Challenges in the High Limit Disability Market

One of the most vital coverages for high-income earners is high limit disability protection. With athletes, celebrities, executives, financiers and attorneys making millions of dollars per year, the greatest threat they face to their income stream and lifestyle is a serious disability. And because the major domestic disability carriers (e.g., MetLife, UNUM, etc.) won’t insure more than a million dollars in annual income – the maximum now is $50,000 in monthly coverage at a 60% income replacement – these high earners are forced to look towards the Lloyd’s of London high limit marketplace for the additional coverage.

Viewpoints from Adam Okun

In recent years, several Lloyd’s of London underwriters were fiercely competing for these placements with steady improvement in rates and coverage terms.

In fact, unit costs on high limit coverages were comparable with standard disability pricing, and coverage terms began mirroring underlying policies. It was increasingly common to see Lloyd’s underwriters offering coverage for mental and nervous, pre-existing conditions (with a short waiting period) and liberal terminology around illnesses that may have manifested but weren’t fully diagnosed prior to the coverage term. Additionally, massive lump sum payments were availed for total and permanent disabilities on top of up to $3M in annual coverage for 10-year benefit durations.

As compensation has continued climbing at elite financial institutions and law firms, many of our clients were aggressively purchasing those coverages – protecting not just the individual earners but the companies as a whole, in the event of multiple disabilities to several high-income earners in quick succession. And the policies have largely worked as intended with this risk and cost being socialized by the Lloyd’s marketplace.

Fast forward to 2021 and the market has hardened quite a bit.

Partly due to significant events cancellation or business interruption claims due to COVID-19 and partly due to significant disability claims, there has been a meaningful increase in pricing and a rollback in terms of the policies we were replacing only a couple of years ago. And while our clients remain eager for this coverage, the market is ripe for new underwriters to pick off business or for the domestic market to eat into a bigger slice of the high limit market. In any event, we are fairly confident this will remain a blip in the longer-term trend of broader disability coverage availability for high-income earners. But in the interim, it’s vitally important buyers are aware of the shifting ground by closely analyzing renewal pricing, changes in terms and new alternatives and entrants into this vital insurance marketplace.

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EPIC offers these opinions for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this article and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.