The Once-Huge Throng Of DI Providers Has Evaporated
The disability insurance industry has some confessions to make to insurance consumers. I will offer some suggestions here, in hopes of drawing attention to the industrys critical need for expansion.
Recall that for over a century, the life insurance industry has been selling disability insurance. About 91 years ago, the late Solomon S. Huebner, founder of the American College of Life Underwriters, declared in his acclaimed “Life Insurance” that disability insurance is a part of the life insurance group of coverages. He also said disability insurance is as logical and needed for personal security as is life insurance.
The industry once moved forward with that understanding but not in recent years. Now, the business has some “fessing up” to do and some changing.
Confession #1. All life companies have not offered disability insurance. After hitting a high point of 535 disability insurers, the defections dropped the total to 350 in 1990 and down to 26 in 2003. This is totally unsatisfactory. Twenty-six companies cannot cope with the incredible task of insuring the payroll of American income earners.
Confession #2. Insurance producers not equipped with a product and not encouraged to sell disability have not tended to consumers well-being. Consequently, only 27% of income earners have any disability insurance and over half of that is inadequate, according to industry sources.
Confession #3. Most life companies aggressively seek “retirement income plan” life insurance but bypass the risk of forced retirement (disability) entirely. This reckless action has been considered as malpractice in several court cases.
Confession #4. The industry has defaulted in its duties to perform professionally for the insured, even though it knows about the critical importance of a well-planned disability program. It has pretended it did not notice that the industry has overlooked, ignored or specifically determined not to counsel people on disability insurance.
Some CEOs fear potential losses arising from disability insurance. Yet, risk assumption is the function that insurance charters anticipate, and it is widely accepted that there is inherent loss potential in any form of insurance. This fear exists, even though the disability industry has seen more profitable years than loss years over the past century.
Confession #5. Financial planning begins and ends with income planning, and proper income planning is impossible without adequate amounts of disability insurance. The industry has neglected this.
What to do about all of this? The life insurance industry must respond to this call or face the very real risk of having disability insurance nationalized.
Our governments have long had a great concern about people having an income cash flow and have created several programs to provide income to people when they could not produce income themselves. You know these programs well–Workers Compensation (disability insurance), unemployment compensation, Social Security retirement, Social Security Disability, state disability plans, and tax advantaged retirement accounts.
Today, the constant march toward quasi-socialized medical insurance and the attempts being made to withdraw favorable tax advantages in life insurance plans indicates the current mood of government.
Where is disability insurance in all of this?
In 2002, 8 insurance companies accounted for 69% of the non-cancellable disability premium in force, according to Milliman USA. Sixteen companies accounted for 94% of such in-force premium. (See chart.) This trend is continuing unabated, to the point that the business is nearing monopoly. In fact, I believe free-market disability income insurance could disappear. Government programs already have a system in effect to administer a nationalized plan of disability insurance.
Now, consider this:
Roughly 86% of the American people have medical insurance. But lawmakers feel this is unacceptable and so they pass law after law to deal with the issue of the 14% who are uninsured. These laws propose government involvement, based on governmental concern about the public good.
Meanwhile, only 27% of American income earners have disability insurance, according to Department of Labor statistics. So, 73% are without disability insurance. And, regardless of the income level, it seems large numbers of people live within a few months of bankruptcy.
The above does not pass the test of simple reason. Medical insurance does not yield cash for food, clothes, a home or other financial obligations a person has undertaken. Disability insurance is what provides a cash flow from which big bills and big debts ultimately can be paid, even health care costs.
This lack of disability insurance is arguably a greater public need than the need for medical insurance. The life insurance industrys indefensible positionto let the business dwindleis an invitation for government expansion into this area.
In sum, the giant, robust life insurance industry needs to embrace more fully the form of life insurance called disability insurance. There is no way that just 26 insurers can protect the earned incomes of all American wage earners. As I see it, the industry may have only one more chance to perform its duty to the public before government usurps this valuable part of the life insurance business.
W. Harold Petersen, RHU, is president of Petersen International Underwriters, Valencia, Calif. His e-mail is firstname.lastname@example.org.
Reproduced from National Underwriter Life & Health/Financial Services Edition, February 27, 2004. Copyright 2004 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.