have all this information and all these proposals and all this material, pages and pages of it. One of the things that Chris was really big on is, how can we make this simple?

Len Cavallaro (44:48):

How can we give people the information they truly need, not leave out things that are important, but get it down into something? And we got this whole thing down into a 20-minute presentation. We would go into a physician group, and there’d be talk about disability in general. They maybe didn’t know what they wanted to do. And we would say, listen, we have a brief 20-minute presentation that really just lays it all out what you get out of an individual policy, what you can get out of a group policy, what are the advantages to having all one or all the other, and what are the disadvantages, and then what are the advantages of really trying to coordinate those two together.

Len Cavallaro (45:27):

And every time we finish that presentation, the customer or the prospect would say, boy, nobody’s ever made it that clear and that simple before. Piggybacking off of that, we sold so much insurance, and we sold it the right way. That went from us doing it in our office to being the approach of the company, and even to the part that you could see our competitors pick up on that. Really, we felt like maybe we impacted the industry in some small way. But we certainly impacted our company when that became the main method for us to market these products. So that was very satisfying and very rewarding.

James Crook (46:13):

Wow, those are great examples. I think that what we can really take away from that is there’s a lot that you can take away from this conversation. But one thing is, you’ve really got to know the market you’re trying to penetrate. You have to be able to also tie that in with an empathy and understanding of what your clients need. So, we really appreciate those insights. Joe, do you have any other questions?

Joe Sevcik (46:45):

No, I think we’ve covered some great ground today, and I agree there are a lot of good pearls of wisdom in here for anybody to be able to pick up. I appreciate the time.

Len Cavallaro (46:56):

No, I appreciate the opportunity. Having a few minutes to think through these questions and jot down some notes was a great exercise for me. Sometimes, you learn things, and you forget that you learn those things. Sometimes you even forget that you know them. So it’s great to have that ability to reflect a little bit.

James Crook (02:15):

I can’t tell you how grateful we are that you agreed to join us for our podcast today.

Len Cavallaro (02:46):

That’s mutual, thanks.

James Crook (02:49):

Wonderful. We’ve got some questions for you, and we’re excited to get this conversation going, so here’s our first question. You’ve had a wealth of experience with several great companies, a lot of different carriers that deal in this healthcare professional market. What has been the common thread that you’ve seen with how carriers approach this healthcare professional disability insurance market?

Len Cavallaro (03:12):

Looking at the broader industry, the common thread is an understanding that the risks around assuring healthcare professionals are unique for both parties. For many carriers, that’s reflected in mitigating their own risk with contractual or underwriting limitations. For relatively few, it’s meant embracing the risk that healthcare professionals face and building products to mitigate that financial risk, and that includes pricing the product accordingly.

James Crook (03:50):

Got it. What are some of those risks that are specific to healthcare professionals?

Len Cavallaro (03:55):

There’s no question that the industry has struggled over the years at different times, some more than others, with high indemnity amounts and the experience and how that impacts the block financially. So you can pay a whole bunch of $1,500 a month claims, but you get a few $15,000 to $20,000 a month claims and the impact on reserves. For a lot of the carriers’ actuarial models, everything they do isn’t based on that kind of a concentration of volume. So that’s what’s unique to the carriers. The other thing that’s unique from the carrier’s standpoint is, especially the physician market and the surgeon market, the level of physicality is not something that they’re expecting to see in their highest-rated general professional class or CEO class and those types of things.

Len Cavallaro (05:07):

So that makes it kind of a unique risk, almost in some ways analogous to a blue-collar risk. That’s some of the other side of it for the healthcare professional. It’s almost the razor’s edge that their income rests on and the things that can happen that can really impact their ability to earn what they’ve earned. The degree of specialization is so high that it’s not an easy transition to move over to something else and then be able to replace that income, even if they have the education, intelligence, training, those types of things. So it’s a much more delicate balance for them, and being able to protect their earnings is more difficult than in the more general population.

Joe Sevcik (06:07):

Len, you touched on this a little bit, and this is a really broad question. But would you say that for the most part, carriers consider healthcare professionals a good risk, or does that really vary by carrier?

Len Cavallaro (06:24):

It varies by carrier, and a lot of them…it’s not even so much, do they consider them a good risk or not, it’s, is it a risk that we understand and can we accommodate? Because it’s more than just the product and the pricing, it’s how you handle the claims and what kind of expertise you need to be able to handle those claims appropriately. I think a lot of carriers look at that and say, there’s a degree of knowledge and specialization that we don’t have. An analogous thing in the group benefits world is you’ve got some carriers that are really good at public employee types of groups, the governmental groups, because they understand all the nuances and the different programs or retirement programs and how they all work.

Len Cavallaro (07:21):

For a carrier that doesn’t look at that and says, “I get it that there’s a way to make money in that market, but we don’t have the resources on hand,” do we want to make that kind of an investment to a long-term commitment? Really, the issue is not so much that somebody looked at that market and said, “That’s a horrible market. You can’t make any money there.” It’s a specialized market. And are we suited to be able to take on and do everything you need to do to be successful in that market?

Joe Sevcik (07:55):

Yeah. I have a couple of follow-up questions on that. I have often heard from brokers that carrier reps might come into their office and say, “Hey, we’ve got really hot rates right now on physicians, so let me quote some of your physician groups.” With the experience that you’ve had in some of the different carriers, can you shed a little light on how that happens or why that happens, that sort of thing, why the rates might get hot?

Len Cavallaro (08:22):

Yeah, I can. What’s kind of funny is a company that I was working for was running sales, and our approach to the physician market really wasn’t any different than any other market. There are certain underwriting nuances, and we did have some language that could be beneficial to physicians, for example, own-occupation, but not to the extent where we really recognize specialties and all those types of things. Our maximums were limited, not specifically for doctors, but just the general broad limits. So because of that, we’re offering a benefit that a corporation that employs doctors might buy, but maybe doctors wouldn’t themselves.

Len Cavallaro (09:15):

Some of the studies that we were doing and some data that we’re looking at showed that for the physicians’ SIC codes, our average cost was much lower than some of the other markets. It caused a little bit of a panic amongst the actuarial types in our company, saying, “Oh my God, are we buying up all this risk?” I said, “No, what we’re not doing is we’re not attracting. That’s a more specialized risk.” Those physicians are saying, “We need these contract provisions. We need to have this in there and that in there.” So our groups are going to behave more like a traditional broad market group insurance thing.

Len Cavallaro (10:00):

The rates coming out of that company would be much lower on a per 100 basis, but it’s really not the same product. I think that’s the thing that brokers really need to understand is, is it the same product? There are lots of ways to save money on insurance. And one way to save money on insurance is to buy less of it. If I buy a $15,000 a month benefit, and instead of that, I buy a $5,000 a month benefit, it’s going to be cheaper. But the other way to save money and buy less insurance is to buy a $15,000 a month benefit with a much more restrictive contract that won’t pay claims and a lot of scenarios that are important to healthcare professionals.

Len Cavallaro (10:46):

The problem with buying less insurance that way is, on a case by case basis, you don’t know how that’s going to work out. So if I buy a contract that is really designed for physicians, and it meets their needs and all the Is are dotted and Ts are crossed, and yes, if I want to buy $5,000 versus $10,000, I’m going to save money. But at least I know that the $5,000 I bought is going to do what I intended it to do. Buying $15,000 and not knowing whether that was going to be $15,000 or it was going to be zero, that’s not a great way to buy less insurance.

Joe Sevcik (11:24):

Yeah, that’s a great point, and we’ll probably want to probe on that a little bit more here in a second or two. But before we leave this topic, though, just from a broker understanding standpoint, when the actuarial team looks at the risk, would you say from your experience that they say, “Hey, we need to dial back a little bit on healthcare professionals,” when they have a significant loss experience or when they feel like maybe the total book is being overrepresented to too high a percentage of healthcare professionals, or is it a mix?

Len Cavallaro (12:04):

Sometimes a big claim gives them an aha moment, but it’s really more the broader sense of it. Are we getting too much of a concentration? In general, back in previous lives, we would cut the experience by SIC code and say, “Oh, the physician market is driving a lot of claims.” Then we went back, and we cut it by indemnity amounts, by maximum benefit. And there, it didn’t matter what the SIC code was, that the highest indemnities tended to drive a higher claim rate. And part of it is, it’s a concentration risk, and it only takes one of those claims instead of a big reserve rate versus 20 of something else.

Len Cavallaro (12:54):

So it really depends on whether that carrier is trying to find reasons to say, “How can we approach this market?” Or just trying to say, “When I cut it by SIC codes, I don’t like it.” But it’s not necessarily the SIC code; it’s the fact that that SIC code has more high maximums. And again, it all comes down to that you can price any risk. But if what you want to do is play a price game, that’s not the market to do that. Both sides get hurt by that, the insured and the insurance guy.

Joe Sevcik (13:34):

Yes. Just to clarify one point, I’m sure all of our listeners will know this, but SIC code is just S-I-C code.

Len Cavallaro (13:41):

Oh, sorry. Yeah.

Joe Sevcik (13:42):

No, that’s okay. Somebody’s listening and going, are they talking about a diagnosis? But no, it’s a S-I-C code. So thanks. Yeah, James, go ahead.

James Crook (13:51):

Yeah, absolutely. You just talked about how a healthcare professional, if they wanted to, could save money by buying a $15,000 policy but maybe keeping out some of those provisions that a healthcare professional really needs. What are some of those provisions that a healthcare professional wouldn’t want to sacrifice?

Len Cavallaro (14:21):

There are two main areas that are important to disability contracts in general, but specifically for healthcare are all about the definitions of disability. What is different about healthcare professionals is the degree of specialization. So if someone’s built a career at being really good in a very narrow sense, not all physicians but a lot of them, what it takes to derail that career may not be a big thing. I remember having a meeting with a group of orthopods. One of the physicians said, “Listen, this guy over here, he mostly does general orthopedic work, and it would take a lot to maybe disable him from being able to swing them out and break bones.”

Len Cavallaro (15:01):

They talk in very graphic terms sometimes. He says, “But I do microsurgery. If I develop a hand tremor, I’m out of business.” And so it’s those types of things and being able to understand what the impact of something may be to one person versus another person and their ability to earn an income. So it’s really understanding that and the degree of specialization. The other one, especially since so many physicians are their own businesses, is definition of earnings. So how are they paid? What are the different business organizations? Are the retained earnings what gets passed through?

Len Cavallaro (15:46):

The standard definitions of earnings of salary plus bonus, which is shocking to me, are not always addressed. It’s a carrier that’s really specialized in the physician market. They’ve probably taken that into consideration. If you’re dealing with more of a generalist carrier, you may have some language that might be favorable on the definition side, but they really aren’t able to when earnings are important, whether it’s a proportion of earnings loss that’s being figured, or with group insurance, you’re really defining and insuring a stream of earnings. If you don’t define it in a way that really mirrors how that money is flowing in that organization, you’ve got some real problems at claim time.

James Crook (16:32):

Those are some great insights. Piggybacking on that, I don’t know if you have anything that you can share with us specifically, but do you have any claims disaster stories about maybe a group of physicians where they ended up taking something more focused on price than the quality aspect that you’re talking about?

Len Cavallaro (16:57):

It came up in a very disability-focused organization that paid attention to physician groups and was a primary market. It’s amazing how it’s evolved even further since then. So we avoided a lot of those disasters, but I can tell you about cases that we took over just in time. One I’m thinking about in particular was a plastic surgeon who started having problems in the cervical spine area that were really affecting his ability to perform surgery for any length of time before the pain started and even, if you can believe it, double vision, which obviously wouldn’t be good for him. We had taken over their group. It was a university hospital practice setting.

Len Cavallaro (17:55):

We’d taken over their coverage, and we put in, at the time, state-of-the-art own specialty language and some of the other things that we had in our contract that made it a little higher quality. He called me on the phone. He didn’t know who else to call. We’ve got the sales office, maybe not the best place to go for a claim question. But he started talking about, “Well, I stopped working for a few weeks and then came back and tried it for a few weeks. We tried to change the environment and the operating position, and that still didn’t work. I’ve gone back and forth with this over the last eight or nine months, and I really have come to the conclusion, I don’t think I can do surgery anymore.”

Len Cavallaro (18:35):

And I wanted to see what to do next.” So I encouraged him to file the claim. One of the things I pointed out is that we had an accumulation to the elimination period that allowed some of those periods of disability to count toward his elimination period. I said, “You may find that you’ve already satisfied that,” and he had. We had own specialty coverage in that contract, maybe not as nuanced as some of the contracts are today but still recognizing the fact that he was a surgeon and that he couldn’t operate. The plan he had before where it recognizes his occupation as a physician (and he really could do everything else) the only thing he couldn’t do was surgery. So a lot of his normal daily activities he was able to do.

Len Cavallaro (19:27):

Some of those recreational activities he was able to do, one of which included flying airplanes acrobatically. He was also offered some positions, some administrative staff positions, and he really didn’t want to do that. “I earned my living being this surgeon.[KM1] ” And with our coverage, he didn’t have to do that as long as he was unable to be a surgeon and he was not working otherwise, then the claim was paid. So our coverage plus some of the individual policies that he’d had came together and enabled him to pursue his life the way that he wanted to do it. Had he not had that own specialty language, he would have either been forced to go back to doing something that he didn’t want to do, or he would afford what I think what was at $12,500 a month tax-free benefit.

James Crook (20:22):

Wow, that’s a great story. Joe, go ahead.

Joe Sevcik (20:25):

So, Len, you’re painting a pretty complicated market here, where there’s a lot of nuances and a lot going on. And brokers often can’t specialize in just one profession. There just isn’t enough of it in their market. What’s the best way that you think carriers can help brokers to navigate this?

Len Cavallaro (20:52):

There are a couple of different ways. One, for a broker who can invest in being an expert or have somebody in their agency be that expert, carriers can offer training. Brokers ask for training across the industry. What carriers tend to provide is marketing, and that’s not what they’re looking for. One area outside the professional market, it would include the professional market, that you see now going on is the Paid Family Leave laws have gotten really complex, and a lot of carriers are doing a very good job of providing education that’s not a product push. That gets going because it’s such a broad thing, and it’s something that impacts everybody, and it’s caused by legislation.

Len Cavallaro (21:43):

When it comes down to specializing in the marketplace, I don’t think a lot of carriers do a really good job of saying to brokers, “Listen, if you want to learn about the physician market and realities of that, we can help.” So that’s one way. But if it is more of a generalist and someone who needs to bring expertise to the table, then the way the carrier can help is by bringing true expertise. And yes, a carrier is going to bring it with an eye toward saying, “This is why our products work.” But it even gets down below the carrier to the rep and finding that rep that you can depend on to give you the expertise and the straight story. I recall a time that we were working on a case years ago.

Len Cavallaro (22:29):

It was a very large physician group, and we had what we thought was a great solution. They were looking at another solution that, quite frankly, we didn’t think was so good, and it was very complicated, very hard to understand. We’d had several meetings with this doctor group over time, and we really felt that they were exposed. And so we went back for the third time, and we said, “Listen, you folks need to have disability coverage. You need to have these robust amounts in a program. We think our program is the best. But whether you go with us or you go with the competitor, our advice to you would be to make a decision this week and move forward with it. If it’s not us, we’re fine with it.” And we left.

Len Cavallaro (23:17):

And of course, later in the week, we got called back, and they asked us to come in because we were willing to say, look, no decision is the worst thing you could do. The broker and the client were impressed that, as the carrier, we were more concerned or equally concerned that they get what they needed, even if they didn’t get it from us. So that’s the kind of relationship you need with your carrier or really your carrier rep, that person who’s really going to be able to say, “This is what’s going on.” These are the realities. These are the things that your clients are concerned about. This is why your client can’t delay. He needs to do this today. These are the stakes. They can bring that expertise in.

Joe Sevcik (24:01):

Yes. Other than having the carrier rep come to one of the meetings, is there an area where you think brokers underutilize carriers, that there are these resources that are fairly widely available, and for one reason or another, they’re underutilized by brokers?

Len Cavallaro (24:24):

Yeah. I don’t think they realize that good carriers and good reps are more than willing to invest the time to come into a broker shop and provide education, not just for the brokers but to the staff, to whoever else needs to have it and do it in a way that’s a step back from pushing a particular product because most carriers who are specializing in this market have a wealth of information, and their solutions are a reaction to what they’ve learned about that market.

Len Cavallaro (25:04):

Carriers and reps can bring that in and approach it at that level that stops short of saying, “Let me tell you why it has to be mine,” but these are the realities. These are the things that we’re trying to address when we build a product. And these are the things that regardless of who you’re doing business with, you need to make sure that you’re taking into consideration and you’re addressing. Most reps would be thrilled to be able to provide that service to brokers.

Joe Sevcik (25:37):

Yes.

James Crook (25:38):

Hey, Len. I want to jump in with the question here. We know that you’ve done quite a bit of work in the voluntary space. Can you comment on how voluntary is taking hold in the healthcare professional market? Is it different than the general market?

Len Cavallaro (25:56):

When we’re talking about voluntary, we’re thinking about the stuff that comes after healthcare disability insurance and life insurance. So you’re getting into the critical illness, the hospital indemnity, the accident insurance. In general, that market is geared more toward the rank-and-file employee than senior management or healthcare professionals. I don’t think carriers have done a great job of looking at healthcare professionals and saying, “Which of these are voluntary coverages, and how can they be put forth in a way that would be impactful?” A lot of carriers are trying to figure out how to get that product out to the masses.

Len Cavallaro (26:46):

Accident insurance and the hospital indemnity insurance are really for folks who are trying to supplement it to be a higher deductible plan and in case certain things happen. For physicians, they’re much more likely to be in an HSA or something like that, where they’re not necessarily looking to fill in that $5,000 or $10,000 deductible. The one that’s different to me is critical illness, and critical illness can be available in very large face amounts. Sometimes we find in the rest of the industry that people conflate disability and critical illness, and I would not spend a penny on critical illness until I get fully funded my disability.

Len Cavallaro (27:35):

But the thing that’s different about critical illness is that once a diagnosis happens, and a lot of the diagnosis are things that could lead to disability, a payment is made in a lump sum up front. So you can look at it as a way to cover that elimination period, or you can look at it as a way to… If somebody has a heart attack these days, which generally would trigger a critical illness benefit, they may never qualify for long-term disability. If it’s a three-month elimination period and rehab is going the way it’s supposed to go, you could be back to work never having gotten to the end of the elimination period. Long-term disability isn’t meant to pay in the short term.

Len Cavallaro (28:19):

But if they had a critical illness benefit that provides a lump sum of $50,000, even $100,000, that may go a long way for covering some of the other financial impacts in the short run of having disability. So I like the idea of marrying together critical illness and disability. The big difference, though, is that with critical illness, you don’t have to be disabled; you just have to have the diagnosis. But it’s just that one lump sum, and everything that creates a disability, though may not be something that was a critical illness. But there’s a significant overlap, especially as critical illness products have migrated from having four or five triggers to having 20, 25 triggers.

Len Cavallaro (29:08):

So I do think it’s an area where somebody with a little creativity could really shape the story for physicians to say, “This may fill a gap.” It’s not for everybody, and that’s why the voluntary piece of it is good. Everybody needs disability insurance. Critical illness, it may vary from person to person in the amount that they think that they need, but being able to attach that to that whole thought of what happens if my health takes a significant turn to be important.

Joe Sevcik (29:41):

You’ve touched on this already, but maybe you could go into a little bit more detail. How do you think the healthcare provider market or industry is changing and evolving? Where is it heading? And based on that, what advice would you give to brokers in terms of the best way to position themselves for success in the market?

Len Cavallaro (30:05):

The arc of this business over the years has been astonishing. Way back, when it came to my side of the world, to get any kind of sizable benefit out of a Group LTD, you couldn’t even get a $5,000 monthly benefit anywhere. You’d have to do what we called a [inaudible 00:30:27] formula: 60% of the first $5,000 of income and 40% of the balance till you get to $5,000 because the carriers were worried about replacement risk. And back then, physicians were the highest category in terms of best risk. They’re the part of that best risk, the “4A risk” we used to call it where I was, given those limits on maximums where you couldn’t write enough of that, and the experience on that stuff was great.

Len Cavallaro (30:58):

And the reason why it was great is because the income replacement was really so low, especially for higher earners like physicians. And then carriers got all excited saying, “This risk is so wonderful. We can chase it as much as we want.” So they chased it with a combination of richer contracts and lower prices, and it was a bad combination. So in the early 90s, that whole thing collapsed, and that’s where you saw a big contraction in the number of carriers that were staying in that marketplace. Some carriers always stayed with it, but a lot of carriers left it entirely and then started tiptoeing back into it.

Len Cavallaro (31:39):

So the upshot of that is what we have now are a relatively small number of carriers who really focus on it, but they go deeper than we did back in the initial rush to see how many doctors we could insure and really start thinking, but in real life, how did these things play out if someone was making a living doing joint replacements? Even though they’ve got more general training, if they get disabled in a way that keeps them from doing that, how does that play out? And taking it all the way through the contract, all the way through, how it would work if they tried to come back to work, or could they come back to work and make income doing other things, and how long might that last in making those transitions?

Len Cavallaro (32:27):

So I feel like the contraction happened. Now, there are enough carriers, a critical mass of carriers who are interested in that marketplace that keeps that development going. I read a lot of the stuff that you guys put out and publish about the independent practice versus the corporate. I still think that that is an untold story. There’s a great desire for physicians to be on their own where they get to control what those decisions are, but also, at the same time, you’re finding more physicians find themselves in the place of an employee, and they don’t. They have preferences. They’d like their coverage to be of a certain quality, but they might not have that final say on that.

Len Cavallaro (33:21):

So the carrier who’s really still focusing on that market has to be a little bit bifurcated, has to be able to say, look, in those cases where the physicians are driving the decision, and they want to get into that level of nuance and demand that, “Hey, I want my coverage to be robust,” you have to be able to fit that need. But at the same token, when it’s being driven by a more corporate entity, the product has to have enough flexibility where you can say, “Alright, listen, the decision makers are going here.” In working with a broker, you can help them understand that, if we’re in this situation where the doctors aren’t the decision makers at this level, there’s an opportunity for you as the broker to go in and put individual product in place that can help bolster what their overall disability picture is. So it’s pretty broad, and the carrier who wants to be in that market can’t pick one half of that or the other.

James Crook (34:26):

That’s really interesting. How does a carrier, and by extension, the broker (if the broker cares) when it’s that corporate entity, how can the broker communicate everything you just talked about and the specific risks healthcare professionals face to the CFO if one of these corporate entities who may not have really lived those specific risks of that the healthcare professionals does?

Len Cavallaro (35:07):

Besides providing the information, this is where the broker really shines and where the broker adds the most value to the entire process. In my experience, not just in the healthcare professional market but in lots of other more specialized markets, the most successful brokers are the ones who understand the environment around surrounding that risk. So understand what it is to be a teaching hospital, what it is to be a large multispecialty practice, what the rhythms are, and what the concerns are there.

Len Cavallaro (35:39):

Because before they can get to the point where they can say, “Well, this is what’s important to your docs,” they have to understand what’s important to the entity and be able to couch it in terms of saying, “By taking better care of the doctors, by giving the doctors what they want, here’s the positive impact it’s going to have on your entity.” To understand what’s the seasonality, what’s the right time to approach different groups and talk about what those things are, but to be able to go out to dinner with the CFO and be able to have a conversation about what the other issues that that person is facing, that level of having that relationship and having an understanding of what’s important to the person you’re selling to is huge. If you try to go in and brush past that and say, “But let me tell you about what the doctors need,” I don’t think that that’s a great strategy.

Joe Sevcik (36:42):

Those are great comments. And as you’re making those comments, all I could think about was looping back to some of the earlier points you made in the conversation where brokers, it would behoove brokers to try to develop some level of expertise, or have somebody in their shop that specializes in this so that they understand some of the unique needs. It’s not just another high-income profession; it’s a high-income profession with some of the blue-collar risks and that sort of thing. So it’s really not a market you want to just try to play around, and you want to develop some expertise, it sounds like?

Len Cavallaro (37:21):

Yeah. And the risk to the professional, to the insurance professional is higher these days when people are really depending on your advice and counsel, knowing your market. This is a market that will expose that. If you make poor recommendations, you don’t know what’s available versus what they have in place, or maybe even what you put in place, there’s a certain amount of risk to the professional. I don’t think it’s for dabblers. I agree.

James Crook (38:01):

Len, you’ve provided us with such great information. Something I’m curious about: are there any mentors or professionals that helped you develop into the professional you are and also helped you to learn how to specialize in more of these niche markets?

Len Cavallaro (38:18):

Yeah. I have really been very fortunate through the course of my career. One of the things I’ve figured out as I reflect back is that those folks that, maybe in a single interaction, provided you with an epiphany that really stuck with you through time, and then there are these folks that you worked with and alongside, who by observing how they work, you learn so much and that really helped shape your career. When it comes specifically to what we’re talking about here, when I got my start, I was a group rep, a generalist group rep, and our company had a very well-developed DI practice that really did focus on professionals in general and doctors specifically.

Len Cavallaro (39:11):

And as our group product started taking shape, our contract predilections tended to richer contract and better definitions and those types of things. It occurred to me that joining forces with my friends on the individual side might be a great way for us to work together. So I got to ride shotgun with a lot of great salespeople who really taught me what it meant to approach a market. The one person I’m thinking of is a guy named Chris [Sido 00:39:45]. He was perennially our leading individual DI rep. We were working on some cases. We started working on some cases together. As much as I was getting into, let’s sell the quality thing, we had one particular case where my rate was literally five times the in-force plan.

Len Cavallaro (40:03):

It was a good plan that we had. So we’re going to meet with the broker, and I’m going through and I’m explaining how the contract works and all this great stuff. I’m having a good time. But I get to that last thing where I got to flip the page over, and I know I’m going to show him a number that’s five times that the plan that he has in place. I was hemming and hawing a little bit, and Chris reached past me and flipped it over and said, “So that’s the cost of there, Ken. And as you can see, it’s several times what you’re paying with carrier X over here. But you and I both know that that other contract really isn’t worth the paper that it’s written on for your clients.”

Len Cavallaro (40:41):

And the broker said, “Yeah, you’re right, Chris.” And I thought, wow, that was amazingly easy. The lesson there was, if you’re selling value, then sell the value and sell the value as hard as you can. Don’t put that price filter on there or assume that somebody is not going to pay the additional for the value that you’re bringing. That really changed my approach to selling in general, and it certainly made selling a whole bunch more fun. I guess the other person that was maybe in a broader sense was my boss, the CEO of a company I was working for, a guy named Bob Bates who really, the way he approached business and life, and basically it was this, is that a genuine concern for people and a commitment to outstanding service is the best business strategy that you could have.

Len Cavallaro (41:47):

He was committed to that. Because of that, the companies that he ran were incredibly successful. He had that level of conviction. I guess that’s maybe the other thing I’ll go back to Chris and talk a little bit about it too, is that Chris and I used to both get in the office very early. We shared space. I’d hear him on the phone or be out with him on calls. He worked very hard. He believed in his product, and he had a level of conviction that was really off the charts. And listening to him interact with brokers or clients, he truly really, at a very core level, could not understand why they would say no to him, that what he was offering was such the right thing.

Len Cavallaro (42:36):

It wasn’t a fake thing. It wasn’t something that was theatrical. He was truly perplexed if someone said no. You could watch someone’s demeanor change to resistance. And then it’s like, wow, this guy is really…he really means this. We may be missing an opportunity here if we don’t follow his recommendation, that level of conviction in what you’re doing, and having that conviction really born out of a high level of knowledge.

Joe Sevcik (43:12):

Boy, those are great stories. As you were telling them and you were talking about your hesitancy to flip the page over with the one client, it popped into my mind that you can’t be afraid of your own pricing and not expect the broker to be. Do you know what mean?

Len Cavallaro (43:32):

Right.

Joe Sevcik (43:32):

If you’re afraid of it, the broker is going to be afraid of it. Whereas if you’ve got that conviction that you’re talking about and knowing what you’re selling is worth it, then absolutely, the broker will pick up on that as well.

Len Cavallaro (43:44):

Yeah, it’s a very good point. And again, I’m lucky to have examples to see it play out in real life.

James Crook (43:52):

Yeah, absolutely. Len, one of our last questions for you: do you have a career highlight or really memorable moment you’d like to share with us?

Len Cavallaro (44:02):

Well, again, I’ve been lucky to have several as my career has gone through different stages and phases of things I’ve worked on. But again, sticking on what’s kind of in our topic here is, and this goes again working with my friend, Chris Sido. When we decided that joining forces would probably benefit us both, we spent a lot of time coming up with an approach to the marketplace. We would sit in the conference room, and we’d have all this information and all these proposals and all this material, pages and pages of it. One of the things that Chris was really big on is, how can we make this simple?

Len Cavallaro (44:48):

How can we give people the information they truly need, not leave out things that are important, but get it down into something? And we got this whole thing down into a 20-minute presentation. We would go into a physician group, and there’d be talk about disability in general. They maybe didn’t know what they wanted to do. And we would say, listen, we have a brief 20-minute presentation that really just lays it all out what you get out of an individual policy, what you can get out of a group policy, what are the advantages to having all one or all the other, and what are the disadvantages, and then what are the advantages of really trying to coordinate those two together.

Len Cavallaro (45:27):

And every time we finish that presentation, the customer or the prospect would say, boy, nobody’s ever made it that clear and that simple before. Piggybacking off of that, we sold so much insurance, and we sold it the right way. That went from us doing it in our office to being the approach of the company, and even to the part that you could see our competitors pick up on that. Really, we felt like maybe we impacted the industry in some small way. But we certainly impacted our company when that became the main method for us to market these products. So that was very satisfying and very rewarding.

James Crook (46:13):

Wow, those are great examples. I think that what we can really take away from that is there’s a lot that you can take away from this conversation. But one thing is, you’ve really got to know the market you’re trying to penetrate. You have to be able to also tie that in with an empathy and understanding of what your clients need. So, we really appreciate those insights. Joe, do you have any other questions?

Joe Sevcik (46:45):

No, I think we’ve covered some great ground today, and I agree there are a lot of good pearls of wisdom in here for anybody to be able to pick up. I appreciate the time.

Len Cavallaro (46:56):

No, I appreciate the opportunity. Having a few minutes to think through these questions and jot down some notes was a great exercise for me. Sometimes, you learn things, and you forget that you learn those things. Sometimes you even forget that you know them. So it’s great to have that ability to reflect a little bit.

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