the early years, it was recognized that providing too rich a plan design, especially in maximum, was dangerous. Yet, at
one time, high maximums were one way some companies saw they could differentiate themselves. Even today in an era
of more reasonable maximums, underwriters still get requests for maximums that, baring extenuating circumstances,
they would be reluctant to approve. These high requests put strains on experience at the case level and on the overall
book. So, the Reinsurance Committee and the Disability Committee thought they’d join forces and explore how underwriters
feel about offering these high maximums. Here is a summary of the results. Curt Zepeda of ING-Re and Tom Kirner of
Smith Group presented these results at the June 2004 GUAA meeting in New York. A complete copy of the results can
be obtained by sending an e-mail to Tom at tkirner@smithgroupre.com. It is critical to know that nothing in the survey
or the report of the results is an attempt to establish industry-wide standards or norms on LTD benefit maximums. Indeed,
the wide range of responses is an indication of the diverse company practices in setting maximums. Nothing should be
construed as anti-competitive. Rather, the survey and report simply gathers and reports practices and attitudes. In fact,
most of the information that is factual is public and regularly filed by the companies.
Summary of Analysis:
Company Underwriting Rules:
Not surprisingly, companies’ standard maximums and underwriter-approved limits on maximums vary widely. Most
companies also allow maximums above underwriter approval limits, generally with management and reinsurer approval.
When doing so, the majority of companies use one or more risk management tools such as pre-existing conditions
exclusions, evidence of insurance, and/or average of top salaries. Multiple tools are frequently used.
As stated, standard maximum amounts varied by case size and by company. But, generally, standard maximums
are $6,000 for cases under 500 lives and $10,000 or lower for cases over 500 lives.
| Standard
Maximums |
Most
Common |
Average |
High |
Low |
Median |
| up to 50 lives | $6,000 |
$7,204 |
$15,000 |
$2,500 |
$6,000 |
| 51-100 | $6,000 |
$7,704 |
$15,000 |
$5,000 |
$6,000 |
| 101-250 | $6,000 |
$7,963 |
$15,000 |
$5,000 |
$6,000 |
| 251-500 | $6,000 |
$8,346 |
$15,000 |
$5,000 |
$7,000 |
| 501-1,000 | $10,000 |
$8,962 |
$15,000 |
$5,000 |
$10,000 |
| 1,001-2,500 | $10,000 |
$9,154 |
$15,000 |
$5,000 |
$10,000 |
| 2,501-5,000 | $10,000 |
$9,538 |
$20,000 |
$5,000 |
$10,000 |
| 5,001-10,000 and up | $10,000 |
$9,120 |
$15,000 |
$5,000 |
$10,000 |
In situations in which underwriters could go above standard maximums, $15,000 was the most commonly used upper limit.
| Highest
Maximums |
Most
Common |
Average |
High |
Low |
Median |
| up to 50 lives | $10,000 |
$15,042 |
$35,000 |
$6,000 |
$12,500 |
| 51-100 | $15,000 |
$15,979 |
$35,000 |
$10,000 |
$15,000 |
| 101-250 | $10,000 |
$16,040 |
$35,000 |
$10,000 |
$15,000 |
| 251-500 | $15,000 |
$16,708 |
$35,000 |
$10,000 |
$15,000 |
| 501-1,000 | $15,000 |
$18,792 |
$35,000 |
$10,000 |
$15,000 |
| 1,001-2,500 | $15,000 |
$18,792 |
$35,000 |
$10,000 |
$15,000 |
| 2,501-5,000 | $15,000 |
$19,208 |
$35,000 |
$10,000 |
$15,000 |
| 5,001-10,000 and up | $15,000 |
$19,174 |
$35,000 |
$10,000 |
$15,000 |
Underwriter Attitudes about Maximums:
Underwriters agree on the purpose of LTD – to replace a reasonable portion of base income. Most underwriters
agree maximums should be capped, but the level of the cap had a wide range. Evidence of Insurability is the
best underwriting tool to manage the risk of high maximums followed by averaging top salaries and using a pre-x.
In contrast to other questions in this section, underwriters are most split about whether competitive or market
pressure overrides judgment on maximums. By two to one, underwriters do feel this pressure. But, significantly,
one-third don’t, or at least feel that it does not override good judgment. Underwriters are also split about the pressure
high maximums put on financial results of their own companies and their reinsurers, with 70% saying this financial
pressure is felt. As to what the industry might do, answers varied quite a bit from “just say no” to “why not”.
Reinsurance:
All companies reported using reinsurance at some point. Attachment points vary greatly. Most underwriters
feel the reinsurance approval process is timely and works quite well.
Company practices on LTD benefit maximums vary widely. Underwriters may feel pressure to go along with a
request for a higher maximum because the maximum is in force with another carrier or competing carriers may
be offering a higher maximum. Perhaps the best way to look at maximums is as one underwriter put it: “Each
carrier consider what is appropriate to their block & market”.