Several factors converged on the long term disability reinsurance market to result in a year-over-year price decrease of approximately 5 percent. Non-price terms and conditions favored reinsurers slightly.
With benefit costs rising and revenue falling, employers sought ways to limit their spending while still providing valuable benefits to their employees. This is leading to increasing use of voluntary supplemental benefits (including disability insurance) where the company’s share of costs are fixed and the employee can choose to participate in a little or a lot and pay the difference themselves.
Most plans began to deteriorate because of increased incidence and lower terminations - two factors that led issuers to consider or implement higher retentions. This resulted in reductions in ceded reinsurance. Consequently, reinsurers have had to compete on price and value-added services to maintain market share.
Regulatory charges in Europe could increase European reinsurers’ cost of capital supporting this business, putting additional pressure on margins. Finally, disability rates have historically been difficult to predict due to the ability of insureds to decide, in some cases, whether or not to submit a claim. Many participants in this business feel the experience could continue the downward trend, given policyholders’ reactions to the economic environment.