Declining unemployment and awareness of the consequences of disabilities have fueled industry growth
New York, NY (PRWEB) May 29, 2014
Industry operators provide long-term (LTD) and short-term disability (STD) insurance. Benefits for a LTD insurance policy usually start flowing in two to three months after a policyholder becomes disabled, while benefits for a STD policy usually start within a week of a person becoming disabled. There are three major kinds of disability insurance policies: noncancellable (NC), guaranteed renewable (GR) and buy-sell. A NC policy guarantees that once the policy is in effect, its monthly payout, terms, conditions and premiums cannot be changed for any reason whatsoever, unless the policyholder wishes them to. A GR policy is similar to the NC policy; however, insurance companies can change the terms with state approval. Co-owners of a business usually purchase a buy-sell policy in the context of this industry. The policy ensures that if a co-owner is disabled, a fair mechanism is used to liquidate or transfer the value of their assets without adverse implications for the overall business. Such a policy usually involves a buyout clause, covered for by the insurance underwriter.
Over the past five years, this industry has gained greater market penetration. According to IBISWorld Industry Analyst Zeeshan Haider, “Industry revenue is expected to increase at an annualized rate of 3.4% to $26.2 billion over the five years to 2014, with a decline of 1.3% expected this year.” Declining unemployment and relatively higher awareness of the consequences of disability have fueled growth in industry revenue. In 2013, the industry benefited tremendously from the gains made in capital markets, however, a slower-than-expected recovery in the labor markets, a decline in the number of policies and an increase in the benefit amount were enough to offset the gains, manifesting in a 1.1% decline in revenue. However, declining wage costs and improved operational efficiency helped boost profit margins to their highest level in the past five years.
Over the next five years, this industry is expected to grow more slowly, closer to its historical average. By 2019, the industry is expected to consolidate and operators are likely to increase their capital expenditure to achieve greater operational efficiencies. “The success of the industry will depend on being able to fully communicate the risks associated with disability and simplifying the various policies offered,” says Haider. An increase in the number of employer-sponsored programs could also spur growth.
The Disability Insurance industry has a moderate level of market share concentration in 2014. The four largest operators typically benefit from having strong brand recognition, in addition to benefiting from economies of scale. Because the industry primarily competes on price, industry operators that are able to distribute their fixed costs among several facilities stand to benefit the most. These operators typically pass on the additional savings to consumers in the form of lower premiums, which bolsters demand. Moreover, large operators typically benefit from having a wider distribution network of agents and brokers.
For more information, visit IBISWorld’s Disability Insurance in the US industry report page.
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IBISWorld industry Report Key Topics
The Disability Insurance industry underwrites (i.e. assuming the risk and assigning premiums) disability insurance policies. Disability insurance insures the beneficiary's earned income against the risk that a disability will render them unable to find full-time work in their chosen field. However, if an insured individual is deemed capable of working part time in a different field, they may not realize the full benefit of the insurance policy.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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