Karl-Heinz Schaller

Long-term occupational disability - A growth market

Disability as a result of accident or illness can have dire consequences, not just for those afflicted by it but also for those who are financially dependent on the disability sufferers. New opportunities are emerging for the insurance industry as the state increasingly finds itself forced to withdraw its financial support for occupational disability. However, insuring this risk is by no means without its pitfalls.

The importance of the private insurance sector in the field of disability largely depends on the kind of state social insurance system in place. In many countries, state disability benefits are only of a limited nature, as budget restrictions in particular have forced governments to make significant cutbacks in their social security programmes. Consider Germany, for example. The pension reform of 2001 abolished statutory occupational disability benefits for people born after 1 January 1961. The benefits for reduced earning capacity that these people are entitled to now amount to little more than "poverty relief".

International trends

The Netherlands, traditionally a country with a generous state disability system, has steadily cut its workers' disability benefits in recent years. 1 January 2006 saw the introduction of the new law "Wet werk en inkomen naar arbeidsvermogen" (WIA), which will phase in further cuts. The USA also provides only limited state support in the event of occupational disability. Anyone who is considered able to work in any way receives no benefits whatsoever from the Social Security Disability Insurance (SSDI). It is not surprising that the demand for insurance cover continues to rise as more and more people become aware of the gap instate benefits.

These developments offer the insurance industry huge growth opportunities. Profitable business development of occupational disability products, however, requires substantial know-how. The range of products on offer and competition over conditions and premiums have risen substantially since the mid-1990s. Also, the causes of disability have changed significantly in the last few years. Providers of disability policies therefore have to be highly competent, particularly in terms of risk management and along the whole value chain. Munich Re is able to offer its clients tailor-made and extensive support in the field of disability insurance.

A holistic approach - The key to profitability

Through in-depth workshops, Munich Re works together with its clients to develop new product concepts based both on a company's individual situation and on currentand future market trends in general. The whole process requires input from a wide range of disciplines, including actuaries and specialists in other fields such as risk assessment and claims handling. This holistic approach is absolutely crucial for achieving profitable growth in disability insurance.

Occupation is a fundamental criterion for determining insurance premiums: the higher the disability risk from the occupation, the higher the calculated premium. For example, a baker's risk of becoming disabled is roughly four times higher than that of a tax consultant. An international system of classes has been established in which the various occupations can be allocated to one of four different categories, each with a separate rating. However, insurers have plenty of scope in allocating occupations to these categories, which they can deploy according to the needs oftheir clients.