DISABILITY INSURANCE

Inflation and more driving increased interest in voluntary products

The emergency room lines were long and hospital beds were full. When patients survived their hospitalizations, many were disabled for days, weeks, or sometimes months.

When the COVID 19 pandemic struck, disability insurance was particularly valuable for those who had the forethought to purchase it, but the real growth of interest in voluntary disability insurance started only after the pandemic, as employers and their employees learned lessons about their physical and financial risk.

The result was that agents and brokers discovered new interest both from organizations interested in adding income protection options to their voluntary benefits programs and employees who want new ways to protect their families if the COVID pandemic returns or if another disease emerges.

“‘My income can be pulled out from under me at any time.’ That’s what consumers have learned during the past few years. And in the meantime, inflation is high, so prices are high and there is more to lose,” says Kim Rudeen, AFLAC’s vice president of group product solutions.

“There’s lots of increased interest in and awareness of disability products,” she adds, and employees are progressively leaning toward voluntary short- and long-term disability insurance available from employer-supported benefit programs.

Rudeen adds, “There are lots of challenges and new awareness: Employees expect that employers will be interested in their well-being and individual employees want to protect their families.”

The answer has been a steady expansion of the portfolio of voluntary benefits, including accident insurance, hospital indemnity insurance and various forms of voluntary disability insurance, she says. “Long-term disability insurance has always been high on the employee choice list, and more employees are also choosing short-term disability plans of one sort or another,” Rudeen explains.

Employees have long been advised to purchase some levels of long-term disability insurance, but now more employers are paying for a base level of long-term protection that will apply after 10 weeks and up to a year when short-term coverage terminates.

Usually the employer-paid long-term coverage pays about 50% of salary and employers advise employees to buy up to higher percentages of 66% or 75%.

Rudeen says that more employees are purchasing voluntary limits for short-term disability insurance to cover the gaps between sick leave and long-term disability insurance. And carriers are creating new disability insurance terms and structures to accommodate the new generation of workers, including gig workers and other contract employees who need disability benefits but are not entitled to them under their contracts.

Insurers are also building in more terms that support limited disability and return to work services. “Some employees can remain productive with a partial disability—if they have the support. More policies are covering some preexisting conditions and mental health issues that may continue through a physical disability,” Rudeen notes.

“There’s a really interesting change in consumer demand, which includes disability insurance. Consumers are taking longer to make voluntary benefit decisions and including those decisions
in broader financial planning and wealth
management decisions.”
—Scott Delisi
Vice President, Disability Insurance
Ameritas Life Insurance Corp.

Employee Assistance Programs (EAPs) are becoming components of disability insurance as physical illnesses lead to mental health traumas and life management issues.

Insurers are also trying to improve the claims experience, return to work and persistent loss of ability that accompany medical disabilities, she says.

Scott Delisi, vice president of disability insurance at Ameritas Life Insurance Corp. in Lincoln, Nebraska, says interest in disability insurance has increased since the COVID pandemic. “The pandemic certainly heightened consumer awareness of the potential for having incomes interrupted by a long-term disability,” he notes. “We have seen trends towards more interest in voluntary disability insurance benefits from the consumer; there’s been a new urgency to take action to protect their incomes.”

He points out that, while the direct impact of the pandemic on disability claims is still being assessed, the industry did see increases in respiratory incidents and potential for long-COVID. He adds, “COVID-related claims have been easing somewhat in 2022 and 2023, and there has been more interest in other life insurance products such as multi-life benefits and guaranteed issue features from employers.”

Employer-paid disability benefits are up 35% and employee-paid are up about 12%, driven by employee interest, greater long-term disability benefits and gap coverage that fills in after employee short-term disability insurance ends before long-term disability, he notes.

“There’s a really interesting change in consumer demand, which includes disability insurance,” Delisi says. “Consumers are giving more serious considerations to voluntary benefit decisions, and they are including those decisions in broader financial planning and wealth management decisions.”

In addition, more employers are considering “top hat” executive disability benefits that are designed to protect income for high-wage earner employees and other product enhancements that provide financial support for long-term hospitalizations and long-term or permanent disabilities.

Some of the new benefits are being marketed in new ways, such as affinity groups or occupational groups that make benefits previously available only from employers open to occupational or gig workers. More marketing efforts have moved online as more workers work from home, online or work independently as consultants or gig workers.

“A typical sales program needs to be reevaluated, as agents and brokers market using electronic tools rather than group meetings at employer locations,” Delisi says. “Many agents and brokers are used to working remotely and have adapted well to the new environment.”

Some agents and brokers have had their best years ever since the pandemic as their abilities have evolved to accommodate the new consumer interest, he explains.

Insurance industry research confirms that disability insurance has become one of the biggest voluntary benefit sellers since the pandemic. The research indicates that disability premium volume has been growing steadily in the past year but may be slowing down now as COVID pandemic effects have been shrinking.

Milliman, a global consulting and actuarial firm, reports substantial growth in premium from disability insurance products in 2022. Twenty-four disability insurers participated in the consulting company’s annual survey reflecting 2022 market activity.

The 24 participating companies reported $21.1 billion in combined short-term disability and long-term disability in-force premium in 2021, an increase from $19.3 billion reported by the same companies in 2020. Short-term disability in-force premium increased by 19.7% from $6.6 billion in 2020 to $7.9 billion in 2021, and long-term disability in-force premium increased by 4.2% from $12.7 billion in 2020 to $13.2 billion in 2021.

“‘My income can be pulled out from under me at any time.’ That’s what consumers have learned during the past few years. And in the meantime, inflation is high, so prices are high and there is more to lose.”

—Kim Rudeen
Vice President, Group Product Solutions
AFLAC

Government regulation contributes to the growth. The short-term disability insurance premium includes premium for statutory benefits such as the New York Disability Benefits Law (including paid family leave) and other statutory paid family and medical leave (PFML) policies. About six states as well as Puerto Rico require employers to pay short-term leave for disability benefits.

Dan Skwire, a principal and consulting actuary at Milliman in Portland, Maine, says that while the industry expected an increase in disability claims, like total medical claims, they actually decreased somewhat in the early stages of the pandemic as medical patients delayed non-emergency medical procedures.

This dynamic created a backlog in some non-COVID disability claims, in an environment of higher morbidity at the beginning of the pandemic. Now that the pandemic seems to be under control, Skwire says that there is a little backlog of disability claims resulting from delayed medical procedures.

The higher premium volume can in part be attributed to inflation, higher salaries and what researchers classify as “natural growth,” he says. “There is some increase in sales as employers increase their purchase of benefits.”

He also notes that government-mandated family leave benefits may have more effect on sales, depending on how the leave is structured and financed.

LIMRA, the insurance industry research organization in Windsor, Connecticut, reported that overall disability insurance premium has continued to rise as the pandemic seems to recede, though interest varies from employers and employees.

LIMRA reported that disability insurance products premium volume has continued to grow but not as quickly. Total workplace disability insurance new premium sales were $1.7 billion in the first quarter of 2023, a year-over-year increase of 5%. The increase in the first quarter was driven by a 17% increase in short-term disability insurance sales.

The LIMRA Harnessing Growth study released earlier this year tracks benefits recognition from 2021 and indicates that 62% of employers believe that their employees want long-term disability insurance, up 18% from 2021. About 61% believe their employees want short-term disability, up 17%.

A similar survey of employees reveals that the trend is up but not as strongly. About 37% say they want long-term disability insurance, up 1% from 2021 and 35% want short-term disability insurance, up 2% from 2021.

Total long-term disability insurance new premium sales were down 5%, while voluntary long-term disability sales were down 15%.

“The pandemic expanded employee expectations overall, but more importantly highlighted how a more diverse workforce requires a broader array of benefits. A majority of employers recognize that in the future, it is somewhat or very likely that employees at their company will expect a wider variety of benefits options,” said Chris Morbelli, a LIMRA researcher and EY Americas Life and Group Insurance transformation leader, in a press release announcing the survey.

“Employers—particularly smaller organizations—will have to balance building a more comprehensive benefits package with budgetary constraints and will likely look to provide more employee-paid benefits to meet the demand,” he commented. n

For more information:

Aflac
www.aflac.com

Ameritas Life Insurance Corp.
www.ameritas.com

LIMRA
www.limra.com

Milliman
www.milliman.com

The author

Len Strazewski is a Chicago-based writer, editor and educator specializing in marketing, management and technology topics. In addition to contributing to Rough Notes, he has written on insurance for Business Insurance, Risk & Insurance, the Chicago Tribune and Human Resource Executive, among other publications.