As traditional insurance products become increasingly commoditized, the first impulse for carriers is to come down on price to win business.
While competitive pricing is important, continually slashing premiums can lead to unsustainable business in the long term. How then to avoid becoming a casualty of the price wars? Innovate, innovate, innovate.
Of course, it’s one thing to talk about innovation, and another to put it into practice. This is where many insurers get stuck, through an inability (often only perceived) or an unwillingness to bring new ideas to market. But innovation need not be drastic; insurers can chose to walk before they run.
With disability insurance, taking a simplified approach can facilitate entering new markets and strengthening existing ones. Long-term disability (LTD) products are inherently complex – to underwrite, to price, to manage claims, etc. The LTD market therefore presents a distinct set of challenges that many insurers may not be able to overcome. A simple disability (SD) approach opens up a new gateway to growth.
Simple disability, as its name implies, reduces the scale and complexity of a traditional LTD product. SD products employ a limited benefit period (perhaps 2-3 years), replace a limited percentage of income (around 30%-50%), and include other simplified features. SD allows insurers to introduce a product into the market, monitor claims experience and performance over time, and adjust accordingly.
The clearest opportunities for SD lie in those markets currently lacking group LTD coverage options, particularly in Asia, Europe, and Latin America. Insurers can target coverage gaps in these markets, start with something simple, and let it build naturally in a way that meets local norms but still respects global best practices.
A different kind of opportunity, but perhaps equally significant, can be found in markets where full-scale group LTD products currently exist, such as in the U.S., Canada, U.K., and South Africa. Here, employers are finding that rich LTD products are becoming too expensive to maintain. Many are choosing to abandon such products from the outset or scale back current offerings. Introducing SD alongside richer, full-scale LTD products gives employers choices, where the alternative may have been to remove LTD products completely.
At RGA, we have partnered with direct writers to develop SD product in multiple markets, and we see additional opportunities on the horizon. SD is one more example of how even in an increasingly commoditized insurance environment, growth opportunities are there – we just need to dig a little deeper to find them.
