Recent statistical reports continue to show that the disability market is underpenetrated. Though the industry is making some progress, the total number of individuals covered for long-term disability has not increased much in the last few years.
Only about one-third of employers offer disability coverage.
Growth in this market is possible: Employers are almost twice as likely to offer medical and life insurance as to offer disability, leaving a penetration gap of more than 30%. Closing even half of this gap could result in another 13.5 million insured people or approximately $2.4 billion of additional premium for the disability industry. We need to pay attention to this issue and find ways to increase the number of employers offering disability insurance.
After much effort over the years, traditional carriers have not been able to appeal to this untapped market. However, the solution may be closer than we understand. Substitute products or nontraditional answers given by competitors outside of our traditional disability industry may hold the answer to the question.
Selling disability policies to a first-time buyer is a difficult task for a few reasons. Most obvious is the squeeze on employers’ budgets after years of double-digit medical cost increases. Based on the results of many surveys, most employers believe traditional disability policies must be employer-paid. Therefore, when faced with rising medical costs, many employers do not even consider offering disability coverage. They become entrenched in solving the challenges of providing medical coverage instead.
In fact, surveys indicate that disability falls behind medical, life and even 401(k) plans. As a result, brokers assume that employees are not interested in purchasing disability coverage, so they focus on products that sell more quickly. On the other hand, employers say their brokers do not speak to them often enough about disability coverage, so they believe it is not as important as other coverages. This business environment is counterproductive, and we can infer that by simply highlighting disability alternatives to employers, brokers could significantly increase the possibility of sales.
Overall, employees are speaking volumes about the need for disability insurance, as shown recently in an Eastbridge Consulting Group Inc. report. This report shows that voluntary disability insurance is the second fastest selling product in the voluntary benefits market.
The disability insurance industry has been trying to solve the problem using traditional methods. Now, we need to appeal to this market in new and innovative ways in order to win over the first-time buyer. One way to do this is to take a look at what they are purchasing. In traditional markets, voluntary short-term disability coverage, not long-term disability coverage, appears to be the more appealing alternative.
Nontraditional competitors have found other products that reach the disability market. Companies like AFLAC Inc., Colonial Supplemental Insurance and other worksite carriers sell a tremendous amount of disability coverage. Sales results for 2004 show that more than $500 million in disability sales have been written by the top two worksite carriers in the industry. These results do not get reported in traditional disability numbers and are overlooked as an answer to the first-time buyer dilemma.
Additionally, my company has introduced a new, “serious disability” product, which covers catastrophic disabilities with short-term elimination periods and long-duration benefits. The price point on this product is 70% to 75% less than traditional disability, and the coverage follows the same concept as the catastrophic/high deductible medical coverages. Employees fund the cost of less serious disabilities themselves, while insurance coverage is provided for the more serious events.
These approaches, while nontraditional, are making headway. The products solve issues that exist for the buyer because they are voluntary in nature with benefits that tend to start early and at a point where the employee can understand value. Buyers also have a wide price spectrum from which to choose. Further, the companies marketing these products take the enrollment process very seriously. They recognize that disability is a product that needs to be sold and host enrollment meetings either one on one or in a group setting to educate, inform and counsel the potential buyer.
Traditional carriers should not give up on the pursuit of first-time buyers. Finding and meeting their needs, as well as adding billions to the overall disability market would surely beat trading customers back and forth each year. The answer is closer than we think. We just need to take lessons from others and be open to taking steps beyond the traditional to deliver the creative products that buyers need and that employees demand.