The Definitive Guide to the Excess & Surplus Lines Insurance Market
The Excess & Surplus Lines Insurance Market is a class of insurance that can be accessed and utilized by individuals whose needs extend beyond the capabilities of U.S. admitted disability insurance carriers.
The most common type of Disability Insurance found in the Excess Market is referred to as Disability Income Protection, an insurance product that protects an individual’s future income in the event they become seriously injured or sick. These programs are often utilized to provide a supplemental safeguard for future income of highly compensated individuals when the traditional domestic insurance markets are insufficient. In addition to providing supplemental coverage, these programs can be accessed for those whose occupations carry unusual financial patterns or elevated risk to one’s health, for example entertainers and professional athletes. Click here to read the full blog post on Excess & Surplus disability insurance.
Use the table of contents below to navigate through this guide:
Who needs disability insurance from the Excess & Surplus Market?
There are two general qualifiers for individuals who purchase disability insurance from the Excess & Surplus market. The first is often a circumstance of underinsurance. The most common example of underinsurance is when the US disability insurance markets cannot provide a sufficient amount of coverage an individual is looking to purchase, therefore they require a supplemental policy (often referred to as an “excess” or “surplus” lines policy) to enhance a domestic disability plan with inadequate benefits. Highly compensated executives and professionals earning in excess of $500,000 annually represent a significant segment of this class.
The second is when a void exists in the US disability insurance markets and the coverage an individual is seeking is simply unavailable. This class is comprised of professional athletes (NFL, MLB, NBA, NHL), entertainers (actors, actresses, musicians, artists, producers, writers, etc.).
What are the different types of disability insurance found in the Excess & Surplus Market?
There are six products that make up the core programs in Excess & Surplus DI portfolio. The first four are personal programs purchased by individuals to protect their futures, the last two are business programs utilized to insure a business owners equity or the human capital one brings to an organization.
High Limit Disability Income Protection: By sheer product volume, this is the leader in the Excess DI market. High limit disability income protection is most often utilized to supplement an individual’s US disability insurance coverage to provide adequate protection for high income earners. This type of coverage typically provides an “own occupation” definition of disability. The ideal candidate for this type of coverage are CEOs, CFOs, COOs, CTOs, hedge fund, private equity and financial professionals, attorneys and specialty physicians/surgeons.
Multi-Life Guaranteed Issue Disability Income Protection: For organizations employing high earning individuals, a High Limit Guaranteed Standard Issue (GSI) program is available which allows employers to leverage their institutional buying power, reducing coverage costs and policy underwriting requirements to streamline the application process. The employers group Long Term Disability (LTD) and domestic supplemental Individual Disability Income (IDI) programs must be maximized before a GSI policy from the Excess & Surplus Market can be offered. There are four different types of GSI programs: mandatory, mandatory with buy-up, opt-out, and voluntary plans.
Disability Income Protection for Entertainers: Entertainers present unique challenge to US disability carriers as their earnings history is often riddled with volatility, and they consistently present a compressed career that limits the time they earn the bulk of their income. For those reasons, the Excess & Surplus Lines Market are the primary sources to obtain Disability Income Protection for Entertainers.
Disability Income Protection for Athletes: Similar to the entertainment field, a void in the US disability market leaves these professionals without a domestic option for disability income protection. For college and professional athletes, Lloyd’s provides “own occupation” coverage that designed to pay a lump sum benefit for career ending injury or illness.
Key Person Disability Insurance: For organizations with Key Executives who are vital to the financial success of their business, a corporately owned Key Person Disability Insurance program from the Excess DI market is available with a policy structure that will provide the organization a benefit in the event their key person is injured or suffers an illness.
Buy-Sell Disability Insurance: For successful business owners maintaining a buy-sell agreement within their partnership, insuring the stock repurchase requirements in the event of a disability can prove challenging in US disability markets. US disability carriers provide this type of insurance up to a benefit maximum of roughly $2-3M per insured (this benefit varies across carriers and the state in which coverage is being issued). For business owners with additional Buy-Sell Disability funding requirements, a supplemental Disability Buy-Sell Insurance policy can be issued to reduce the business burden to repurchase a disabled partners equity beyond what is available from domestic carriers.
How to buy disability insurance from the Excess & Surplus Market?
Talk to your planner! Whether you’re working with an insurance advisor, or a wealth planner, these individuals are the folks who are licensed and trained to review your circumstances and determine if you are eligible for Disability insurance from the Excess & Surplus Lines Market.
After reviewing an individual’s financial state of affairs, if it is determined an Excess DI policy will provide value, the individual will then apply for coverage. The application process typically takes 10-15 business days and requires financial and medical underwriting. If coverage is approved, the individual can then purchase the policy that has been applied for. Following the purchase of the policy, the insured will have 10 days to review the final policy terms and conditions and accept the coverage.
How to apply for disability insurance from the Excess & Surplus Market?
From a buyer’s perspective, applying for an Excess DI policy is most often handled by their advisor. To understand how the application process works with a coverholder, here is "The Life of an Excess DI Policy", how we as a Lloyd’s coverholder handle an insurance policy from quoting coverage, all the way through the delivery of the contract.
Step 1: The advisor makes an initial request, providing the coverholder with the following information of proposed insurer: name, date of birth, occupation, income, in-force traditional disability insurance, and desired amount of coverage.
Step 2: The coverholder provides an indication of coverage along with underwriting requirements via email to the advisor on the case within 24 hours.
Step 3: The advisor on the case comes back to the coverholder with any questions, changes, or feedback.
Step 4: If requests for revisions are made (which they often are), coverage is adjusted and indication of coverage is redistributed.
Step 5: New advisors are required to be appointed with the coverholder. Complete the coverholder’s producing agreement and provide proof of licensing and errors & omissions (E&O) insurance.
Step 6: The advisor submits application and all underwriting requirements to the coverholder.
Step 7: Underwriters review the policy requirements – application, medical, financials.
Step 8: The case is either approved as is or underwriters adjust, ie., ratings, exclusions, declines.
Step 9: Coverage is offered and the advisor is invoiced.
Step 10: After the check is received, coverage is bound and the policy is built, proofread and sent out in a digital format for delivery to the client (hard copies are provided when requested).
How to file a disability insurance claim?
The first step in filing a claim should start with reviewing the policy. Excess DI policies provide the details on how to submit a claim, what is needed, and the timing in which the information is required to be submitted. This process varies across the different product types, however the below information can be used as an illustration of how the general process works.
The claim process is often handled by the insured’s advisor. A written notice of claim must be given to a Lloyd’s of London coverholder typically within 60 days of loss. The written notice must include the insured person’s name and policy number. Upon receipt, the coverholder notifies the Excess Lines Market and an adjudicator is appointed. It should be noted that a coverholder does not adjudicate claims directly.
After the notice of claim has been given, the appointed adjudicator provides the advisor with necessary forms for filing proof of loss and medical authorization forms. The adjudicator works directly with the policy holder’s physician to obtain records. Proof of loss must be given within 90 days of such loss. Proof of loss cannot exceed 1 year after loss, unless the claimant is legally incapacitated.
The adjudicator will correspond directly with you, your writing agent or other appointed party working on your behalf while you focus on recovery. The adjudicator provides you with regular updates on your claim and is available to you via phone or email for questions.
Claims are typically paid through a wire transfer of funds directly to your bank account. This ensures timely delivery and mitigates any delays and lost parcels associated with traditional mailing methods.
What does “TTD” stand for in an Excess DI policy?
TTD is an acronym for Temporary Total Disability. When a person cannot return to work for a period of time due to a disability, they are considered temporarily totally disabled. Under a TTD definition of disability, benefits are most often structured to pay the insured monthly for a period of time as defined by the policy.
For an insured to receive benefits payable under an Excess DI policy that carries a “TTD Benefit,” the insured must be deemed totally disabled due to an injury or sickness that occurred while the policy is in force. The insured must satisfy the elimination period which is shown on the policy’s schedule, and be under the regular care of a physician that is appropriate for the condition causing the disability.
How much does it cost to purchase an Excess High-Limit DI policy?
High limit disability policies from the Excess & Surplus Lines Market can vary significantly in price due to a range of factors. Age, occupation, health status, smoker status, state of residence (for surplus lines tax purposes), and structure and the amount of benefit being acquired are all contributing factors to determining the purchase price of a high-limit disability policy.
To help illustrate the variance in cost, the rating class for NFL Lineman is priced far higher per unit than that of a Hedge Fund Manager. While both individuals would be considered a terrific candidate for an Excess DI plan, the occupational risk and loss ratio greatly differ between the two.
Additionally, the terms of the policy can further impact the cost of these programs. For example, a contract that includes all pre-existing conditions may carry a higher cost than a policy that excludes them.
The most reliable way to determine the cost of an Excess high limit DI policy is to request an illustration, terms and conditions for the coverage being sought.
How long does it take to issue a disability policy from the Excess & Surplus Market once underwriting has been completed?
Generally, it takes about 5-10 business days though coverage is typically bound prior to the receipt of the policy. For a high-limit Excess DI policy, it is standard for coverage to begin after a policy has been approved by underwriters and premium received; receipt of premium binds coverage. Once coverage is bound, the policy must be filed with the State Insurance Department of the state in which the policy holder is located. This process varies from state-to-state and can impact policy delivery times as each state carries their own requirements and procedure for filing. In states where this process is efficient, turn-around times can be as short as 1 day. For other states, the process is far slower and can cause a policy to take 3-4 weeks to turn-around.
What was the largest Excess DI policy ever purchased at Exceptional Risk Advisors?
The largest Excess High Limit DI policy was for $200,000,000 on an American movie producer and CEO of a large entertainment company. The client, who produces animation and live-action films, had established a film franchise responsible for grossing over $3 billion worldwide. With four more franchise films in production and two in development, a disability to the producer-CEO would cause a catastrophic loss in wealth to the individuals estate. An Excess High Limit DI policy was paramount.
To the best of our knowledge, this is the largest individual disability policy ever purchased through our firm.