According to 2012 U.S. Census data, there are more than 21 million U.S. households with earnings between $100,000 and $200,000 annually, and more than 48 million households with earnings between $35,000 and $100,000. The first tier of households is comprised of the nation’s most affluent consumers and a coveted market segment that is targeted by the financial services industry for a wide range of products. The second tier is the core of what many would consider to be the middle-income market. Much research is currently being conducted to better understand the behaviors and opportunities of this segment as it relates to financial products — including Individual Disability Insurance (IDI).
Today, the top tier of the IDI market is dominated by a handful of carriers focused on the most affluent consumers, including physicians, dentists, other fee-for-services professionals and certain high income occupations. It is a highly competitive market segment built around sophisticated and relatively expensive product offerings. While sales activity is brisk in this market, overall sales have plateaued in recent years. Market share is often traded between a few key players from one year to the next. Future growth for these carriers may require a broader view of the market for IDI products in order to include more middle-income consumers.
In fact, a number of the top tier carriers have taken the first steps in this direction, introducing new or repackaged product concepts that may appeal to middle market consumers. These actions are based on the recognition that simply making existing IDI products available to a broader group of consumers may not capture the potential for growth within the middle-income market.
The refined product features that drive sales in the top tier IDI market segment are based on noncancellable policy forms with fixed guaranteed rates. These products often provide elements of protection that are designed to cover highly specialized occupational duties, and provide such coverage over an insured’s normal working life. Underwriting is extensive on the front end, and due to the nature of certain product features, claim processing can be complex and time consuming. This combination of rich benefits and their associated costs result in products that are likely to be too expensive for the middle-income market. Premiums per policy can exceed $2,500 per year.
Moreover, the most highly valued features of the top tier market may not benefit the salaried employees or hourly wage earners who are at the core of the middle-income market. For example, a definition of disability that provides protection based solely on current occupational duties or features that provide extended benefits for partial disability may have no relevance to the middle market. Typically, these features are designed for occupations that require highly specialized education and/or skills.
In general, middle market IDI products may need to be simpler to provide both value and affordability – a reasonable price correlation for middle-income consumers may be premiums in the range of $600 per year. Products that are built around benefits for total disability – the inability to perform the duties of any reasonable occupation – combined with short-term benefits for partial disability may be wholly appropriate and acceptable in this market. Furthermore, simplifying products can help keep prices down by lowering underwriting expenses and other administrative costs.
As noted above, a few of the top tier IDI players have already taken steps to increase sales in the middle-income market. At least two carriers have repackaged existing traditional IDI products in an effort to appeal to these consumers. Another carrier has introduced an innovative product concept that pays a lump sum benefit for a qualifying disability, after which the policy terminates. Others may have products on the shelf that might meet the needs of the middle market with a little tweaking, should they choose to pursue such opportunities. As IDI carriers explore the middle market opportunity, it is likely that alternative product concepts will be considered.
Marketing to the middle