The events of 2008 that sent the global economy into a recession are still fresh in the minds of most businesses. The impact on many markets was obvious and damaging, but did the individual disability income (DI) industry suffer similar, economic-driven effects, particularly in the areas of morbidity, sales, underwriting and claims?
Munich American Reassurance Company, Atlanta, conducted a survey of DI insurance companies in December 2011, with results based on 16 respondents published in the first quarter of 2012. The purpose of the survey was to assess the current state – the pulse – of the DI market. The survey was comprised of more than 90 questions that were meant to address the whole spectrum of the market – starting with pricing, product development and profitability; continuing with sales and marketing; and, finally, underwriting, claims and reinsurance.
Overall, the responses revealed a stable, profitable and growing marketplace for DI products, with some responses showing early signs of a shift in the procurement and delivery methods for new business, which will likely be an area of robust development in the short- and long-term.
Given the recession, Munich Re had been expecting a deterioration in morbidity results. While its own experience has shown increased volatility, there has not been an overall deterioration. The survey results point to a similar conclusion, with nearly 75% of survey respondents indicating that incidence and terminations have been relatively unaffected by the economy. This conclusion is not reflective of a lack of tools or data, however, as supported by respondents’ additional disclosure that nearly 70% had conducted a morbidity study within the last year. Further proof that the morbidity impact was negligible was supported by the fact that more than 90% of respondents indicated that they had met their profit targets in 2010 (the last full year before the study was conducted). These results were consistent with conclusions from published sources, such as Milliman.
While the recession had a clear impact on sales over the past two to three years, survey questions focused on the current state of the DI market and on forward-looking growth and sales expectations. 83% of respondents expected overall growth in premium in 2012, and 90% expected growth over the next five years. Focusing on specific DI products, 70% of respondents expected growth in fully-underwritten DI products, with 55% expecting growth in guaranteed standard issue (GSI) sales and 67% expecting growth in multi-life products. However, GSI and multi-life expectations were more optimistic with more than 30% of respondents expecting increases of more than 10%, while expectations for fully-underwritten DI products were an increase in the single digits. These results seem fairly consistent with recent LIMRA data that notes flat to low increases in fully-underwritten DI, with more substantial increases in GSI and multi-life. Furthermore, companies are taking actions to support and generate such growth. Based on survey responses, organizations are investing in sales-specific training and marketing programs. However, product development was not among the steps being taken to support growth expectations. 50% of respondents have a DI product that’s four years or older, and only 40% have plans to update a product within the next 12 months.