A new law in Maine has insurance experts hoping tax incentives and opt-out provisions will boost the slow-growth disability income insurance market and help employers replace skilled workers in a tight labor market.
The law is officially titled “An Act to Encourage Maine Employers to Offer and Employees to Enroll in Disability Income Protection Plans in the Workplace.”
It promotes greater participation in disability coverage by encouraging employers to institute an opt-out method of enrollment.
The opt-out method is tantamount to automatic enrollment where employees are considered covered unless they specifically decline.
The law is the “first of its kind,” said Chuck Piacentini, vice president with Unum, the nation’s largest disability insurer.
“Our early experience has been very positive,” he said.
Balancing Tax Incentives, Auto Enrollment
In some states, the tax incentive will prove more attractive to employers while in low tax states the auto enrollment is likely the bigger draw, he said.
Private disability coverage prevents workers who are unable to work from falling into the states’ welfare programs, according to a Charles River Associates’ 2015 study.
Industry analysts will need more enrollment data before they declare the Maine law a success, but already lawmakers in Tennessee and South Carolina are considering similar initiatives, Piacentini told InsuranceNewsNet.
The Maine law, which became effective Jan. 1, was passed last year with support from the brokerage, employer and insurer communities.
The National Conference of Insurance Legislators has developed and approved a similar model law to guide the states, he said.
Challenges of Economic, Demographic Trends
Disability income insurance replaces a portion of an employee’s income in the event of illness or a disability.
Collecting disability allows workers to pay the bills while they recover with the goal of returning to work.
In a tightening labor market, more employers are struggling to replace disabled skilled workers. This provides even more incentive to enroll workers in the coverage, Piacentini said.
Longer lifespans point to higher rates of disability in the future. The Social Security Administration estimated that about one in every four people age 20 in 2013 would become disabled at some point in their lives before they retire.
Disability insurersalso would benefit from the inflow of group disability premium from covering employees.
Total new sales premium for combined short-term disability and long-term disability rose 5 percent to $2.1 billion in 2015 from 2014, according to the 2014 and 2015 U.S. Group Disability Market Survey by GenRe.
Combined long-term disability and short-term disability in-force premium was $14.7 billion in 2015, compared with $14.1 billion in 2014, the GenRe survey found.