Growing your long-term disability customer base has become increasingly more difficult despite the fact that only 35% to 40% of employers offer LTD coverage as an employee benefit.
Currently, carriers typically tend to fight over existing business, creating premium churn rather than working to grow the market with new premium sales. In the last 6 years, only 3 of the top 10 disability insurance providers have actually grown their in-force-a reflection of lackluster growth in a market full of potential new sales opportunities.
One of the reasons for this lack of sales growth and constant business churn may be attributed to the way carriers underwrite and price business. While the technology and tools of underwriting have improved over the years, the basic methods for selecting and pricing risk have changed very little.
Without question, we have seen greater block segmentation. Though actuaries are trying to better pinpoint pricing, the census and review of the business have remained very much the same since 1978. To put it into perspective, this was the same year that New York Yankees’ shortstop Bucky Dent hit his famous homerun in a tie-breaker game against the Red Sox.
For example, to determine a premium pricing quote rate on small cases, underwriters currently use 3 main sources of information including industry and census demographics and a discount program.
There are several ways that this process could be improved.
For example, over the years, insurance providers have learned which LTD coverage plans work better for a variety of specific employee groups such as manufacturing groups, etc. Because of this knowledge, underwriters and/or field sales personnel should be able to more effectively match coverage plans with industry and demographic groups, and price accordingly. This simple pricing strategy could be used to enhance sales.
Another tactic to consider in targeting new cases and developing pricing is to utilize existing publicly available data on individuals as well as group demographics. This information is available on the Internet or for purchase from a variety of outlets. Consumer-oriented and catalog companies already use demographic data, credit scores, household information and many other sources to target customers.
For example, consider the information learned at a recent Deloitte Touche meeting on maternity and how data highlighted at the meeting could help carriers price short-term disability or LTD cases.