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Best’s Market Segment Report: Size of U.S. Stop-Loss Insurance Market Doubled Over Five-Year Period


Net premiums earned in the U.S. stop-loss insurance segment have more than doubled over a five-year period as more employers shifted toward self-insured health plans since the implementation of the Affordable Care Act (ACA), according to a new AM Best report.

The Best’s Market Segment Report, titled, “Stop-Loss Insurance Segment Continues to Grow Significantly,” states that although revenue from stop-loss business is low compared with traditional commercial group health insurance coverage, it has been growing quickly in recent years as employers seek cost savings and more flexibility. Stop-loss insurance limits an employer’s exposure, and is initiated when a claim or claims reaches a pre-determined threshold. Unlike most traditional group insurance plans, self-funded insurance plans do not have to provide all of the benefits mandated by the ACA, nor are they subject to its health insurer fees or minimum loss ratio requirements.

This increased interest in stop-loss insurance is reflected in the growth of net premiums earned to $18.6 billion in 2018 from $9.2 billion in 2013. The revenue growth in the stop-loss segment also reflects higher rates due to additional risk related to unlimited maximum exposure. In addition, the rate of stop-loss growth is greatly exceeding that of the traditional group health market. Companies that wrote at least $10 million in stop-loss premium in 2018 saw the line grow 102%, while reporting a decline of approximately 11% in group commercial net premiums earned since 2013.

“For companies that self-insure, claims frequency and severity could go far beyond the norm of the general insured population and is very difficult to predict and absorb — another reason a growing number of employers are using stop-loss insurance,” said Jason Hopper, associate director. “In addition, the removal of the lifetime maximum by the ACA has significantly increased the potential for catastrophic losses.”

The report notes that the size of the employer group can heavily influence an insurer’s success. Small insurers are often reluctant to write stop-loss business for small employers, owing to their more volatile claim patterns. As a result, some smaller companies are focusing on more mid-to-large-size employer accounts, which forces them to compete with insurers with more scale or expertise or exit the stop-loss market. Conversely, small employers tend to prefer a better overall customer service experience, which tends to be an advantage of smaller insurers. Although underwriting has become stricter and the product has become more expensive after product repricing, many smaller insurers remain in the stop-loss segment through extensive use of reinsurance to mitigate loss volatility. “Reinsurers are also looking for additional areas for growth, and greater use of reinsurance can provide further diversification as the stop-loss market continues to expand and develop,” said Christopher Lewis, industry analyst.

With premiums rising steadily over the last few years and earnings varying, the performance of the top stop-loss writers has been relatively consistent. AM Best believes accurate pricing and stable underwriting results will remain a priority, especially if new entrants focus on smaller employers.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=288752.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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