In the high limit disability space, the Lloyd's of London Guaranteed Standard Issue (GSI) market has been rapidly growing over the past decade, with a growth rate that far surpassed its fully underwritten brethren. By comparison, supplemental individual disability insurance (IDI) coverage has existed for over 30 years in the domestic U.S. market and the recipe has been perfected throughout the years as the demand has grown to create a profitable market. The Lloyd's GSI market, though still in its infancy in the insurance world, is gaining experience by recognizing that adjustments will need to be made to create a sustainable and profitable market.
There are four key components to a sustainable GSI disability product for the Lloyd's market:
- Benefit Maximums
- Contract Terms
Getting the balance of these components, as well as other related variables, right over the years is what has driven some of the biggest U.S. disability providers in the country to write more GSI business than fully underwritten business. Lloyd's of London Coverholders have adopted this same model to make additional benefits available over and above what can be underwritten in the domestic market.
Pricing: Lloyd's contracts will need to adjust premiums to recognize that its plans will include fewer participants (because less people qualify) and may require more premium to create enough volume to support the cost of sustaining the programs over time.
Benefit Maximums: Lloyd's benefits are structured differently and are issued as a 60- or 120-month benefit and can be followed by a lump sum that is paid at the conclusion of the monthly benefits.
Contract Terms: Lloyd's prohibits contract terms longer than five years (less one day). So, to continue coverage the contract must be renewed at the end of the contract term. Because claims experience has been higher than anticipated, there has been a shift in the market whereby contract terms are being held to shorter terms.
Claims: There must be enough premium collected to cover the claims, administrative costs and still leave room for underwriters of this class to make a profit.