Winter 2009
Emerging growth opportunities in the IDI industry
Jason Katraouzos FLMI
Product Analyst, Individual Disability Insurance
Compared to other financial service products, individual disability insurance is weathering the storm very well.
Pacific Mutual invented noncancelable individual disability insurance and experienced rapid sales growth when it first introduced its product. There was only one problem: their rapid sales growth happened in the 1920s. Their IDI business was hurt a short time later by the high unemployment rates of the Great Depression as many people filed claims, and the entire company had to reorganize to survive. If there is a lesson from that story, it might be that it is important to be closely aware of the latest trends impacting IDI.
The Standard's experience in the individual disability insurance market reveals some insights you may find interesting.
Resilience of the IDI industry
The United States experienced one of its worst recessions ever in 2008 and 2009, yet the IDI industry has been very resilient. IDI industry premium was only down 5% on average in the first quarter of 2009 compared to the first quarter of 2008. Over that same time frame, individual life sales premium for all product types was down 26% and variable life (VL) was down 61%. Individual long-term care (LTC) sales were down 31% for the first half of 2009. Compared to other financial service products, individual disability insurance is weathering the storm very well.
Competitive leapfrogging does not always equal more sales
Many IDI carriers have increased issue limits, lowered prices and created other incentives to increase sales. You might be surprised to learn that many of those actions do not lead to more sales growth for those carriers.
Competitors have a tendency to copy each other, so the benefits of their programs can quickly cancel themselves out in terms of sales. The marketing of the programs can grab some attention at first, but the sales impact is typically small or unsustainable.
On the other hand, a big impact can result from expanded focus on the sale of guarantee issue and guaranteed renewable policies, nurturing long-term relationships and addressing the need for IDI.
There is plenty of production coming from younger producers.
Some IDI carriers have speculated that the average IDI producer will retire soon and there is little training in place for younger producers. The conclusion is that the industry will be in jeopardy over time.
In fact, the future looks bright for the IDI industry. There are more young IDI producers now than you might expect, and some of those producers could create the top IDI businesses of the future.
About one out of every four IDI policies from The Standard is sold by producers age 39 or younger.
About 13% of IDI producers contracted to sell IDI from The Standard are women, so there is plenty of room for growth in recruitment there too.
Many occupations are growing in number and producers rarely offer IDI to them
There were about 33,000 anesthesiologists in the United States in 2006. They had a median income of $321,000 and they are expected to grow by about a 14% total growth rate from 2006 to 2016. Many IDI brokers compete with one another to sell to this small group of anesthesiologists.
Now consider software engineers. There were 857,000 in 2006 with a median income of $80,000 and an expected total growth rate of 38% from 2006 to 2016.
Opportunities exist for IDI producers who can tap into high-growth markets such as the IT professions and other high-growth sectors.
Sales of IDI policies to prospects who have higher-than-average incomes in their occupations
The median salary of veterinarians who purchase IDI from The Standard is about $90,000. Their average salary is $131,000. The median national salary for veterinarians is $72,000.
This demonstrates that producers miss the opportunity to reach prospects in the same occupations who have lower salaries. We find it's a common pattern across most occupations. The typical IDI policyholder has a higher-than-average salary compared to other people in the same occupation.
Some geographic areas are overlooked
Many rural areas and low-population states have plenty of sales opportunities available with little competition. Some states, such as Pennsylvania, have such large highincome populations that the growth potential will not be exhausted for many years.
Silicon Valley has been one of the few areas in the United States with employment growth during the recent recession.
The best time to sell IDI is any time
The Standard's IDI sales typically increase by about 20% in the last three months of the year compared to the rest of the year, but many IDI agencies do not follow that pattern. Some agencies sell the most IDI during the summer.
Do you sell IDI to the medical market?
Keep in mind that the medical market continues to change. The number of U.S. medical school students going into primary care as a specialty has dropped 51.8% since 1997, according to the American Academy of Family Physicians. Nurse practitioners and physician assistants are being asked to play an increasingly important role in medical care to make up for the lack of primary care physicians, and baby boomer retirements will create a large increase in healthcare demand.
The need for IDI for physicians will continue to be strong, but the medical market of tomorrow will most definitely be different than the medical market of today.
Many lessons have been learned since Pacific Mutual first invented noncancelable IDI. The IDI industry has changed and adapted to a large number of very different market environments, and strong sales opportunities exist now in a variety of different areas.
Don't be discouraged by the recent recession. The future for IDI growth looks good.
Source: Compiled from Bureau of Labor Statistics Occupational Outlook Handbook, 2008-09 Edition. For more information about occupation salaries and growth rates, visit the Bureau of Labor Statistics website.