Post on 26-Mar-2015
transcript
DISABILITY INCOME INSURANCE
Where have we been and where are we going?
Melissa Millan
Vice President and Chief Operating Officer, Disability Income
MassMutual Financial Group
March 2004
What We’ll Cover
• The industry
Past
Present
Future
• Opportunities
Baseline - Understanding The Product
• Income protection in the event the insured is unable to work due to illness or injury
• Most coverage is currently written is non-cancelable, premiums cannot ever be increased
• Benefit periods range from 2 years to age 67
• Risk management expertise is paramount, DI is not a volume game
Baseline - Financial Characteristics
• DI is capital inefficient - High acquisition costs- underwriting distribution
- Relatively risky-high regulatory capital charges
- The IRS doesn’t help
- Breakeven doesn’t occur for years/long tail
• Splitting the dollar-who gets what?
Baseline - Statistics Driving Morbidity
• Incidence
• Terminations
• What are we really underwriting?
The Past – Non-Can Premiums1992 $546,673,000
1993 $492,202,000
1994 $465,820,000
1995 $409,365,000
1996 $311,608,000
1997 $286,243,000
1998 $275,292,000
1999 $279,543,000
2000 $269,756,000
2001 $298,413,000
2002 $282,146,000
Source: LIMRA
The Past
• DI industry just emerging from a prolonged period of losses -12 years
• 2002 earnings on average 12%
• Drop outs?
• New entrants?
The Past
“You get yourself into a fix; you get yourself out of it. It’s that simple. There is no way to run the sausage machine backward and get pigs out of the other end.”
Norman Augustine, Harvard Business Review
What Have We Learned?
In the 80s
• Market position drives actions
- Risk management liberalization
• Pricing
• Compensation
• Focused on individually underwritten business
The Present Company Number of Policies Annualized Premium
UNUMProvident 50,054 $50,473,015Berkshire Life 14,398 $30,027,609MassMutual 25,254 $28,792,190Northwestern Mutual 22,981 $27,348,413Met Life / NEF 11,676 $18,769,903Principal Life 8,919 $15,529,972IDS Life 13,669 $15,153,540The Standard 6,383 $10,970,635
Total Industry 210,382 $234,731,254
Source: LIMA 2003 3rd Quarter Sales Results
What Changed?
Product/Benefits• Eliminated or Curtailed
• Own occupation coverage• Lifetime benefits• To age 65 mental/nervous• Cost of living increases• Right to purchase options• 30 day waiting period
What Changed?
Pricing
• Increased rates
• Increased utilization of sex distinct rates
• Surcharges for poor performing regions
What Changed?Underwriting
• Stricter-more rules, fewer exceptions
• Expanded medical testing
• Expanded questioning of the application
• Increased staff training/increases to staff
• Changed occupation classes (generally lower)
• Issue and participation limits
• Replacement ratios
Less concentration of risk – multilife
The EnvironmentEmployer trends
• Health insurance costs rise• More costs shifting to employees• Voluntary worksite sales are increasing
Consumer trends• Available cash eroded• Dual incomes at record levels• Increased focus on preservation of assets
“Traditional” markets saturated?
The Future
• Conning & Co study – aggressive growth will limit long term success
• Companies with diversified portfolios looked upon with favor
• Innovation is critical – products and services
The Future
Shift to multilife• Enhanced risk management benefits• More premium per work effort• Ease of doing business critical
The multilife marketplace• Increasingly competitive-spread sheeting
common• Guaranteed Standard Issue (GSI) is
everything – or not
• Will there be an opportunity for individual?
• Reach untapped markets
2010- 10M more jobs than workers
2012- Women and minorities will
comprise 2/3 workforce
Average age of working population 42
The Future
Product is too expensive• More value needs to be returned to the
consumer
- Benefits need to increase and dividends
also play a role
- Expenses need to decrease
• Increase capital efficiency
• Minimize upfront costs
Carriers must become easier to do business with – without compromising risk managementprinciples
Challenges for the Future
What to Expect
Product enhancements• Critical illness• Retirement vehicles• Long Term Care options• Less costly supplemental benefits• Segment appeal
What to Expect
Service • Electronic, electronic, electronic• Enrollment,education,billing• Customer transactions
Underwriting• Streamlined process• Liberalization for most profitable segments
The Value of DI to a Producer
• Is a financial plan complete without this coverage?
• Rich renewal stream
- Value of sale to the agent is well above 100% of premium
• Correlation between agent retention and cross selling
• Market opportunities
What Do the Experts Predict?
• Modest premium growth• Survivors who have focused on profit vs.
market share will attract more business• Profit will continue which will allow survivors
to reinvest in business• Successful companies will find means to
better penetrate the middle class/emerging affluent
• Producer training and education paramount