OLDWICK, N.J.--(BUSINESS WIRE)--Net premiums earned on life/health insurance companies’ stop-loss products has more than doubled to $14.3 billion in 2016 from $6.7 billion in 2011, a reflection of the shift in employer preferences toward bearing greater health care risks and the prospects of fewer regulatory constraints as imposed by The Patient Protection and Affordable Care Act (ACA), according to a new A.M. Best special report.
The Best’s Special Report, “Stop-Loss Insurance Market Continues to Grow,” states that the ACA continues to shape the competitive landscape among insurers not just in the individual market but also in the group segment. Insurers have been attempting to find solutions to deal with the additional financial responsibilities associated with ACA by evaluating the amount of risk they currently shift to their health insurance providers against their financial capacity to bear some of that risk themselves. By comparison, net premiums earned from fully insured groups followed for this report rose 32.9% from 2011 to 2016, demonstrating the effects of the growing proportion of groups moving away from the fully insured option to self-funded and pushing the growth of stop-loss premiums.
Although, stop-loss revenue remains relatively modest compared with commercial group premiums, the rate of growth in the stop-loss segment has been significantly higher than that of the commercial group over the last five years, mainly due to the relatively low and stable stop-loss product medical loss ratio. However, more recently, the medical loss ratio for stop-loss increased significantly to 78.7% in 2016 from 75.4% in 2015, as reportedly, the number of claims exceeding $1 million more than doubled from 2012 to 2015.
Given the growth in the stop-loss segment, there have been a number of acquisitions during the last two years, with non-U.S. companies showing significant interest in stop-loss product. Based on five-year average net premiums earned (NPE), the stop-loss market is fairly heavily dominated by 10 companies, which accounted for more than 70% of total NPE in each of the last three years. Health carriers have been more aggressive in pursuing the growth of stop-loss premiums since that represented the opportunity to partially replace the revenue lost when accounts transitioned from risk to self-insured following implementation of the ACA.
A.M. Best believes that the transition from full risk to self-funded arrangements is likely to slow in the medium term and growth in the stop-loss segment might decline. This would increase competition for existing clients, and subsequently, put pressure on rates. In addition, higher loss ratios and lower underwriting gains might induce further market consolidation, benefiting carriers with more efficient expense structures and greater scale. Regardless, stop-loss is likely to remain one of the few segments of the health insurance market with relative stability and less regulatory risk.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=264683.
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