Disability Insurance Industry At A Crossroads With Opportunity Ahead

The shrinking, more diverse workforce presents significant opportunity, too. This country is approaching a major labor shortage. The growth rate of the U.S. workforce is already decreasing, and the U.S. Census Bureau predicts that the domestic workforce itself may start shrinking by 2016. Not only will the workforce be smaller, but it will be much more diverse, with older workers, females, minorities, immigrants and even teen-agers.

Competition for scarce labor will increase the importance of employee benefit programs that can help attract and retain talent. Offering group disability insurance is a great example of a relatively inexpensive benefit that provides great value.

On another front, the limits to government programsspecifically, to public disability programs such as Workers Compensation and Social Security Disability Incomecan be difficult for most people to access. Also, these programs only cover disabilities incurred in the course of employment or those severe enough to last at least 12 months or result in death. The state and federal bureaucracies that process these claims are overwhelmed by increasing volumes of work and litigation, leading to very long decision times. Add to this the financial issues already faced by the Social Security system, and suddenly private disability insurance looks like a more reliable and accessible solution for many U.S. workers.

In the planning area, Americans in general are saving less. According to the U.S. Department of Commerce, personal savings, as a percentage of disposable income, have decreased steadily since 1998. Its also been well documented that household debt levels are climbing, and a recent Harvard University study revealed that illness and injury are significant contributors to personal bankruptcy.

The result is that most families could not pay their living expenses for very long if a breadwinner became sick or injured without some kind of income protection benefit.

Finally, the employer market is still underpenetrated. Market surveys and other estimates generally agree that up to half of U.S. employees are without disability coverage, and more than half of U.S. employers with 10 or more employees do not offer any kind of disability insurance to their employees. This is especially significant among smaller employers, which have been contributing most of the job creation over the past several years.

The challenge for the industry is to identify these "non-users" of its products and design the right products (group, individual or hybrid) and distribution channels to reach them effectively. The increased interest in voluntary/worksite disability products is a good example of this.

The opportunity is here. To capitalize on it, successful disability insurers will innovate to reach the underpenetrated market. That means developing new products, distribution, service and technology; rebuilding margins and capital through greater underwriting discipline, which will lead to a more stable market for buyers and distributors; and restoring customer confidence by educating potential buyers about the importance of income protection as part of a sound financial plan.

Drew F. King is president of JHA, Inc., Portland, Maine. His e-mail address is [email protected].

Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 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.