Disability insurance (DI) gets a bad rap sometimes. Some find it too expensive, some see no need for it and others just don’t understand it or know how to acquire it. And for brokers, this creates a notoriously difficult selling environment.
It’s a sad fact that people rarely think about disability insurance the same way they think about health insurance. And that’s especially true now, with the umbrella of health care reform shielding everyone’s view from other important insurance benefits.
But DI remains a viable tool for protecting a worker’s most valuable financial resource: Their income.
“If people think about what the long-term costs of a disability could be, it could be $50,000 and 10, 20 years of disability,” said Scott Carter, vice president, market segment finance leader for Unum, an insurance underwriting company. “That’s a pretty big financial asset that folks need to protect. So in that respect, it’s very viable. Certainly we see a need. And I think there’s a societal benefit to having more folks protecting that.”
And, as Carter feels, even if employers can’t afford to sponsor their employees’ DI benefits, the product is still pretty reasonable on a voluntary basis, in terms of cost. “You talk about numbers that are probably less than people pay for their cable and internet,” he said.
But knowing the benefit and selling the benefit are two very different things.
“I think it’s hard to sell now,” said Carter, referring to the fact that some employers aren’t able to pay for such benefits. “I think accessing those populations or getting them the coverage they need is probably going to be more about employee pay options and that’s also a challenge. We haven’t had much success getting employers who don’t currently offer [disability insurance] to make the decision to offer it and I think that really changes the nature of selling the product, at least from a typical group insurer or group broker prospective.”
To Carter, it’s disheartening to know that DI is such a tough sell, especially when he, and most in the industry, see it as such a crucial benefit. The answer to a better selling strategy may lay in how brokers present the product.
“I’d say you have to look at the numbers and present the numbers in a more compelling fashion,” said Carter. “Much of the burden to get more folks covered is likely to fall on a voluntary type of offering and we may need to think more strategically about how we’re going about the enrollment process, the types of materials and the communications process in making sure the folks understand the value of it and making sure they understand the risks that they face by not having the coverage.”
Adding challenges to an already-difficult selling environment is the insurance spotlight-stealer: The Patient Protection and Affordable Care Act (PPACA). Employers are spending more of their time analyzing their medical insurance plans. And according to Carter, that’s changed the short-term market dynamics.
“Employers who were thinking of adding DI coverage to their benefits package are probably going to delay those decisions for a little while,” said Carter. “Or employers who are thinking about putting more focus on their disability management or absence management programs – that’s probably not getting the front seat as far as attention goes. So I think that’s been a little distracting. And from the sales perspective, the market’s been a little flatter because of that.”
Another well-publicized issue affecting the disability insurance market is the ongoing low interest rate environment. “Recently, rates have been well below where they have been over the past five to 10 years and that’s certainly a challenge in the basics of funding the cost of a long-term liability,” said Carter. “If interest rates move by 1 percent from 6 to 5, that generally costs about 5 percent more to fund a claim that may last, on average, five or six years, so it’s got a direct impact on profitability of insurers, it’s got a direct impact on the premiums we need to charge to make sure we’re earning the yields we need.”
But Carter notes that the yields have improved somewhat during this year and with that, the outlook for the industry as a whole.