Group Life Market: Mostly Sunny, Some Clouds
The equivalent of a weather report on the U.S. group life insurance market would be mostly sunny with a few clouds.
Yes, high health insurance prices and a weak job market are hurting new sales. And, yes, terrorism, influenza and New York Attorney General Eliot Spitzer lurk in the shadows. But, for all this, actual group life profits have been relatively stable.
Pretax U.S. group life statutory profits totaled $2.4 billion in 2003. The market totals have been bouncing between $1.4 billion and $2.5 billion for the past 10 years, and they should end up in that range this year, says Eric Smithback, a consulting actuary in the Chicago office of Milliman Inc.
The group market is "pretty consistent with what we saw a year ago," says Peter Cook, vice president of corporate insurance sales at Aetna Inc., Hartford.
For many insurers, stability is frustrating.
Group life "has become just a commodity," says Deborah Tatro, vice president of worksite and special risk at Pan-American Life Insurance Company, New Orleans. "People are just trading cases back and forth."
But for benefits brokers, the stability of the group life market is a relief from the endless upheaval in the group health and retirement services market.
A year ago, Palo Alto, Calif., broker Michael Goldeen called the group life market "stable, dull and boring." Today, he says happily, "its about the same. I see nothing in the way of changes."
Where the insurance company executives and analysts see tight margins, Bill Lindberg, a Windsor, Conn., benefits broker, sees carriers competing to offer reasonable prices to his employer clients.
In the long run, "when product is priced fairly, its good for everyone," Lindberg says.
Group life is one of the most popular group insurance products: 51% of employees at private U.S. employers have access to life benefits, according to the Bureau of Labor Statistics.
Today, group life "is holding its own," says Anita Potter, assistant vice president of LIMRA International, Windsor, Conn. "The employers arent dropping the coverage."
Insurance companies "are still finding that group life insurance is a mainstay," says Leonard Cavallaro, senior vice president of sales and marketing at Benefit Partners, Omaha, Neb., an arm of Jefferson-Pilot Corp., Greensboro, N.C.
Benefit Partners is best known for its group long-term disability coverage, but, even there, group life still accounts for about 30% of group sales, Cavallaro says.
But, in many regions of the country, "the economy still is not growing," Potter says.
Thats a problem for sellers of group life, because increases in the number of covered employees depend heavily on increases in the number of jobs offering good wages and benefits.
Meanwhile, many insurers are making good on promises to exercise more self-discipline when going after new business and to work harder to keep the clients they already have.
The result is that LIMRA members are reporting a combination of slow sales and growing overall premium revenue.
For the first half of 2004, for example, participants in LIMRAs group life market survey reported a 6% drop in premium revenue from new sales but a 3% increase in premium revenue from group life contracts already in force.
In addition to rising health insurance costs and slow job growth, one major external force shaping the group life market is demographics.
This is an issue because the average age of the insured worker is increasing by about 6 months per year, Smithback says.
But the shadows hovering over the market are 2 types of risk that may never have any significant effect on real group life results: terrorism and contagious disease.
Group life insurers set up new risk management operations in the wake of the 9/11 terrorist attacks, and those operations are focusing more attention on the effects of giant disasters, Smithback says.
At Benefit Partners, Cavallaro agrees that insurers really are paying more attention to possible sources of catastrophic claims. "Post-9/11, a lot of carriers, us included, started looking at things like concentration of risk," Cavallaro says.
