As Storm Howls, DI Industry Keeps Moving Forward

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.