Group Disability Still Limping
The aging of the workforce, the soft economy and continuing increases in health insurance premiums are causing problems for group disability insurers.
But brokers, insurance company executives and others in the market say insurers are finding ways to differentiate themselves from the competition.
Most employers that have group disability plans are keeping them.
The downturn in the high-tech industry is just a cyclical event, not a long term decline, says Phil Bruen, a vice president in product and market development at UnumProvident Corp., Chattanooga, Tenn.
“The strong industries are still going to look for good employees and want to keep them, and disability is part of that,” Bruen says.
But insurers are having a hard time increasing sales this year.
Survey results from JHA Inc., a Portland, Maine, disability insurance risk management and consulting firm, show that combined revenue for group STD and group LTD policies increased 6% between the first half of 2002 and the first half of 2003, to $4.9 billion. But new sales fell 1% at group LTD carriers, to $788 million, and new sales fell 7% at STD carriers, to $335 million.
At UnumProvident, year-over-year growth in new customers is “probably less than double digits,” Bruen says. “Historically its been double digits.
At Standard Insurance Company, Portland, Ore., true growth in the disability market remains at less than 6%, and that rate is similar to the industry growth rate, says Kim Doyle, an employee benefits product development manager at Standard.
Anita Potter, a products research manager at LIMRA International, Windsor, Conn., says most “new” group disability business is now takeover business.
“Carriers have had a hard time selling disability benefits to brand-new clients because of benefits costs increases, especially medical,” Potter says.
“Standard does not differ significantly from our competitors in the amount of new business vs. takeover business that we write,” Doyle says.
But “most group insurance business is already in force with other carriers,” Doyle adds.
In some ways, the group disability market might be growing more traditional: Potter sees carriers being stricter with their underwriting these days because of profitability concerns.
Group disability marketing practices, prices or underwriting procedures have not changed significantly in the past year, according to Doyle.
But “there is more of a focus on integrity, financial stability and responsibility throughout the industry,” Doyle says.
But some smaller players have been offering group disability insurance for rates that are much lower than the market average, Doyle says.
“These carriers may not be practicing disciplined and/or sound underwriting practices, due to their lack of knowledge [and] time in the industry,” Doyle says. “Unfortunately, these types of practices put pressure on the entire industry at a time when profitability and growth are also under pressure.”
Group disability insurers are trying to set themselves apart from their competition with flexible, competitive products, contract features and the addition of extra products and services, Doyle says.
Many carriers are trying to make their existing products work better.
Some companies have added and improved traditional long term disability features, such as medical-expense and housing-assistance benefits, Doyle says.
“These benefits assist disabled employees during an emotionally, and sometimes financially, difficult time,” Doyle says.
In other cases, insurers “are working with employers to implement such things as integrated disability management and absence management to help them mitigate the risk and costs associated with absences due to disability and to help them offset some of the additional costs associated with the rise in health care premiums,” Doyle adds.
Insurers also are trying to persuade the buyers of their disability coverage to purchase other products.
“The market is so tight that (an insurance company) cannot compete on its traditional product platform alone,” Doyle says.
“As a result, carriers are upgrading their service delivery platforms and providing such value-added services as travel assistance.”
Meanwhile, disability insurers are continuing to sell more individual, employee-paid products through the worksite.
For employees, Doyle says, one advantage of the voluntary plans is flexibility. Employees might have to pay for their own coverage. But they also can choose the level of benefits that best meets their needs, no matter what stage of life they are in.
For the employer, adding voluntary disability products is a way to offer new benefits at a time when rising health care costs make it hard for the employer to pay for new benefits in general, Bruen says.
The experts interviewed say disability insurers seem to be able to sell voluntary products without hurting sales of traditional group products.
Worksite products have not affected Standards traditional group sales, Doyle says.
Some employers offer employees a chance to “buy up” extra, individual coverage to supplement traditional group coverage.
“I believe the buy-up market will continue to grow as long as benefit costs continue to increase unabated,” Potter says.
Brokers interviewed disagree about the effects of competition in the disability market on compensation.
Bill Paulbitski is a consultant at Northwest Benefit Planning, Portland, Ore., a practice that either charges clients a fee or sets out its own, separately itemized commissions.
“Everything we do is disclosed to our clients,” he says.
Paulbitski says he believes disability insurers are using built-in commissions to get brokers to steer cases their way.
But Larry Schneider, owner of Disability Insurance Resource Center, Albuquerque, N.M., points out that the typical group disability commission is only about 5%.
“If you have even a medium-size group it comes out to nothing in the long run,” Schneider says. “The owner of the business will shop and price out every year or so.”
Another issue facing the group disability industry is the weak job market.
In the past, disability claims have tended to rise along with unemployment rates.
So far, the publicly traded group disability insurers have not reported big increases in claims as a result of the economic slump.
At UnumProvident, the slump seems to be having some effect on claims, “but this time its not across the board,” Bruen says. “Its across segments.”
The high-tech industry, for example, has suffered a heavier impact than other segments, Bruen says.
“As confidence dipped last year, claim incidents increased, but in high-tech, incidents were even more dramatically impacted,” Bruen reports. “We recorded that in fourth quarter last year, and first quarter this year.
“We analyze what the segments growth [will be] in the future to provide consistency in our approach, in our pricing, so its not a knee-jerk reaction.”
Some other segments havent been affected at all by the soft economy, Bruen says.
In the long run, the biggest source of challenges and opportunities for the disability industry may be the aging of the workforce.
Employees have different needs at different ages “and they may want to have more options and benefits packages that reflect their life stage,” Bruen says.
“They may have more of a priority for long term care-type of protection.”
UnumProvident has tried to shape products to reflect employees changing needs.
The company now sells an individual product at the worksite that provides disability protection and can be exchanged, if the policyholder is actively employed, for a long term care policy after age 60.
The aging of the workforce also means that the rate of disability might increase and that claims might last longer. Employers might have more employees who have some level of incapacity in the workplace at any given time, Bruen says.
“Employers will look at how to keep talented aging employees active in the workplace,” he says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 19, 2003. Copyright 2003 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.