Disability insurance industry players have slogged through a difficult-but mostly profitable-year. Now they are hoping they can keep pushing ahead until the job market turns around.
JHA, Portland, Maine, a disability reinsurance unit of General Re Life Corp., Stamford, Conn., is still compiling disability industry performance figures for all of 2009. The final report will probably show that new U.S. group disability sales fell, according to JHA President Drew King.
But, during the first half, despite the effects of the Great Recession, combined revenue from U.S. group long-term disability and short-term disability sales held steady at about $6.7 billion, JHA estimates.
New group disability sales fell 4% in the third quarter of 2009, but voluntary disability sales increased about 11%, according to LIMRA, Windsor, Conn.
Meanwhile, most group disability operations have been profitable, King reports.
Andy Castillo, an actuary at Munich American Reassurance Company, Atlanta, used the term “sustained profitability” to describe the individual market in November 2009, at the Southeastern Actuaries Conference annual meeting.
Unum Group Corp., Chattanooga, Tenn., a leading disability writer, has done so well that Fitch Ratings, Chicago, increased the insurance financial strength ratings of the insurance company units to A from A-.
But experts interviewed were quick to warn that past success does not guarantee future performance. Disability insurers could run into capital-related problems.
Writers of long-term disability insurance set aside and invest large reserves to back obligations to claimants. The Great Recession has hurt disability insurers by pushing rates on government bonds and notes down to levels that squeeze returns on disability claim reserves.
In theory, The Great Recession capital markets turmoil also could reduce disability insurers’ and reinsurers’ access to capital.
In reality, for the direct writers, access to capital “is still an issue,” King says. “I would not say it’s a crisis.”
Meanwhile, the challenge disability insurers, reinsurers and producers face from the shrinking U.S. workforce is obvious and immediate. Even if the economy were strong, the aging of the baby boomers would be pushing an enormous generation of consumers out of disability insurers’ underwriting sweet spot.
“There are just far fewer GenXers than there are baby boomers,” and “they’re much more transient,” says Lawrence Hazzard, a vice president at Berkshire Life Insurance Company, a unit of Guardian Life Insurance Company of America, New York.
The demographic shift means that the average age of the workers in a typical group disability case is rising, and it means that individual disability risks are trickier to analyze, Hazzard says.
In the individual disability market, a lawyer who buys a noncancellable, guaranteed renewable disability policy today could leave to open a skydiving school, Hazzard says.
Meanwhile, employers are laying off workers and, in many cases, cutting the hours of the remaining full-time workers.
Lockton Inc., Kansas City, Mo., a broker, is working with carriers to update policy definitions to reflect the decrease in hours. The changes could ensure that an employee who works fewer hours due to a furlough program will continue to qualify for disability coverage, says Christopher Tamney, a benefits account executive in Lockton’s Chicago office.
Insurers try to do what they can to please brokers and employers, Tamney reports.
“It has been a pretty competitive market over the past year,” he says. “There’s definitely a slew of markets out there.”
“We are in the midst of the ‘softest’ underwriting cycle I have seen in many years,” says Gerald Bannach, president of Custom Disability Solutions, South Portland, Maine, a disability reinsurance provider. “No one would appear to have much pricing power.”