The disability insurance industry has been advancing this year like a tortoise in a hurricane.
Insurance and reinsurance executives and producers interviewed were careful to avoid making predictions about the coming year.
“This is a pretty extraordinary time,” says J. Greg Ness, president of StanCorp Financial Group Inc., Portland, Ore., the parent of Standard Insurance Company. “It doesn’t matter what industry you’re in.”
“What comes in 2009, who knows,” says Drew King, president of JHA, Portland, ME, a disability consulting and research firm.
But for now, market players who were interviewed say, demand seems to be holding up reasonably well.
Disability sales slowed in the fourth quarter, says Matt Gilligan, interim president at Disability RMS, Westbrook, ME, a reinsurer. “It appears employers are deferring buying, moving to employee-paid coverage or dropping their coverage.”
But overall 2008 group long-term disability sales probably fell just a little, group short-term disability sales probably increased, and premium revenue from cases already in force probably rose, King says.
At Unum Group Corp., Chattanooga, Tenn., for example, efforts to prune unprofitable U.S. group disability business cut total group disability premium revenue to $569 million, from $589 million, but increased operating income to $60 million, from $43 million. Group LTD insurance sales increased 2.8%, to $77 million, and sales of group STD products grew 25%, to $31 million.
Although unemployment is rising and Disability RMS has concerns about group disability plans lapsing, insurance company executives interviewed, including Ness and Ronald Gendreau, an executive vice president in the group benefits division at Harford Financial Services Group Inc., Hartford, say most employers with disability plans seem to be keeping them.
“Business is sticking,” Gendreau says.
One executive reported seeing a small drop in persistency, but only a small drop.
At Lincoln National Corp., Radnor, Pa., if the recession continues, “we expect to see more of a shift to voluntary coverage as a cost-containment measure for employers,” says Robert Risk, a vice president in Lincoln’s Indianapolis office. “This has been occurring already, and we expect to see a shift of a percentage or two of business each year into the voluntary space, through 2009 and beyond.”
Even if the current downturn continues, producers who take an interest in disability insurance should be able to find sales opportunities, simply because the penetration rate is so low, says Bradley Buechler, a vice president at Mutual of Omaha Insurance Company, Omaha, Neb.
“The fact is, 7 out of 10 workers have no disability insurance,” he says.
At Standard, on the individual disability side, “people are taking time to take stock of their financial well being,” and, in some cases, the mere fact that individuals are looking carefully at their finances is leading to new individual disability sales, Ness says.
John Nichols, president of Disability Resource Group Inc., Chicago, who sells disability coverage to individuals and small groups, believes the recession may be starting to affect some segments of the individual disability market.
While demand for coverage for skilled workers and small groups has decreased at his firm, coverage demand for middle managers, professionals, technology workers and medical services workers has held steady or increased, Nichols says.
During a period like this, “people tend to be more security conscious,” Nichols says.
Nichols agrees with Buechler that low penetration rates should help producers who make a serious effort to sell income protection. “We need to be better at asking the pertinent questions, to help [consumers] understand the value of our products.”
Conventional wisdom holds that workers will file more disability claims when unemployment increases. So far, however, no experts interviewed reported seeing evidence that the current recession has affected claims rates.
At Unum, the group disability ratio of benefits to premiums actually fell to 89% in the fourth quarter of 2008, from 92% in the comparable quarter in 2007.
If the recession continues, claims rates likely will rise, and the increase could affect industries once perceived to be “recession proof,” Gilligan says.
“Once higher incidence rates start hitting the books, carriers will scramble for answers and look to across-the-board pricing strategies,” Gilligan says. “The successful companies will understand which segments and groups need action and which can ride out the storm.”
Another issue is capacity. Writing LTD insurance and keeping the business on the books, rather than reinsuring it, can involve locking up large amounts of capital. The recent economic turmoil has reduced the river of capital flowing into new investment vehicles into a narrow stream.
At this point, despite all the headlines about problems in the capital markets, industry capacity to sell DI and reinsurance appears to be strong, Gilligan says.
The market is “still very competitive, and carriers are moving ‘downstream’ to the small-case market,” Gilligan says.
Gendreau, Ness, King and Risk all agree with Gilligan that the level of competition remains strong.
“Carriers want the business,” Ness says.
“We have no limit on our appetite at this point in time for disability business,” Gendreau says.
“We haven’t seen any slow down on goals with the carriers we compete with on disability,” Risk says.
Buechler says he believes some competitors must have diminished capacity, but he has not yet seen any actual decrease in the level of competition.
The experts interviewed contend that the biggest challenge they face is the same challenge the DI industry has faced for decades: Getting people inside and outside the insurance industry to think about the unthinkable injuries and illnesses that could lead to loss of income.
“It’s my belief that disability insurance is the most undersold product in the industry,” says Rosemarie Rossetti, a Columbus, Ohio, disability insurance sales specialist.
In good times and bad, the main objection to the idea of buying coverage is, “I can’t afford it,” she says. “The answer is that a person’s income is what’s most valuable.”
Rossetti, who lost the use of her legs 10 years ago, when a tree fell on her, says agents and brokers should help clients who insist they cannot afford disability coverage take another look at their budgets.