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Presentation on theme: "DISABILITY INCOME INSURANCE"— Presentation transcript:


Where have we been and where are we going? Melissa Millan Vice President and Chief Operating Officer, Disability Income MassMutual Financial Group March 2004


4 What We’ll Cover The industry Past Present Future Opportunities

5 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

6 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?

7 Baseline - Statistics Driving Morbidity
Incidence Terminations What are we really underwriting?

8 The Past – Non-Can Premiums
1992 $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

9 The Past DI industry just emerging from a prolonged period of losses -12 years 2002 earnings on average 12% Drop outs? New entrants?

10 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

11 What Have We Learned? In the 80s Market position drives actions
- Risk management liberalization Pricing Compensation Focused on individually underwritten business

12 The Present

13 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

14 What Changed? Pricing Increased rates
Increased utilization of sex distinct rates Surcharges for poor performing regions

15 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

16 The Environment Employer 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?

17 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

18 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

19 The Future Will there be an opportunity for individual?
Reach untapped markets M more jobs than workers Women and minorities will comprise 2/3 workforce Average age of working population 42

20 Challenges for 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 management principles

21 What to Expect Product enhancements Critical illness
Retirement vehicles Long Term Care options Less costly supplemental benefits Segment appeal

22 What to Expect Service Electronic, electronic, electronic
Enrollment,education,billing Customer transactions Underwriting Streamlined process Liberalization for most profitable segments

23 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

24 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


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