As indicated above, the risk factors affecting disability are constantly changing. The disability risk is quite different from life insurance risk because of the possibility of multiple disability claims. It is common for an individual to sustain as many as 12 work-loss disabilities prior to retirement. Also there can be a wide variation in the duration of any single disability claim. The history of American disability income insurance demonstrates that economic conditions can also influence the disability risk. Disability claims soared during the Depression because many unemployed insureds injured themselves to collect disability benefits. In fact, the disability insurance claims during the Depression threatened the financial solvency of some major insurance companies. As a result, many insurance companies abandoned the disability insurance market during the Depression. Consequently this type of coverage is written predominately by fewer than 20 companies today. There is a much higher concentration of coverage in a few specialty insurance companies for disability insurance than there is for life insurance. It has been difficult for other insurance companies to successfully reenter the disability insurance market because there is a scarcity of data on disability claims outside of that complied by the specialty disability insurance companies, which are not interested in sharing that data with their competitors.

A new table of disability probabilities has been developed by the Society of Actuaries and has been adopted by the National Association of Insurance Commissioners for reserve purposes. This table, referred to as the 1985 Individual Disability Table, is based on experience from the 1970s. The 1985 Commissioners Disability Table is the counterpart to the 1980 Commissioners Standard Ordinary (CSO) Mortality Table used for life insurance purposes.

It is interesting to note that the probability of becoming disabled for at least 90 days before age 65 is higher than the probability of dying before age 65 for persons between the ages of 20 and 55. As can be seen in tables 7-1 and 7-2, a person has a 54 percent likelihood of becoming disabled for at least 90 days between the ages of 25 and 65. This percentage is more than twice the 24 percent probability that a person aged 25 will die prior to attaining age 65. These comparisons are based on the 1980 CSO Mortality Table for death and the 1985 Commissioners Disability Table for morbidity.

These mortality and morbidity tables are based on joint probabilities and are applicable for families or small businesses with up to six key persons. The individual probabilities are found in the column under 1. In the morbidity table the joint-life columns indicate the probability that at least one person out of the number indicated at the top of the column will become disabled for at least 90 days prior to reaching age 65. For the mortality table, the column represents the probability of at least one person out of the number of persons indicated at the top of the column dying before attaining the age of 65. The numbers in these joint tables are based on all individuals in the joint calculation being the same age. In other words, if there were three business owners all aged 40, there is an 86 percent probability that at least one of those three individuals will sustain a disability that will last for at least 90 days prior to attaining age 65. In a like manner, from the probability of death table, we can see that there is a 52 percent probability that at least one of the three owners aged 40 will die prior to attaining age 65. As can be seen from the table, increasing the number of lives increases the probability of sustaining at least one 90-day disability period out of that group of individuals.

Unfortunately most individuals, business owners, and managers are not aware of the high likelihood that their management team will sustain a disability lasting more than 90 days. However, most of them are quite aware that a 90-day absence on the part of any one of their key managers or owners would have a very negative effect on the business. Most businesses and families have trouble living within their income when all resources are fully utilized. The loss of a productive person in the work force usually results in a loss of income and makes it even more difficult to get by on the reduced cash flow. Disability income insurance can usually provide protection from such cash-flow crunches.

From the standpoint of the individual, a prolonged disability not only means loss of income because of an inability to work but also entails additional costs, such as a wheelchair, rehabilitative therapy, and/or a specially equipped automobile, to cope with the new limitations. The individual sees an increase in the cost of living at the same time he or she suffers a loss of income. Disability is often referred to as a living death. People live beyond the termination of their income but still sustain the costs of everyday living for themselves and for dependents. The resulting economic pressure often pushes individuals near or past the breaking point. Even in cases where insurance relieves the economic pressure, disabled persons suffer psychologically as they become dependent on the very people they previously supported.

Although table 7-2 presents the probability of being disabled for 90 days or more, there is obviously the probability of becoming disabled for different durations of time. Further, there are probabilities for different severities of disabling conditions such as total and partial disability. These probabilities are extremely important for partial-disability benefits and residual-disability benefits.

Unfortunately this type of information is not readily available because, as mentioned earlier, the companies that possess such information are not eager to share it with their competitors and did not supply data for the 1985 table. The

Commissioners Disability Table, which deals with total disability, indicates that persons who have sustained a total disability of one year have a greater than 50 percent probability that disability will continue for an additional 2 years and, in fact, that there is at least a 32 percent probability that the disability will last an

additional 5 years beyond the already completed one-year period. (See tables 7-3 and 7-4.) The longer a disability continues, the less likely the individual is to recover. Individuals who have sustained 2 years of total disability have at least a 62 percent probability that the disability will last an additional 2 years and a greater than 41 percent probability that it will last for an additional 5 years. These percentages also increase with age. The numbers above are for individuals in their early 20s, whereas persons in their mid-50s have a 78 percent chance that the disability will continue for at least 2 years after they have sustained 2 years of total disability and a 60 percent probability that they will remain disabled for an additional 5 years. (See table 7-5 for the average duration of disabilities sustained at various ages.)

Disabilities that last for fewer than 90 days are much more likely to result in total recovery. In fact, insurers providing rehabilitation benefits have determined that the earlier a disabled person starts therapy, the higher the likelihood of recovery. There seems to be a psychological element involved in recovery. Persons who are at the beginning of a disability expect to recover and will work eagerly to aid the recovery process. However, persons who have been disabled for longer periods of time gradually lose confidence in their ability to recover. To be successful, rehabilitation therapy should start as soon as possible after disability occurs.