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OLDWICK - APRIL 17, 2019 03:02 PM (EDT)
A rule clarification that allow employers the option to provide long-term disability coverage to their employees through automatic enrollment should benefit insurers by increasing participation rates, and increased marketing efforts and evolving employee attitudes may increase penetration rates, according to a new AM Best special report.
A recent decision by the U.S. Department of Labor expands automatic enrollment programs in all states to include disability insurance plans, with an opt-out choice, preempting any state laws specifically banning auto-enrollment for the product. The Best’s Special Report, titled, “LTD Insurance Auto-Enrollment: A Potential Tailwind for Market Players,” states that from 2012 to 2017, net premiums written for group long-term disability (LTD) rose more than 30%, to $12.6 billion from $9.7 billion, while the number of covered lives grew 28%. Based on the experience of some insurers already offering the automatic enrollment option in certain states, participation rates could grow by 10% to 15%, with continued growth opportunities in the employer group space.
The rule clarification likely will have a greater impact on insurers with more of a focus on larger accounts. Although the business loss ratio trend has been favorable, a large number of people who previously might have been declined coverage now may be included in the larger pool of guaranteed-issue policies, which could drive up insurers’ loss ratios over the near term. However, insurers also would have a larger population to spread the risk. In addition, insurers focusing on national companies with employees in numerous states will face a more-complex environment as it relates to compliance with Paid Family Leave laws.
Most adults in the U.S. workforce have no disability coverage beyond basic coverage provided through Social Security. However, the Social Security Administration’s strict definition of disability has resulted in just 35% of claimants receiving the benefit, and the appeals process can take years.
Given the potential for more covered lives, insurers may increase their marketing efforts to make employers and employees more aware of the need for long-term disability insurance. Overall, AM Best believes automatic enrollment could have a favorable impact on insurers, as well as the general population, by offering better income protection.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=284731 .
AM Best is a global rating agency and information provider with a unique focus on the insurance industry.