INSURANCE INSIGHT
Medical stop loss sees a volatile, tightening market
High-cost claims are exceeding deductibles at a growing rate.
Increasing occurrences of million-dollar-plus claims are causing stop loss carriers to price future risk above historical trends and creating a more challenging environment for renewals.
The frequency of claims for cancer, cardiovascular, and musculoskeletal conditions remains consistently high, and perinatal, transplant, and specialty pharmacy continue to be large contributors to claim severity. While the prevalence of cell and gene therapy treatments remains low, emerging high-cost treatments are key to watch in the year ahead.
Increasing deductibles to lower premiums and absorb manageable risk is a growing trend: Lockton clients increased deductibles at nearly twice the rate of 2024, a trend expected to continue amid rising enrollments and renewal pressures.
Lockton clients increased deductibles at nearly twice the rate of 2024.
Anticipating the impact of emerging rare disease treatments
Many high-cost claims in the coming years will be driven by emerging treatments for conditions that were previously untreatable. Orphan drugs and gene therapies that are developed for rare diseases often affect small patient populations but still carry development costs just as high as drugs for large populations. With a limited number of eligible patients, manufacturers must recoup costs over a much smaller base, driving higher prices.
These therapies often enter the market quickly and don’t appear in historical claims data until after adoption, meaning past claims experience doesn’t reflect the potential impact of future catastrophic cases. For stop loss underwriting, this reinforces the need for forward-looking assumptions and pricing models that account for emerging high-cost drugs and early-stage chronic conditions.
Forward-looking underwriting guidance is critical as high-cost claims escalate
Lockton uses multiple internal and external resources for predictive modeling and historical large claimant analysis to provide an earlier opportunity to evaluate current and renewal ratings with premium benchmarking.
Speak to an expert to learn more and explore how our clinical team can help evaluate high-cost claimant liability and project future costs to support negotiations.
Spotlight on alternative risk strategies
To help mitigate the impact of continued high-cost trends, Lockton is seeing increased usage of alternative risk strategies, including captives and aggregating specific deductibles, that help provide additional protection against unexpected costs.
Captives
A risk transfer or risk segmentation mechanism that redirects some of the premium or underwriting surplus from the commercial insurance market back in-house.
Aggregating specific deductibles
Enables the plan to pay a reduced premium in return for assuming additional claims liability that is not specific to a single claimant but is satisfied through an accumulation from all covered claimants. The employer meets this additional deductible before the stop loss carrier begins paying specific deductible claims. This approach allows the employer to meet the aggregating specific deductible with one or a combination of several plan participants.
