Closing the Disability Insurance Compensation Gap

Many highly compensated employees are unaware of the financial impact it would have if they were to become sick, disabled or unable to work.

How many of your bank’s executives would have to spend their retirement assets, personal savings or monetary reserves if they lost their income due to an illness or injury? They may currently have a group long-term disability plan, but those plans don’t cover an earner’s full salary, which can include bonus, commissions and 401(k) income, leaving a coverage gap. These plans often leave your company’s highest earners vulnerable to the gap, with only 30% to 50% of their income protected, while most of your broad-based employees achieve more significant income protection.

While the business disruption of losing one of your top-tier workers to injury or illness is difficult enough on its own, standard disability insurance creates a compensation gap for the institution’s, undermining the welfare of your business and leaving affected executives out in the cold. Coverage caps on the maximum benefit allowed affects highly compensated employees, which causes them to have less income protected than rank-and-file employees; the higher the income, the lower the income replacement percentage.

Group long-term disability coverage is a common benefit companies provide to the employees. This coverage is designed to provide a basic level of coverage at the lowest possible cost. Group contracts are temporary agreements, typically written with 2 to 3 year rate and contract language guarantees.

A $1.3 billion bank recently implemented a supplemental disability plan after uncovering a problem with their current nonqualified plan. There was a risk of not receiving the deferred compensation plan benefits if an employee became disabled, as well as not receiving anything close to 60% of their current salary if they were to become disabled. The problem grew each year, due to the rising costs of salaries, bonuses and impressive growth of the bank.

Under the current plan, the participants were to receive 67% of their base and bonus, to a maximum benefit of $10,000 a month. However, for some of the bank’s most highly valued and compensated participants in the plan, that maximum benefit is significantly less than 67% of their total income. But by adding a supplemental individual disability offering to the existing group LTD benefit, they can increase an employee’s level of protection up to 75% of base and bonus compensation.

So, what are the benefits? For the bank, there are packaged pricing discounts available with many group LTD carriers when they add individual disability insurance. Competitive bidding is high with group LTD carriers when the maximum benefit isn’t increased; the LTD rate volatility is reduced when risk is spread among a combination of group LTD and individual DI.

There are also several benefits for employees. For starters, it can provide maximum income replacement ratios. Individual DI rates are permanent to age 67 and can be offered as guaranteed standard issue, meaning medical exams aren’t required. The contracts and discounted rates are portable if the employee leaves. Plans can include an additional catastrophic benefit and cover all forms of compensation including equity. Finally, the plans can give employees the ability to purchase additional coverage, up to 75% of total compensation.

Minimizing Expenses, Maximizing Coverage
So, how can your institution minimize the expense and offer the best coverage? Individual disability benefits increase overall plan maximums, protect bonuses and allow for tax-free benefits — all benefits that allow highly compensated employees to raise their income replacement to necessary levels. Banks that combine group LTD with individual DI coverage create a solid, well-thought-out plan that deliver big benefits to top earners while helping keep company costs in check. Adding a supplemental individual disability insurance (IDI) offering to the existing group LTD benefit increases an employee’s level of protection up to 67% of base and bonus compensation.

Much of your bank’s success depends on the talents of key employees. But keeping the people who keep the business going is easier said than done. Higher pay is only one of the answers; providing quality benefits and educating employees on them is another opportunity. Supplementing group long-term disability (LTD) with individual disability income insurance (IDI) can be a vital part of better protecting your employees. It’s easy, and a great way to let them know how valuable they are to you and your bank. Implementing an IDI can help attract and keep the best talent in your industry while helping employees protect one of their greatest assets: their income.

Community Banks Released From ADA Liability

community-bank-12-29-17.pngMany community banks received threatening letters from the advocacy group Access Now alleging that the banks’ websites violated the Americans with Disabilities Act (ADA) for the visually impaired in provision of electronic information technology, including the banks’ websites, online banking, mobile banking and apps, ATM services, and telephone banking (known collectively as electronic banking services). These letters started arriving at banks in late 2016 and generally offered to resolve alleged claims by working with Access Now’s attorneys—Pittsburgh, Pennsylvania-based Carlson Lynch Sweet Kipela and New York-based KamberLaw LLC—to bring the banks’ websites into compliance with the ADA. The banks that chose not to work with Access Now were threatened with potential lawsuits.

On November 20, 2017, the Independent Community Bankers of America (ICBA) announced it had reached an agreement with Access Now to stop the mass distribution of letters to community banks threatening to bring actions against these banks for alleged violations of ADA. The industry trade group reached a mutually agreeable settlement with Access Now, in which the ICBA will adopt and distribute to its current members a restatement of voluntary access principles that are acceptable to Access Now, as a reaffirmation of the banking industry’s ongoing commitment to encourage accessibility for visually impaired persons. Access Now will release ICBA member banks and all U.S. banks with less than $50 billion in assets from all claims related to the provision of electronic banking services and the ADA.

It is unclear if the release requires all ICBA banks and non-member banks with assets of less than $50 billion to adopt the Access Now principles. In addition, it is unclear if adopting and following the Access Now principles by community banks will protect them from threatened litigation by organizations similar to Access Now. However, it is advisable to adopt and follow the principles for protection against claims.

The principles adopted by the ICBA are as follows:

  1. Ensure accessibility. The ICBA will encourage its members to make reasonable efforts to ensure that digital platforms and services are accessible to visually impaired and low vision customers, as well as potential customers and companions to such customers or potential customers.
  2. Train bank employees. The ICBA will encourage its members to conduct periodic training for bank employees responsible for electronic banking service accessibility to promote greater accessibility.
  3. Develop electronic banking service accessibility guidelines. The ICBA will encourage its members to develop electronic banking service accessibility guidelines that are designed to promote increased independent use of the member’s electronic banking services by customers and potential customers with disabilities, as well as their companions. The details of the accessibility policies adopted, if any, will be at the sole discretion of each member bank.
  4. Implement the principles within the next three years. In the event that formal guidelines are not issued by the U.S. Department of Justice in 2018, the ICBA encourages its members to implement its principles on or before December 31, 2020.
  5. Incorporate access information into existing customer service. The ICBA encourages its members to publicly post notification and contact information in connection with their provision of electronic banking services for customers and potential customers who claim to encounter access barriers. Members are encouraged to respond to inquiries or complaints related to any alleged access barriers in a reasonably prompt manner.
  6. Communicate with third-party vendors. The ICBA encourages its members to utilize their existing vendor management due diligence process and communicate to the vendor that consumer-facing digital content provided by that vendor should conform to the ICBA’s principles.

While the DOJ has not adopted a website accessibility standard, one acceptable set of voluntary principles for accessibility is the World Wide Web Consortium’s Version 2.0 of its Web Accessibility Guidelines. Nothing within the ICBA’s principles intends to suggest that members should adopt an accessibility standard greater than that which may ultimately be adopted by the DOJ, or that equal access may not lawfully be provided in an alternative fashion. All community banks should endeavor to adhere to the principles set out above and watch for the release of website accessibility standards by the Justice Department.

A Buyers Guide to Small Business Lending Software

lending-8-7-17.pngIs digitizing your small business lending a priority for your bank? Increased efficiency, profitability, productivity and enhanced customer experience are all reasons why it should be. For example, in most banks the administrative and overhead costs to underwrite a $50,000 loan and a $1 million loan are essentially the same. Wouldn’t it be great to free up your team to focus on the most important thing—the customer—and let the technology take of the rest?

Here are nine questions to ask when you start talking to fintech companies that sell small business lending software:

  1. Is the software able to conform to Americans with Disabilities Act (ADA) standards and best practices? According to the American Bankers Association there have been over 244 federal lawsuits since 2015 that have been filed alleging that people with disabilities are denied access to online goods and services in violation of ADA. The Department of Justice, the agency charged with ADA enforcement, has delayed website accessibility regulations until 2018, but can your bank really afford to wait?
  2. Does it improve the borrower and banker experience? It’s not enough to digitize your applications. What your small business lending software must do is improve your current process for everyone by offering a well thought-out and well-designed user experience that’s intuitive, reduces end-to-end time and helps increase profits.
  3. Will it use your bank’s credit policy? Black box credit policies should be a thing of the past but they still show up in loan origination software. Find a technology that respects the bank’s risk profile and reflects its credit criteria and corporate values.
  4. Does it offer an omnichannel application and borrower portal? Borrowers want the ability to start and finish an application on your website any time of day or night, either on their own or with the help of their banker. Look for a technology that doesn’t eliminate the banker-client relationship, but rather, enhances it.
  5. How quickly will it fit in with your current workflow? The goal should be a quick and seamless transition from paper to digital, but sometimes there isn’t a straight line. Perhaps your financial institution desires the ability to digitize the application process but still wants to manually control the underwriting and spreading process. Look for a platform that has the ability to grow with your workflow and is designed in a way that accommodates your approach to using technology.
  6. Are they a partner or a competitor? More and more alternative lenders are starting to see a benefit in partnering with banks. But will you find out later that your ‘partner’ is competing in your own back yard for the same loans you are trying to acquire through them. Find a platform that’s in the business of helping banks, not replacing them.
  7. Does the platform provide actionable analytics? The platform’s analytics must be able to provide banks with insight into their loan program that is almost impossible to track manually. Find a platform that truly maximizes the data collected by, or generated from, the technology to provide rich analytics like pipeline management, process tracking, customer experience feedback and exception tracking. This will enable managers to manage better, sales people to sell more effectively and customers to be more fully served.
  8. What are the fraud detection and prevention resources used to keep you and your customers safe? As your bank offers more digital options, criminals will devise more sophisticated and hard-to-detect fraud methods. Your bank should only seek a technology partner that has security at the top of its priority list.
  9. Will it be easier for borrowers to complete applications, and for bankers to decide on and process applications accurately and efficiently? The goal for most banks wanting to implement a small business loan origination platform is to reduce end-to-end time, increase profits and give both customers and its own staff a better experience. Make sure the software is designed with this in mind. It should be simple and intuitive for perspective borrowers to use, and it should lessen the time bankers have to touch the loan, freeing up both front and back office teams to maximize their productivity.

Your institution is unique, so you’ll need to find a technology partner that celebrates that individuality rather than changes it. Use these questions as a foundation from which you can fully explore all of your options and find the partner that will bring you the most value.

Could Your Insurance Cover the Latest Disability Claims?

insurance-12-26-16.pngAlthough Americans with Disabilities Act (ADA) claims have been in existence for several years, I have seen a dramatic increase in the frequency of demand letters against community and regional banks during the past couple of weeks. The typical demand letter states that the bank’s website is out of compliance with the ADA, as the site does not provide equal accessibility for visually impaired individuals who attempt to access the website. Often the letter will cite the Web Accessibility Initiative of the World Wide Web Consortium, referencing how many of the web pages fail to meet the Web Content Accessibility Guidelines.

Possible Insurance Response
Based on the allegations, the first places we would look for insurance coverage would be the cyber liability policy, as this is based on the bank’s website, or the employment practices liability insurance (EPLI) policy. And those are exactly the two coverages where we are seeing possible solutions, but that will be contingent on the insurance carrier’s approach and the language that may have been negotiated.

With regards to cyber liability, most policies will only be triggered after a breach of network security and/or the loss or theft of non-tangible property, specifically, personally identifiable information. In the case of these ADA infractions, neither of these triggers have been met. Additionally, many cyber policies will include a specific discrimination exclusion. With that said, several carriers have cyber policies with no such exclusion and have a very inclusive or broad language within the definition of Wrongful Electronic Banking Act or even the basic Cyber Liability Insuring Agreement.

With regards to the possibility of coverage within the EPLI placement, we compare this scenario with a similar scenario where a claimant demands that a handicapped ramp be built at a branch location. Both reference violations of ADA claiming an individual with a disability cannot access the bank’s services. Just as is the case in the building of the ramp scenario, there are several language obstacles that need to be overcome in the consideration of coverage:

  1. The definition of claim defines when claim coverage can begin. Your definition of claim should include non-monetary damages, just as it does for monetary damages. This will allow for coverage to be considered even if all that is requested is to fix the website.
  2. The bank should possess third-party discrimination coverage, which means that the bank is protected if a third-party, not an employee of the bank, is the claimant. Note that several versions of the third-party EPLI coverage extensions include only harassment exposures. Since these allegations relate to the scenario where a third party to the bank is alleging discrimination, it is critical that this extension includes discrimination as well as harassment.

One last comment relating to the possibility of claims coverage is that most insurance policies include some form of the following in the definition of loss:

… Loss shall not include costs to comply with any non-monetary or injunctive relief…

This means that while there could be coverage for defense costs and legal fees associated with defending the bank, as well as any actual financial settlement amounts, there will most likely not be any coverage for actually fixing the web site. Just as there was not insurance available to build the accessible ramp, fixing the web site would be a cost of doing business and typically is not insurable.

Steps You Can Take
If your institution wants to be proactive, the Department of Justice offers resources advising local governments on making web sites accessible. We also recommend the input of counsel prior to responding to any demand letters. Lastly, when considering if or how to respond to such a letter, I would like to reinforce an American Bankers Association report on the matter: “…unlike many other compliance obligations, there is much to be gained from making the world more accessible to the disabled. Not only is it the right thing to do, it is also potentially good for business as it expands the market for bank products and services to the broadest range of customers.”

Disability Claims Against Bank Websites: Is Your Bank Prepared?

disability-12-19-16.pngMany will recall painful lessons learned in the wake of the 1990 passage of the Americans with Disabilities Act (ADA) as numerous claims arose alleging that bank ATMs were not accessible to the disabled. Banks were required to retrofit facilities and equipment to meet the standards adopted in 1991 by the U.S. Department of Justice requiring ATMs to be accessible. Again in 2010, the Justice Department supplemented the general accessibility rules with standards setting out extensive technical specifications for ATMs, including speech output, privacy and Braille instructions, leading to another round of claims, lawsuits and retrofits of equipment.

Today, a new target for ADA claims has surfaced: online and mobile banking. Claims brought under Title III of the ADA are growing in number, targeting financial institutions for failing to make their websites and mobile applications accessible to individuals with disabilities.

Title III of the ADA covers public accommodations and commercial facilities and provides, in pertinent part: “[n]o individual shall be discriminated against on the basis of a disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation.” Banks fall squarely within the category of “service establishments” that qualify as public accommodations. Thus, Title III’s accommodation requirements apply to at least the physical location of a bank.

At issue in the recent influx of claims is the extent to which a bank’s website must accommodate disabled patrons. Federal courts are split on whether websites for private businesses actually constitute a public accommodation under the ADA. Federal courts generally have taken one of three approaches regarding the applicability of ADA accessibility requirements to websites: the internet is not a place of public accommodation; the internet is a place of public accommodation; or the internet is a place of public accommodation to the extent a website serves as a gateway to the full and equal enjoyment of goods and services offered in a business’s physical locations.

The Justice Department, which also enforces the ADA, has not yet issued regulations, accessibility requirements or guidance relating to whether and how commercial websites are to comply with Title III. Originally, the Department planned to issue regulations implementing Title III in the spring of 2016; however, it changed course in late 2015, announcing that the regulations would not be finalized until 2018 at the earliest, stating that it wanted to concentrate first on similar regulations for government entities and federal contractors covered by Title II.

In the meantime, the Justice Department has taken the position, at least as far as state and local governments are concerned, that Title II obligates those entities to make their websites accessible to consumers with disabilities. The Justice Department is on record asserting that “[t]he internet plays a critical role in the daily personal, professional, civic, and business life of Americans. The ADA’s expansive nondiscrimination mandate reaches goods and services provided by public accommodations and public entities using internet websites.”

As to private business, the Justice Department has entered into several consent orders under Title III in which the businesses have agreed to bring their websites and mobile applications into compliance with the Web Content Accessibility Guidelines 2.0 AA, published by the Web Accessibility Initiative of the World Wide Web Consortium.

With alleged violations of ADA Title III finding their way into claims, lawsuits and Justice Department actions, it is important for board members to be alert to emerging website and mobile application accessibility issues, to be prepared to assess their institution’s exposure and to make sure their institutions address any unmet requirements. With a new administration arriving in Washington D.C., it is important to monitor its perspective on this topic. Expert consultants and legal counsel can provide valuable guidance in structuring the assessment process as well as any needed remediation. The process should include a review of the institution’s web and mobile platforms, a review of the institution’s technical capabilities, as well as applicable vendor agreements to ensure that gaps are addressed so that the bank meets ADA requirements.