Group Long-Term Disability Insurance Claims and the Business Cycle

This paper explores the relationship between private group long-term disability (LTD) submitted claims incidence and the business cycle. While much of the recent literature connecting disability incidence to the economy tends to focus on employment conditions, we rigorously explore broader economic connections between the submission of LTD claims and the business cycle. Using a group LTD data set from a private-sector carrier with approximately 104 million records drawn from both the manufacturing and wholesale/retail sectors and data for a carefully chosen set of economic variables, we find statistically-significant relationships between the change in LTD incidence and change in the status of various sectors of the U.S. economy. Our findings, we argue, are consistent with the idea that the submission of LTD claims is influenced not just by employment conditions, but also by current and anticipated future conditions in other economic sectors as well. Our results have important implications for the insurance industry, given the size of the market and the long-term nature of claims payments.