Market of the future – income protection

Hans-Joachim Schuett

In recent years, more and more life insurers have identified occupational disability insurance as an interesting and profitable business segment. As a result, there has been a significant drop in the price of disability insurance: based on the average price of the top 20 market players for 1,000 euros of disability insurance coverage, this price drop is already significant in some cases, as the following chart illustrates for the two professional segments of bankers and engineers (electrical):

The chart shows that the price of occupational disability insurance for an electrical engineer has almost halved over the past 14 years, and for a banker it has fallen by 1/3, although it should be noted that a price increase would have been expected due to countervailing factors such as declining interest rates and improvements in product features. Overall, it can be stated that market intensity has increased significantly: on the one hand, the number of market participants has risen sharply, and on the other hand, the current re-pricing cycle in the market is less than two years. All in all, this leads to pressure on margins for all market participants.

In order to escape some of this competitive and margin pressure, it makes sense to focus one's own disability product more strongly on specific target groups for which the company in question has market access on the one hand and the target group itself has a corresponding size and growth potential on the other hand. In the past, such target group approaches have already been pursued in occupational disability insurance, for example for school children and students or also in the public sector with the so-called disability insurance for the public sector (“Dienstunfaehigkeit”).

In order to pursue such a target group-specific approach, it is first necessary to compare the relevant competitors for a specific target group on the basis of a price and performance score. The price score is the result of a weighted ranking across the occupations of a specific target group with a normalized entry age/end age combination of 30 or 67 years for the respective competitors. In contrast, the performance score is determined on the basis of an assessment of the relevant occupational disability features, e.g. based on Morgen & Morgen and Franke & Bornberg, weighted in terms of their relevance following the feedback from sales partners. The result is summarized as a basis for further optimization in so-called price-performance comparisons (shown here using the example of the health professions).

Now the real work begins in positioning the disability product. In addition to selective price optimizations, differentiations should rather be achieved in the performance features, which - done correctly - usually have rather less impact on the best-estimate claims charges. Thus, improvements in the performance score can be achieved via target group-specific adjustments of the performance features, e.g., parity of project management (also in agile organizational formats) with classic disciplinary management or the identification of events triggering the possibility to increase the disability coverage without additional health checks (e.g., doctor’s qualification as a “specialist doctor” or a civil servant reaching the status of a complete civil servant).

In addition to these hard features, there are further differentiations in the area of prevention or accelerated rehabilitation ("back to work" approaches), where the life insurer can also make an important contribution not only through financial compensation, but also through concrete direct support and can thus differentiate itself from competition, e.g. integration of BetterDoc in the service offering or approaches such as those very successfully pursued in South Africa under the Vitality brand by the insurer Discovery. These offerings have two advantages: on the one hand, the profit margin improves in the long term due to a reduction in claims expenses, and on the other hand, there is stronger customer loyalty, since it is precisely the preventive measures that are perceived positively by all customers.

Another thrust of market differentiation also lies in the identification of target group-specific benefit triggers that can be easily understood by the customer. Here, disability insurers can also learn from the benefit triggers in basic capability insurance products. Such benefit triggers can be included in disability coverage for specific target groups, e.g., the lack of the ability to wear G26 respirators.

In conclusion, it can be stated that, as a result of the high price competition, a target group-specific approach can represent a starting point for more sustainable market differentiation. To this end, target-group-specific performance characteristics must be identified, coupled with "customer engagement" approaches in the area of prevention and rehabilitation (back-to-work). Due to the intensity of competition in occupational disability, further innovations are certain to enter the market in the coming years.