Stop loss volatility adds to the complexity
Executing stop loss strategy effectively will require precision amid market turbulence
The stop loss market is transitioning as high-cost claim severity continues to rise. Carriers across the market are responding with tightening terms, contract restrictions, and increasing premiums.
Employers should expect:
More pricing pressure: Average 2027 renewal increases up to 30% are expected, compared with 20% average target increases for 2026. Carrier loss ratios have not stabilized, and with ongoing liability being less predictable, even employers with historically strong performance may still face significant increases.
Greater demand for claims data: Carriers are requiring clean, timely data, often closer to the effective date. This will drive more data requests and tighter submission timelines.
Longer reimbursement timelines: HR teams must build more time into planning cycles and reconcile claims more frequently. Q4 2025 claim filings were up 40%+ versus prior years, which impacted reimbursements due to staffing constraints. While standard claims historically took seven to 10 days to process, additional scrutiny and data requests on complex claims are extending over a month.
MONTHS OF CLAIM DATA FOR SOLD QUOTE DISTRIBUTION1
Source: Lockton BoB. 1Percentages may not total 100% due to early renewal decisions made before a full eight months of data were available, related to lock or no-shop initiatives.
HOW PLAN SPONSORS ARE PURCHASING STOP LOSS
Source: 2026 Lockton National Benefits Survey
Being intentional with risk strategy
Now is the time to be highly deliberate in stop loss strategy. As claim severity rises and carrier performance remains under pressure, decisions around carrier selection, contract terms, and risk structure are more financially critical. Disciplined, well-structured approaches are essential to protecting against unintended exposure.
DISCUSS RENEWALS EARLIER
Going forward, earlier strategy meetings focusing on budget projections and risk transfer strategies will be more important than in past years, as underwriting results are delayed due to the need for detailed, real-time claims data.
46% of Jan. 1 policyholders were able to finalize coverage with August data in 2025. Only 32% achieved this in 2026.
ADAPT TO TIGHTENING TERMS
Increase specific deductibles to decrease premiums but still protect against risk, leverage aggregating specific deductibles, and understand how lasers can be used for a premium advantage.
EVALUATE ALTERNATIVE FUNDING
Captives, consortiums, and purchasing groups are gaining traction for employers looking for greater stability.
How captives may offer stability in a volatile medical stop loss market
As employers navigate a more volatile medical stop loss market, moving forward via captives requires discipline, alignment, and a long‑term view. Many employers already use single-parent captives to manage property, casualty, and financial risks. Those same structures can, in the right circumstances, be extended to medical stop loss. Read more about today’s market conditions and who can benefit from a captive.
Alternative risk strategies
In today’s stop loss market marked by rising premiums and tighter underwriting, captives and alternative risk solutions can offer employers greater control and cost stability. However, not all structures, partners, or financial commitments are created equal. Group size, risk tolerance, and claim volatility profile must align with the strategy.
Evaluating alternative risk options
Traditional stop loss and group captives help employers move beyond fully insured renewals, but they offer different on-ramps:
- Traditional stop loss: Delivers protection with simplicity — no capital, no shared risk, and the freedom to change carriers each year — making it the cleanest, most accessible entry into self-funding.
- Group captive: Adds control and potential profit, but requires shared risk, collateral, and multiyear commitment.
For employers looking for predictable, low-friction self-funding, traditional stop loss is the straightforward path; for deeper involvement and upside, a captive is worth exploring.
- Single-parent captives: A single-parent captive is a wholly owned insurance vehicle that finances a company’s own risks and captures underwriting profit. These structures typically become cost-effective when total captive premiums exceed approximately $3 million. Large employers with a comprehensive risk strategy that also spans property and casualty lines such as workers’ compensation, general liability, auto, and cyber may be well positioned to consider a single-parent captive approach.
Lockton provides independent consulting and reinsurance brokerage, which brings unique advantages to a company forming or operating a single-parent captive.
of employers are currently purchasing stop loss through a captive.
Source: 2026 Lockton National Benefits Survey
Some self-funded large employers (500 - 1,500) may not want to enter a pooled captive that could provide more financial upside to smaller employers using their larger total premiums to subsidize the higher frequency of claims. In these cases, a risk/reward model that emphasizes transparency and member ownership could be a more attractive option. This gives direct insight into program performance, rewarding employers for their own performance and giving them the freedom to customize how they manage claims and control spend.
