Net premiums earned in the US stop-loss insurance market more than doubled over the last five years, with premiums surging up to $18.6 billion in 2018, according to AM Best.
Premiums were up from $9.2 billion in 2013, reflecting a shift toward self-insured health plans since the implementation of the Affordable Care Act (ACA), analysts said.
While revenue from stop-loss business is relatively 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 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, and are not subject to its health insurer fees or minimum loss ratio requirements.
The rate of stop-loss growth now greatly exceeds the traditional group health market, AM Best noted, with companies that wrote at least $10 million in stop loss premium last year recording 102% growth in the line, versus an 11% decline 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 at AM Best.
“In addition, the removal of the lifetime maximum by the ACA has significantly increased the potential for catastrophic losses,” he explained.
AM Best also noted that the size of the employer group can heavily influence an insurer’s success, with small insurers often reluctant to write stop-loss business for small employers, owing to their more volatile claim pattern.
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.
Although underwriting has become stricter and the product has become more expensive after product repricing, analysts reported that 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,” remarked industry analyst Christopher Lewis.
AM Best believes that accurate pricing and stable underwriting results will remain a priority for stop-loss writers in future, particularly if new entrants focus on smaller employers.