The disability insurance industry has some confessions to make to insurance consumers. I will offer some suggestions here with hopes of drawing attention to the industry’s critical need for expansion.
Recall that for over a century the life insurance industry has been selling disability insurance. About 90 years ago, the late Solomon S. Huebner, founder of the American College of Financial Services, declared in his acclaimed Life Insurance that disability insurance is a part of the life insurance group of coverages. He also said disability insurance is as logical and needed for personal security as is life insurance.
Confession #1: All life companies have not offered disability insurance. After hitting a high point of 535 disability insurers, the defections dropped the total to 250 in 1990 and down to 26 in 2003. This is totally unsatisfactory. Twenty-six companies cannot cope with the incredible task of insuring the payroll of American income earners.
Confession #2: Insurance producers not equipped with a product and not encouraged to sell disability insurance have not tended to consumers’ well-being. Consequently, only 27 percent of income earners have any disability coverage and over half of that is inadequate according to industry standards.
Confession #3: Most life companies aggressively seek “retirement income plan” life insurance but bypass the risk of forced retirement (disability) entirely. This reckless action has been considered as malpractice in several prominent court cases.
Confession #4: The industry has defaulted in its duties to perform professionally for the insured, even though it knows about the critical importance of a well-planned disability program. It has pretended it did not notice that the industry has overlooked, ignored or specifically determined not to counsel people on disability insurance.
Some CEOs fear potential losses arising from disability insurance. Yet, risk assumption is the function that insurance charters anticipate and it is widely accepted that there is inherent loss potential in any form of insurance. This fear exists even though the disability industry has seen more profitable years than loss years over the past century.
Confession #5: Financial planning begins and ends with income planning, and proper income planning is impossible without adequate amounts of disability insurance. The industry has neglected this.
What can be done about this? The life insurance industry must respond to this call or face the very real risk of having disability insurance nationalized. Our national government has long had a great conversation about people having an income cash flow and has created several programs to provide income to people when they could not produce income themselves. You know these programs well–Workers’ Compensation (disability insurance), employment compensation, Social Security retirement, Social Security disability, state disability plans and tax advantaged retirement accounts.
Today, the constant march toward quasi-socialized medical insurance and the attempts being made to withdraw favorable tax advantages in life insurance plans indicates the current mood of government.
Where is disability insurance in all of this?
In 2002, eight insurance companies accounted for 69 percent of the non-cancellable disability premium in force according to Milliman USA. Sixteen companies accounted for 94 percent of such in-force premium. This trend is continuing unabated to the point that the business is nearing monopoly. Free-market disability income insurance could disappear. Government programs already have a system in effect to administer a nationalized plan of disability insurance.
Now Consider This:
Roughly 88 percent of the American people have medical insurance. But lawmakers feel this is unacceptable and so they pass law after law to deal with the issue of the 14 percent who are uninsured. These laws propose involvement based on governmental concern about the public.
Meanwhile, only 27 percent of American income earners have disability insurance according to the Department of Labor statistics. So 73 percent are without disability insurance. Regardless of the income level, it seems large numbers of people live within a few months of bankruptcy.
The above does not pass the test of simple reason. Medical insurance does not yield cash for food, clothes, a home or other financial obligations a person has undertaken. Disability insurance is what provides a cash flow from which big bills and big debts ultimately can be paid, even health insurance rate costs.
This lack of disability insurance is arguably a greater public need than the need for medical insurance. The life insurance industry’s indefensible position to let the business dwindle is an invitation for government expansion into this area.
In sum, the giant, robust life insurance industry needs to embrace more fully the form of insurance called disability insurance. Just 26 insurers cannot be expected to protect the earned income of all American wage earners.
