Disability insurance sales specialists are split over whether pricing will rise in the wake of MetLife’s decision last month to suspend coverage later this year on the narrow but stagnant sliver of the business.
A disability insurance policy typically replaces 60 percent of a wage earner’s income in the event that the employee can’t return to work, and usually when an insurance company suspends the sale of an insurance product, it means the risk is spread among the remaining insurers.
The net effect is to put more pressure on pricing, but with 31 companies still selling disability income coverage, the marketplace remains competitive, said Andra Grava, a general agent and branch manager for The DI Center in Allen, Texas.
As new DI policies come to market, the policies will be priced to include the latest morbidity risk tables issued by the Society of Actuaries. Those tables include the years of turmoil in the disability income market of the early 1990s, Grava said.
If prices do rise, they won’t do so right away because carriers would have to refile in every state where they do business, said Andrew Mathews, owner of Berkshire Advisor Resource, a brokerage general agency in Greenwood Village, Colo.
Any sudden price increase would have more to do with low interest rates than with MetLife’s recent decision, he said. The inability of insurers to get a high enough returns on their invested assets means companies look instead toward higher premiums.
Individual disability income insurance represents a tiny sliver of the insurance market with in-force premiums of nearly $4.8 billion among 18 disability insurers in 2014, according to Gen Re’s 2014 U.S. Individual Disability Market Survey.
In 2014, new sales premium of individual disability insurance rose by less than 1 percent to $384.4 million over the previous year, Gen Re reported.
“The fact is that sales growth has declined that last three years and the market is not growing,” the Gen Re study reported.
The challenge for the industry is to grow profitability, the report said.
Opportunity for Innovation
With at least 18 disability insurers in the individual market, there’s enough competition to ensure fair pricing and the top disability companies represent well-known brands: Berkshire Life, Colonial Life & Accident, Northwestern Mutual Life, Principal and Unum.
MetLife’s exit favors new opportunities for some competitors over others and the insurers in the best position to benefit include Guardian, Principal, The Standard, Ameritas and Northwestern Mutual.
“The opportunities for the other white-collar carriers is to attract the business that MetLife was writing in the medical market and high net-worth market,” Grava said.
MetLife’s pullback also means new hiring opportunities as insurance companies jostle to fill the space left by MetLife and look for agents to hire.
“There will also be hiring opportunities as the market does not have a lot of skilled, experienced DI underwriters, operations people and marketing reps,” Grava said.
By one account at least, MetLife’s individual disability product was a big success. Mathews said MetLife’s product and customer service was good, and that it was probably “one of their most profitable.”
Government filings don’t break out MetLife’s premium revenue from individual disability insurance sales, which are dwarfed by the global insurance company’s life, annuity and group product lines.
“I think there is a great opportunity for market share growth but I'm not sure about the profitability of disability insurance from the insurance company's point of view,” said Robert Wesley Shannon, founder of SJK Financial Planning in Hurst, Texas.
Agents also said the change could spur some innovation in the disability income market and one area companies may push further into is to bundle disability insurance with other forms of coverage like long-term care in a hybrid policy.
Grava said the DI market will start to look attractive in about five years and lasting for about 20 years after that as the estimated 90 million millennials enter their 40s, and start to thinking seriously about income and asset protection.
MetLife to Suspend Sept. 1
MetLife announced in April that it would suspend new individual disability insurance sales under its U.S. Retail business effective Sept. 1, as the New York-based insurer separates its retail distribution from the rest of the company, a spokeswoman said.
The move will not affect existing MetLife customers with individual disability insurance policies as the policies will remain in force, said spokeswoman Megan Soffera.
MetLife’s Group, Voluntary & Worksite Benefits business will continue to manufacture and sell group disability insurance/guaranteed standard issue, she said.
MetLife’s decision to leave the individual disability insurance market is the company’s second major retail distribution move announced since the beginning of the year.
The company wants to get out from the burden of being called a Systemically Important Financial Institution, or SIFI, by the government, a designation that will require MetLife to hold more capital in reserve to pay claims.
MetLife challenged the designation of “too big to fail” in court and a judge earlier this year agreed with the company that the government had gone too far.
Suspending individual disability insurance sales has less to do with MetLife’s commitment to its disability income block of policies than it has to do with getting out from the SIFI designation, selling their career distribution and information technology systems, Grava also said.
In February, MetLife announced it would sell its retail network of about 4,000 agents to MassMutual Financial Group, a move many industry observers see as a way for MetLife to get out from regulatory burdens of insurance distribution.
MassMutual plans for those new agents to sell MassMutual’s individual disability insurance products, a MassMutual spokesman said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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