DI: Primed for a Rocky Road Back?

By Cyril Tuohy

Change is coming to a flatlined individual disability income market and that’s a good thing.

The question is when, and from where. Agents and analysts point to several trends and market changes that could make DI a hot ticket.

Agents like Rick Warren, a life, disability and long-term care producer in Needham, Mass., say the technology revolution is going to make disability coverage easier to buy — the goal of Mutual of Omaha’s recently launched Priority Income Protection product.

Simplified underwriting is around the corner, if not here already, and all kinds of technology-based tools — slider rules, for example — should give buyers a clearer picture of how much income protection they can afford.

Electronic applications are also about to become more widespread as insurance companies upgrade their systems and cut costs, and agents will acquire the ability to illustrate side-by-side comparisons of offers.

“Agents today say disability income is complicated from an underwriting standpoint and complicated to explain to clients,” said Warren, an agent and partner at OmniMed Financial & Insurance, which insures doctors and dentists.

Technology can go a long way to removing much of the complexity around the sale of disability income insurance, but agents are still going to have to hammer home the importance of insuring income in case that income spigot runs dry because of a disability.

Onus on Agents

In order to take advantage of the sales potential of DI, agents first need to do a better job of explaining to middle-market Americans who are underinsured for income protection, Warren said.

He has a point. Consumers apparently find it easy to buy the new aluminum-paneled Ford F-150 pickups, but when it comes to insuring a portion of the income that pays for that mobile trophy, buyers slam on the brakes.

As employers pull back on group benefits and push more of the costs of long- and short-term disability coverage onto employees, individual disability income policies are going to be more important in the future, agents say.

Some agents don’t understand the disability income marketplace as well as they should, Warren said.

Yet disability income coverage resonates deeply among some occupations.

Doctors, with years of medical training, are repeatedly warned in medical school about the importance of insuring their incomes.

That same urgency to protect income hasn’t filtered down into other middle-class occupations.

“If you want to see a surge in disability income, every agent needs one more discussion about disability, every agent needs to have one more discussion about income,” Warren said.

A Cyclical Return of the Good Times?

General agent and branch manager Andra Grava in Allen, Texas, comes at the future of disability from a different angle: the big-picture cycle.

He remembers a time when some of the nation’s top disability insurers, said to have raked in more than $100 million apiece annually in disability income premiums, couldn’t sell the coverage fast enough in an era when more charitable underwriting standards prevailed.

Back then, in the mid-1990s, the oldest baby boomers were about 50 years old.

After sales peaked from a generation 76 million members strong, the 51 million members of Generation X meant the industry was facing a market bust.

Nor did a stagnant market do anything for disability insurers under pressure to deliver quarterly results. Many companies moved away from developing individual disability income products for broader swaths of the market, much of which was covered under group plans.

Commission-based agents for their part were more interested in selling disability income coverage to a doctor making $250,000 a year instead of to a hair stylist making $30,000.

Agents therefore did a good job saturating niche markets at the exclusion of the vast middle market: carpenters, painters, home health aides, auto mechanics, short-order cooks, grocery store cashiers and software coders.

Growth Rates Volatile

Since 2005, average annual new sales premium growth rates in the individual disability market have whipsawed from increases of more than 5 percent to decreases approaching 10 percent, according to Gen Re data.

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 in its 2014 U.S. Individual Disability Market Survey.

In the next five to 10 years, Grava thinks the 80 million or so millennials in the U.S. will be approaching the sweet spot for thinking about disability income coverage.

The changes will virtually assure growth in disability coverage lines, if not necessarily in premium volume then in policy growth, as more buyers come of age and the pendulum swings back once more in favor of disability income growth, he said.

That means more doctors, veterinarians, lawyers, nurses, executives to sell disability income to, and it means more millennial agents hitting the streets to find ways to sell disability income products, Grava said.

“I don't know if you can speed up the process to get the millennials to age faster,” he said.

Millennials, hobbled by college debt and an uneven economic recovery, are maturing slower than they otherwise might have, he said.

Yet, there are millions of millennials who are also getting good jobs and planning for a future when government and employer-sponsored benefits may shrivel to a fraction of what they provide now.

“Those are the savers and the (disability) insurance buyers — that’s the trend I'm seeing,” Grava said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].