No Income? No Income Protection

“The market is not showing any growth,” said Gordon Dinsmore, president of Berkshire Life Insurance Company, Pittsfield, Mass. Berkshire Life is a unit of Guardian Life Insurance Company of America, New York, that sells individual disability insurance.

The drop in disability plan enrollment is similar to a recent drop in employer-sponsored group health plan enrollment, and it appears to be due mainly to layoffs at employers that are still in business.

The number of U.S. workers with full-time jobs fell to 111 million in 2010, down 6% from the total in 2008, according to the Bureau of Labor statistics.

Disability insurers say that they seem to have about as many cases as they had before the recession but that the average size of each case is smaller than it used to be.

In addition to reducing the average case size, the weak job market is dampening the disability plan benefits upgrade market, Unum executives said at Unum’s earnings conference.

Other factors are also making the future for this segment increasingly difficult to forecast. Claim trends, for example, were mixed. The ratio of claims to revenue at the Unum U.S. group business fell to 84.2%, from 84.6%, but the ratio increased to 79.1%, from 72.2%, at Hartford, and to 99%, from 90.3%, at Prudential Financial Inc., Newark, N.J. Berkshire claim rates have held steady. The theory is that “anybody that’s got jobs wants to hold on to them,” Dinsmore said.

One good sign is that bond portfolio income, on which disability insurers depend heavily, has remained positive.

As individual disability insurers must plan for claims that last for decades, “our investment target is very, very long in terms of duration,” Dinsmore said. To that end, long-bond rates have stayed relatively high in recent years, and that has helped individual disability insurers.

Rates on short-term bonds had sunk to much lower, disability insurer-punishing levels, but gradually rising rates have helped push net interest up. Unum, for example, reported its highest net interest levels since 2006, according to securities analysts in the New York office of Sterne, Agee & Leach Inc.