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Understanding the Evolution of Disability Insurance Market

Learn about the historical trends in the individual disability insurance market, current opportunities for insurers, and the significant need for DI coverage due to changing demographics and employment landscape.

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Understanding the Evolution of Disability Insurance Market

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  1. Society of Actuaries Life & Health Insurance Spring Meetings2003 Individual Disability Insurance Opportunities for Life Insurers Steve Miller Vice President Disability Management Services, Inc.

  2. IDI MARKET: HISTORICAL REVIEW • What Went Wrong? (1985 - 1995) • Irrational Competitive Practices • Non-Diversified Risk Spread/Chaos in Health • Care System • Overly Complex Product and Process • Lack of Risk Management Focus Margins after Dividends • Industry Response? (1996 - Present) • Consolidated Marketplace (i.e. reduced • competition) • Multi-Life Sales Focus • Increased premiums • Improved Risk Management Focus • More appropriate benefits Source: Milliman USA Newsletter

  3. IDI MARKET SUMMARY WHERE ARE WE TODAY? • Profit margins restored • Reserves stabilized • Claim incidence improved • Double digit sales growth • Significant and growing need for DI

  4. SIGNIFICANT AND GROWING NEED FOR DISABILITY INSURANCE Limited Market Penetration Group LTD Penetration by Employer Size IDI Source: Bureau of Labor Statistics Source: UnumProvident; January 2001

  5. SIGNIFICANT AND GROWING NEED FOR DISABILITY INSURANCE Limited Carriers Offering IDI Top Carriers Source: LIMRA U.S. Sales Survey

  6. SIGNIFICANT AND GROWING NEED FOR DISABILITY INSURANCE Increasing Consumer Vulnerability to Loss of Income Increasing Volatility of Income -Emphasis on performance based compensation (i.e. bonuses and stock options not typically covered by Group LTD) Decreased Liquidity of Assets Increased Debt Distribution of Household Financial Assets 198019902000 Bank Deposits 18.2% 16.5% 9.6% Stocks 13.2% 12.0% 19.5% Ratio of Household Debt to Personal Disposable Income 198019902000 12.5% 13.4% 14.3% Source: Federal Reserve

  7. SIGNIFICANT AND GROWING NEED FOR DISABILITY INSURANCE Demographics and Employment Changes - Aging workforce with depleted assets from stock market, unwilling to rely on Social Security and Medicare - Longer life expectancies - Working longer to reach retirement goals - Increased mobility of workforce and importance of coverage portability - Average American worker has 3 careers and 10 different jobs Age Distribution of Working Age Americans 199020002010 Under 50 73.2% 70.3% 61.7% Age 50+ 26.8% 29.7% 38.3% Source: U.S. Census Bureau

  8. SIGNIFICANT AND GROWING NEED FOR DISABILITY INSURANCE • Employee Benefits moving to Voluntary Choices • - Rising cost of Employee Benefits driven largely by Group Health Care • Employee Benefit Costs as % of Compensation • 1970198019902000 • Costs: 10.7% 16.6% 19.3% 27.4% • - Employers shifting risk and cost to their employees • - Voluntary benefits replacing employer paid coverage • - When Group LTD is not Employer paid, portability and superior coverage of IDI become increasingly attractive. Source: Employee Benefit Research Institute, Bureau of Labor Statistics.

  9. CHARACTERISTICS OF BEST MARKETS FOR NEW ENTRANTS • Good spread of occupations • Low acquisition expenses • Reduced motivation for anti-selection • Limited competition • Limited market penetration

  10. POTENTIAL MARKETS TO CONSIDER • Transactional Markets - Mortgage IDI - DI rider with Life Insurance - Retirement plan completion • Middle Income Market - Integrate DI within financial needs analysis - Simplified product design • Voluntary Benefits - Executive carve-out or Group LTD supplement - Worksite marketing

  11. BENEFITS TO NEW ENTRANT • Diversifies sources of revenue and profit • Enhances recruiting and retention of Sales force • Completes Financial Planning process • Facilitates cross-selling of other products • Good economics today-but some risk

  12. CHALLENGES FOR NEW ENTRANTS • Limited experienced Risk Management resource - Claims - Underwriting - Actuarial • Unique systems requirements - Integrated Administration and Claims - Full range of experience tracking and ad hoc reporting • Achieving critical mass needed to justify investments

  13. CHALLENGES FOR IDI INDUSTRY • Raise consumer awareness Today’s Need  Demand • Broaden appeal by creating affordable product options • Raise interest among producers - Simplify product design and features - Improve efficiency of underwriting - Enhance training and education • Increase activity among carriers, fostering innovation and elevating service standards • Create new markets • Maintain profitability

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