1. Rethink The Future: The New Normal In Absence And Disability Management
Alex Dumont, Assistant Vice President, Product Marketing

2. The New Normal Interest rate is the lowest in 200 years
Healthcare costs 3 times what it did in 1999
- Kaiser /HRET survey
The Great Recession wiped out 15 years of net worth from the middle class
-Federal Reserves “Changes in Family Finances from ”
By 2025, there will be 4 generations in the workforce
- US Census Bureau
38% increase in SSDI applications
- SSDI data
1 in 5 employees are caregivers to a person over age 50
- Executive Office of The President Council of Economic Advisers 2

3. Key Drivers Of Future Trends
Economy
Demographics
Healthcare
Top heavy structures will change leadership, management and team dynamics.
Healthcare costs will continue to outpace inflation, despite reform.
Employees have less money to spend on benefits.
Interest rates are lower – impacting saving vs. spending.
Healthcare vs. ancillary benefits vs. savings.
Benefits costs will change significantly.
Compressed corporate budgets as consumer spending is muted.
Relevance of disability insurance.
Benefits needs for each generation differ.. 3

4. Surpassed pre- recessionary level
Family Net Worth
Average family:
Back to level
Employment: Back to
2005 level
Home Prices:
Back to level
Stock Market:
Back to level
Economy:
Surpassed pre- recessionary level
The Great Recession wiped out 15 years of net worth from the middle class. 4
Source: Federal reserves “Changes in Family Finances from ”

5. Family Net Worth 40-59.9 percentile 60-79.9 percentile $250 $200 $150
($ 000’s)
percentile
($46K in annual income)
percentile
($72K in annual income)
$250
$216
$200
$177
$184
$150
$151
$115
$108
$129
$100
$60
$66
$72
$78
$83
$92
$50
$66 $0
1992
$40.4k
1995
$43.5k
Average earnings
1998
$44.6k
2001
$48.9k
2004
$49.8k
2007
$49.6k
2010
$45.8k 5
Source: Federal reserves “Changes in Family Finances from ”

6. The Great Recession – Significant Contraction And Job Loss
Past Recessions
Duration (Months)
Peak Unemployment
GDP Decline
Jobs Lost (1,000)
1949 11
7.9%
-1.7%
-2,344
1953 10
6.1%
-2.6%
-1,711
1958 8
7.5%
-3.7%
-2,215
7.1%
-1.6%
-1,256
-0.6%
-831 16
9.0%
-3.2%
-2,171
1980 6
7.8%
-2.2%
-1,159
10.8%
-2.7%
-2,838
-1.4%
-1,621
2001
6.3%
-0.3%
-2,202 18
10.1%
-5.1%
-8,750
Average
-2.3%
-2,463
The most severe recession experienced in 60 years, with more jobs lost than in previous four recessions combined.
Source: Bureau of Labor Statistics - Reported unemployment; Aggregate contiguous periods of negative nonfarm payrolls. 6

7. Demographics: U.S. Population - 1980
85+
80-84
75-80
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
26-29
20-24
15-19
10-14
5-9
0-4
Greatest Generation
Silent Generation
Baby Boomers 1 2 3
Men
Women 4 5 7
Source: US Census Bureau

8. Demographics: U.S. Population - 2010
85+
80-84
75-80
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
26-29
20-24
15-19
10-14
5-9
0-4
Baby Boomers
Generation X
Generation Y 1 2 3
Men
Women 4 8
Source: US Census Bureau

9. Demographics: U.S. Population - 2025
85+
80-84
75-80
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
Baby Boomers
Generation X
Generation Y
5-9
0-4 AO 1 2 3
Men
Women 4 9
Source: US Census Bureau

10. Trend #1: Baby Boomers Will Stay At Work Longer
Impacts
Significantly higher healthcare costs.
Higher disability risk.
Better retention of intellectual capital – lower training costs and turnover.
Higher salaries, cost structure and possibility of lower productivity – high impact on service industry.
Top heavy – slower career progression for generation Y and less supply of talent when baby boomers ultimately retire. 10

11. Healthcare Cost For Families
$15,073
$16,000
$13,375
$13,770
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000 $-
$12,679
$12,105
$11,481
$10,880
$15,073
$9,950
$9,069
$8,003
$7,056
$6,438
$5,840
Significant growth in healthcare costs with greater cost sharing.
Source: The Kaiser Family Foundation and Health Research 11

12. How Long Will Savings Last In Retirement?
Net Assets ($ 000’s)
$ $275
$ $227
$ $179
Retiree in 2001 (average net worth = $227k)
Retiree in 2012, assets funded to age 73 (average net worth = $179k)
Retiree in 2012, assets funded to age 77 (average net worth = $350k)
$150
$100
$50 $-
$(50)
Retirees today will only have assets to fund retirement until age 73 vs.
retirees in 2001 with sufficient assets to fund retirement until age 77.
The average baby boomer will have to work at least 4 years longer. 12
Assumption: Monthly expenses of $2k, 2% inflation, current interest rate, excludes Social Security

13. Impact On Healthcare Costs
Age
Individual
Family
30-34
$7,711
$11,383
40-44
$9,276
$13,693
50-54
$14,237
$21,017
60-64
$22,704
$33,515
Baby boomers working longer will put additional strain on healthcare costs.
Source: Rates filed with State of Oregon for small groups 13

14. Trend #1: Baby Boomers Will Stay At Work Longer
Impacts Solutions/Implications
Significantly higher healthcare costs.
Higher disability risk.
Better retention of intellectual capital – lower training costs and turnover.
Higher salaries, cost structure and possibility of lower productivity – high impact on service industry.
Top heavy – slower career progression for generation Y and less supply of talent when baby boomers ultimately retire.
Return to work and stay at work initiatives become key programs that enable baby boomers to be productive and help reduce healthcare costs.
Wellness programs are key in reducing healthcare costs.

15. Trend #2: The Sandwiched Generation Doing More With Less
Impacts
Doing more with less (salary increases have significantly lagged behind inflation).
Fewer upward mobility/ promotional opportunities due to top heavy structures.
Growth in number of employees with caring responsibilities.
Time and flexibility becomes more valuable than before.

16. Finances Of Generations
Family net worth
($ 000’s)
Age (average earnings = $47k) Age (average earnings = $51k)
$200
$165
$150
$95
$118
$100
$50
$42 $-
2001
2004
2007
2010
Generation X are more impacted by the Great Recession and cost increases.
Source: Federal reserves “Changes in Family Finances from ” 16

17. FMLA Utilization
FMLA utilization rate
20.0%
Other Maternity Own Family
15.0%
10.0%
7.9%
7.2%
8.6%
5.0%
10.6%
11.9%
3.2%
0.0%
4.9%
3.4%
2.2%
Under 25
1.8%
Over 54
The Sandwiched Generation is more likely to utilize FMLA/ leave programs.
Source: The Standard claims analytics research 17

18. Trend #2: The Sandwiched Generation Doing More With Less
Impacts
Solutions/Implications
Doing more with less (salary increases have significantly lagged behind inflation).
Fewer upward mobility/ promotional opportunities due to top heavy structures.
Growth in number of employees with caring responsibilities.
Time and flexibility becomes more valuable than before.
FMLA and leave utilization will increase significantly (due to need and values).
Flexibility will evolve to be a very important employee benefit.
Concierge type services will be highly valued.
Job rotations will be more prevalent.

19. Trend #3: Increased Disability Incidence
Impacts
Higher disability incidence due to the economy.
Workplace stress has a direct impact on disability and healthcare costs.
Significant increases in musculoskeletal claims.
Decreases in interest rate will continue to increase disability costs.

20. Impact of Workplace Stress
LTD
Incidence
High Growth
Moderate Growth
Stagnant
Moderate
> 10%
Loss
High Loss
2% to 10%
-2% to 2%
-7% to -2%
< -7%
Customers exhibiting moderate job growth (2 - 10%) have the lowest LTD incidence.
Source: The Standard claims analytics research 20

21. Increase By Diagnosis
% increase in awards
( )
50%
Increase in awards between
47%
40%
30%
27%
26%
20%
18%
11%
20%
10%
10% 0%
Cancer
Heart
Injuries
Mental
Musculo- skeletal
Nervous System
Respiratory
Significant increase in Musculoskeletal claims in the past 5 years; currently makes up 32% of all SSDI claims.
Source: SSDI data 21

22. Trend #3: Increased Disability Incidence
Impacts
Solutions/Implications
Higher disability incidence due to the economy.
Workplace stress has a direct impact on disability and healthcare costs.
Significant increases in musculoskeletal claims.
Decreases in interest rate will continue to increase disability costs.
Investments in early intervention, return to work and stay at work will be key.
Long term healthcare and Disability cost implications should be considered during workforce planning.
Conversion of ASO to fully insured plans as disability costs will increase due to aging population and interest rate.

23. Trend #4: Unintended Consequences
Impacts
Cost shifting to disability voluntary plans increases healthcare and productivity cost.
Enrollment levels are likely to be low; especially given values and economics facing generations X, Y and AO.
Savings in total costs will be short term and temporary, with longer term and permanent higher healthcare costs.

24. Cost Shifting In Employee Benefits
HC – Employee Portion
HC – Employee Portion
20,000
4,377
4,377
15,000
4,129
10,000
10,944
11,600
11,600
5,000
2011
2012
2012 (Cost Shift)
Employer paid LTD
$300
Total employer cost
$11,244
$11,900
$11,600
Increase 5.8%
3.2%
$300
savings per employee
Cost shifting of healthcare inflation by switching from employer paid LTD to voluntary LTD plans.

25. Healthcare Cost For Family
# Of Employees
The majority of healthcare costs result from a minority of the employees
Costs
300 Employees Employees 250 Employees
$6,400 $1000 $500
100 Employees 80 Employees
$18,000 $54,000
10 Employees 10 Employees
$203,000 $440,000
10% of employees (100 employees from 1000 life company) cost 70% of healthcare.
0.5% of employees (5 employees in a 1000 life company) go out on disability. 25

26. Trend #4: Unintended Consequences
Impacts
Solutions/Implications
Cost shifting to disability voluntary plans increases healthcare and productivity cost.
Enrollment levels are likely to be low; especially given values and economics facing generations X, Y and AO.
Savings in total costs will be short term and temporary, with longer term and permanent higher healthcare costs.
Convert voluntary disability plans to employer paid plans.
Pursue voluntary plans only if enrollment will high.
Build active communication strategies about the need for Disability during benefits orientation or open enrollment.

27. Key trends due to economy, demographics and healthcare
The New Normal
Key trends due to economy, demographics and healthcare
Trend #1: Baby boomers will stay at work longer
Trend #2: Sandwiched generation will demand higher flexibility
Trend #3: Increased disability incidence due to economy
Trend #4: Unintended consequences of increased healthcare
costs from cost shifting to voluntary disability plans
Key Implications
Return-to-work, stay-at-work and wellness programs become key to enabling baby boomers to be productive and control healthcare costs.
Demand for FMLA usage and flexibility will continue to increase.
Staffing levels will significantly impact disability/ healthcare costs.
Disability insurance will become highly relevant n a world of increasing healthcare costs.

28. Questions?