Goldilocks and Getting Risk ‘Just Right’ with GI/MAX

"This is porridge is too hot," Goldilocks exclaimed.
So she tasted the porridge from the second bowl.
"This porridge is too cold."
So she tasted the last bowl of porridge.
"Ahhh, this porridge is just right!" she said happily.
And she ate it all up.
Goldilocks and the Three Bears

Like Goldilocks of the nursery rhyme, group insurance carriers succeed by designing plans that are neither too hot nor too cold – but “just right.”  Smart businesspeople keep a careful eye on the competition, and Guarantee Issue (GI) and Maximum Issue (MAX) amounts can send important signals in the group life and long-term disability markets.

An extremely high GI or MAX limit suggests a more aggressive or “heated” underwriting philosophy and greater risk tolerance. A more conservative GI/MAX level, on the other hand, can have a chilling effect, potentially rendering both a plan design – and its carrier – uncompetitive.

Offered to the U.S. group insurance market on a biennial basis since May 2007, RGA’s annual GI/MAX survey provides an opportunity to take the “temperature” of the industry. GI/MAX amounts are guidelines – not mandates. U.S. group insurers can, and frequently do, depart from these limits based on a variety of factors, from the size of the employer to the status of the employee population. Still, the survey’s underwriting tables reveal intriguing patterns; it remains the most comprehensive GI/MAX industry study of the group market.

Underwriting teams can take these three steps to assess GI/MAX values: 

1. Is it Getting Hot – or Cold – in Here? Carriers should regularly review their GI/MAX guidelines and benchmark against competitors’ levels. Weighing the prevailing pricing in the marketplace, and altering plan designs accordingly, requires good competitive intelligence. Evaluating industry GI/MAX underwriting tables can provide guidance on an insurer’s competitive positioning and overall market expectations.
   
   
2. Is the Plan Design Reasonable?  From time to time, underwriters must also step back and think critically about a group plan design. Do the built-in assumptions make sense for a plan of a particular size? What are the forces behind the experience trends in the data and could they reasonably be expected to continue? In other words, effective underwriting requires sound actuarial analysis, but also a sense of intuition and understanding of evolving business trends.
   
   
3. What is the Temperature for Talent? Group underwriters can never forget the backdrop of all employee benefit decisions: the never-ending search for top talent. A challenging recruitment environment may be behind a surprising finding in RGA’s GI/Max survey: voluntary long-term disability GI/Max guidelines were identical to the traditional LTD GI/Max guidelines for a majority of carriers. Traditionally, underwriting of voluntary products has been more conservative due to lower participation rates and higher anti-selection risk. Employers’ desire to include attractive voluntary benefits in their benefit packages as a recruitment incentive could be driving this trend, in conjunction with rising health care costs.

GI/MAX guidelines alone do not assure profitability year after year. Success must be hard won and driven by a complex – and constantly changing – combination of actuarial, underwriting, and market considerations. RGA’s Group Life and LTD Guarantee Issue and Maximum Issue Amounts survey presents one tool that can help carriers to better pinpoint where they stand in a shifting landscape – and where to go from here. For more information about the survey.