We collaborated with Guy Carpenter on the second annual “Stop Loss Market Update” report. The report highlights the significant growth in the stop loss market and the profitability challenges caused by recent market trends. It also discusses the increasing impact of high-dollar claims and therapies, and emerging opportunities to look at the stop loss market in new ways using artificial intelligence (AI) and advanced analytics.

Stop loss premiums rise from 2018 to 2023, but claims push loss ratios to 80.3% 

According to our report, stop loss carrier premium volume increased to $35.5 billion in 2023. This reflects a growth rate of 11.9% from 2018 to 2023. Of the annual growth, 10% was driven by cost trends and business mix changes, with the rest due to increased enrollment. However, claims increased at a faster rate, resulting in loss ratios deteriorating from 79.5% in 2018 to 80.3% in 2023.

Rising healthcare costs and large claims drive employers to self-funding 

With rising healthcare costs and inflation pressures, employers are looking for ways to control costs. Since 2018, enrollment in the fully insured medical market has dropped by over 15%, with many employers migrating to self-funding mechanisms to lower costs. There is also growing concern among insurance and reinsurance companies about the increase in large claims. The frequency of claims exceeding $1 million has risen significantly over the past five years, although the rate of yearly increase has diminished recently. Most of these claims are related to cancer treatments, premature births, complex conditions, and specialty pharmacy.

Advanced analytics enhance stop loss portfolios and manage large claims

GC Mosaic’s Predictive portfolio model uses advanced analytics to identify areas for profit improvement and growth, while Oliver Wyman’s Health data and analytics team uses a large claims model to identify individuals at risk of high-cost claims. These tools, both individually and together, hold great potential for better risk selection and underwriting.

The “Stop Loss Market Update” report offers valuable insights into market trends, drivers of profitability, and how advanced analytical techniques can be used to address challenges in managing high-dollar claims.