Individual Disability Sales Were Up 11% Last Year

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U.S. individual disability insurers generated strong gains in sales in 2001 and modest gains in revenue from policies already in force.

The 16 carriers that participated in a new individual disability market survey conducted by John Hewitt & Associates Inc., Portland, Maine, increased premium revenue on in-force policies only 3% in 2001, to $2.8 billion.

But sales of new individual disability policies rose 11%, to $235 million.

Premium revenue from sales of the most popular product, “non-cancelable” disability income coverage, increased 15%.

Sales of a less popular type of disability insurance, “guaranteed renewable” disability income coverage, fell 2%, to $49 million. But nine of the 13 companies in that market experienced double-digit growth in sales, JHA says.

An issuer of a guaranteed-renewable policy agrees to lock in benefits but keeps the right to increase rates for specific reasons. The issuer of a non-can policy agrees to lock in both benefits and rates.

Some insurers sold huge amounts of cheap non-can coverage to doctors and lawyers in the 1980s, then suffered in the early 1990s, when a recession and industry changes hit doctors and lawyers hard.

The problems with poorly priced non-can policies left a shadow over the individual disability market that continues to affect insurers and investors attitudes.

Vincent DeMarco, an individual disability actuary at JHA, says the survey results show the individual market is much healthier today than many people think.

“Theres a perception that its not a business companies want to be in,” DeMarco says. In reality, he says, “the majority of carriers saw double-digit sales growth last year.”

JHA, a unit of GeneralCologne Re that provides disability risk management and consulting services, estimates the companies participating in the individual market survey account for about 90% of 2001 individual disability premium revenue.

JHA asked about the weekly benefit amount to be paid by the policies sold as well as the annual costs for the policies.

The average cost fell to 46.9 cents per year for each dollar of weekly non-can benefits, from 47.5 cents, but the cost increased to 41.7 cents per year for each dollar of weekly guaranteed-renewable benefits, from 39.9 cents.

In addition to distinguishing between non-can and guaranteed-renewable coverage, the JHA survey also distinguishes between “disability income” and “overhead expense coverage.”

A disability income policy replaces income lost due to disability that keeps a worker from working. An “overhead expense” coverage pays the overhead expenses while a professional or small-business owner is unable to work. Overhead expense coverage sales grew quickly in 2001 but accounted for less than 5% of volume, JHA says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, June 24, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.