Group Disability and Term Life Survey - First the Good News
June 04, 2014| Von Marcy Updike
There were many encouraging results to report in this year’s U.S. Group Disability and Group Term Life Market Survey. After all, each of the products - LTD, STD and Life - saw positive growth in sales and in-force premium. This hasn't always been the case. Additionally, the share of total sales premium coming from employee-paid benefits increased. Many companies will be pleased by this given the significant investment companies are making (in dollars and resources) to ensure that employee-paid products grow.
Lapse rates also saw a decline, if only slightly. The decline, however, wasn't as dramatic as we expected based on conversations we had with people throughout the year. It is believed that employers were distracted by the implementation of the ACA in 2013: hence they weren’t focused on shifting their disability or life insurance.
While it is easy to highlight the positives, it is important that we also consider what is driving sales. Here we continue to be concerned by the amount of sales growth that is coming from carriers simply swapping business. This can be seen in our famous Churn graphs.
Group LTD Market "Churn"
Group Term Life Market "Churn"
Yes, it is just a proxy but it is the best way we have to test how much business is coming from "churn" instead of organic growth. For 2013, we estimate roughly 93% of sales is insurers switching business. This is not good for our industry. Additionally, much of the Group Life sales premium growth appears to be driven by face amount increases instead of case or lives growth. In fact, sales cases and lives actually declined. A healthier sign would be if Group Life companies grew premium due to writing new business with employers or by signing up new employees.
We are encouraged by the positive signs but feel it is important that insurers continually challenge themselves to innovate - either by targeting new markets or improving their existing products. Traditionally Group insurers have focused on the broker and employer, but with employee-paid products this has to change. Group insurers need to continue to make strides toward marketing products to individuals - by understanding their needs, what drives their behavior and what motivates them. The additional insight will help insurers increase participation rates an important factor in determining how successful employee-paid products will be.
Additionally, our industry needs to keep watch of non-insurance entities that could enter our space. Other industries such as online retailers have proven their ability to reach the individual consumer, and this could be a bigger threat than we have ever seen in previous years.
All this being said, we are encouraged by the "chatter" we are hearing from some industry leaders - acknowledging the importance of marketing to employees and looking for ways to expand beyond the traditional markets.