siia 30 th annual national educational conference an independent view of the stop loss market today...
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SIIA 30th Annual National Educational Conference
An Independent View of the Stop Loss Market Today
October 14, 2010
Actuarial Management Strategies, Inc.AMS
Presented by: Alison J. Saifer, FSA, MAAA
Copyright and Disclaimer
This presentation is for informational and discussion purposes. All material contained within this presentation is believed to be reliable and is based upon market experience and knowledge of Actuarial Management Strategies, Inc. (“AMS”). AMS does not certify to its accuracy or completeness. This document and its contents are proprietary to AMS and may not be copied or reproduced without the express consent of AMS.
Background: Alison J. Saifer, FSA, MAAA
Health Care Consultant (Actuarial/Financial/Business) for:
Reinsurance Companies
Direct Carriers
MGUs
Attorneys
Investors
Recent Experience
Review Approximately $1 Billion in Stop Loss Experience per Year
Perform 8 – 10 Employer Stop Loss Program Audits per Year for a Variety of Different Clients
Perform Facultative Underwriting for Large Cases Program Underwriter for Reinsurance Companies Annual Detailed Review of Most Popular Medical
Stop Loss Manual Expert Witness Work for Employer Stop Loss
Deals Gone Bad Stop Loss Program Reviews for Financial Investors
Overview Employer Stop Loss Market
State of the Employer Stop Loss Market
STILL a soft market cycle
Existing and new capacity continue to seek growth or maintain market share
Signs of softening aggregates
Most programs are not meeting profit objectives
Blues and Direct carriers continue to increase market share
State of the Employer Stop Loss Market
Large Profits Achieved in Early 2000’s are History
2004 Small Profits or Losses by Many Carriers
2005 – 2006 Market Shifts from Hard Market
2007 - 2010 Market Gets More Competitive Each Year
1/1’s – Still No Sign of Hardening Market
Recent Market Cycles
Hard Market
Soft Market
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Previous Optimism Hasn’t Panned Out
According to a Special Report Issued by A.M. Best in October 2006, “Medical Stop Loss Market May Show Signs of Hardening in 2007”
Reinsurers exiting the market
Consolidation with insurers purchasing MGUs (i.e. HCC purchasing Perico in 2005 and Allianz’s U.S. Health Products Division)
Increasing loss ratios will result in more conservative underwriting and higher prices
But the MGU/Reinsurance Market is a Smaller Piece and No Longer Driving the Market
Existing and New Capacity Seeking Growth
Many Insurers/Reinsurers Still Have an Appetite for this Class
Some Players Believe that Health Care Reform will Result in New Opportunity for Stop Loss
Some New Players Start-up MGUs
Xchange Benefits
New/Expanded Insurance/Reinsurance capacity RGA Beazley
Market Shifts
Munich Re America Acquires Cairnstone in 2007 ($80 million) 2007 Non-renews 4 MGU stop loss partners (>$100 million) Reduction in staff managing stop loss 2009 once again expands by partnering with MGU markets
Berkley
Key Reduction in Staff in 2007/2008, then in 2009 Expands Staff Again Dedicated to Writing Stop Loss, Including Hiring a New President from Sun Life with Significant Stop Loss Experience
Companion Purchases: Montgomery Management Corporation in 2007 International Specialty Underwriters in 2008 International Insurance Services, Inc. in 2009 Summit Reinsurance Services Inc. in 2010
Market Shifts (cont’d) Several BCBS Plans are Looking at Expanding Stop
Loss Market
Chubb Exits the Direct Division, but Stays in the Market Through Partners
CV Starr Exits the Stop Loss Market, but new MGUs Springing up from ex-CV Starr staff (apparently with paper and reinsurance support)
HM Insurance Group Acquires Mutual of Omaha’s Stop Loss Block ($100 million)
Principal Financial Group Exits Self-Funded Medical with UnitedHealthcare Offering Renewal Policies
BCBS in Stop Loss
According to a Recent Article Published in MyHealthGuide
“As of June 30, 2009 Blues plans and their affiliates insured 102.3 million people through major medical plans… More than half of the Blues aggregate membership is through self-funded or administrative services only (ASO) plans.”
State Specific Blues Discounts and BlueCard make Claims Costs Lower than Most Competitors, with the Ability to Offer Lower Cost Coverage on a National Basis
Catastrophic Claims
Catastrophic Claims are Getting Larger Catastrophic Claims are Occurring with
Increasing Frequency Health care reform will escalate both frequency and
severity by removing maximums Providers are known to manage to maximums for
catastrophic claims
Catastrophic Claims are on the Rise
According to a Presentation by Summit Re at ASNY in November 2009:
Average size of claims over $1 million 2005 – about $1,200,000 2008 – about $1,475,000
Probability of a claim over $1 million 2002 - <.00002 2005 – about .00003 2008 – almost .00007
Mid-Size Claims on the Rise
The Increase in Large Claims has Been Discussed for Years. But the News with Mid-Sized Claims Isn’t Any Better.
According to Munich Re America HealthCare Fall 2009 Newsletter:
Between 2004 and 2008, the number of claims has increased 50% at the $50,000 level and 80% at the $250,000 level.
Claims greater than $50,000 now make up more than 25% of the total average claim cost.
Impacts stop loss trend!!!!
Catastrophic Claims
How High Can Charges Get? HCR Has Not Addressed the Cost Side
$5 million limit implies approximately $13,700/day x 365 days Charges in NJ average $12,000 - $15,000 per day
How to Price When Limits Have Historically Been Less Add Cat charge Ignore extra cost, because don’t believe it will happen Add extra cost, but reduce price with discretion
Major “Cat” Events of Past 10 Years Have Had Minimal Impact on ESL Experience
Luck? Losses also constrained with policy limits It’s still not in the experience!
Eventually There Will Be Impact 2011 may be small enough not to worry about
Underwriting is Too Aggressive
Today’s Market: Increased Competition on Lasers
No laser or no laser at renewal policies are becoming common Additional costs for this product are being lost due to competition
Large PPO Discounts Plus Underwriting Discretion Necessary to compete with BUCAs which have increasing share of the
market Other Discounts Available
Health Management programs have been certified for a 10% discount on specific stop loss coverage
Competition on Aggregate Attachment Points Early Lock-In of Rates Some Companies Have “You First” Attitude, Waiting for
Competition to Act More Responsibly in Rating Many Companies Trying to Figure Out How Heath Care Reform Will
Impact Stop Loss
Competition on Aggregate Attachment Points
Low Premium Will Not Absorb Claims
Supposed to be Sleep Coverage Some players are pricing to a loss ratio
Agents/Brokers are Selling on Aggregate Attachment Point as Well as Specific Premium and Lasers
This Year More Aggregate Activity is Apparent in Audit
Do We Remember the Underwriting Mistakes from the Late 1990’s?
BUCAs can Afford Lower Attachment Points as Their Claim Costs are Lower
What to Watch for on Aggregate
As Underwriting Loosens on Lasers, Consider Potential Specific Claims Compared to Historic Number of Specific Claims Which Will Affect the Accumulation
Health Care Reform May Impact, including Eliminating Cost Sharing for Preventative, Removal of Pre-Ex, Elimination of ER Pre-Cert Penalties, etc.
Evidence that in the Past Years, First Dollar Trend is Materially Lower for HDHP, as Consumers Make Cost Conscious Decisions for First Dollar Care
May reduce aggregate attachment points PWC estimates 2.5% lower trend CIGNA states their CDHP experience ½ the trend of HMO
and PPO Won’t last forever – enrollment is still low with positive
selection and short term effect – people will still get sick
Trend
First Dollar Trend has Been Relatively Consistent Over the Past Few Years
2010 Segal Health Plan Cost Trend Survey PPO Medical + Rx Projected 2010 trend – 10.5%
Aon Summer 2010 Health Care Trend Survey PPO Medical + Rx – 2010 trend – 10.7%
PriceWaterhouseCoopers Healthcare Cost Trends for 2010 All Plan Type Overall Projected 2010 trend – 9.0%
But Leveraged Trend has Changed with Reverse Leveraging Occurring in Some Instances
Trend in Underwriting
Most are Not Getting Trend (or Leveraged Trend for Specific!) at Writing or Renewal
Some who are getting trend in prices, off-set with getting too aggressive on lasers
Many are Not Using Actual Trend in Aggregate Attachment Points
One trend does not fill all!
Some Industry Manuals are Not Increasing by Leveraged Trend From Year to Year
Health Care Reform and Stop Loss
Does Not Appear that HCR Will Affect Stop Loss for: Minimum loss ratios Lasering, disclosure requirements, medical underwriting
Does Appear that HCR Will Affect Stop Loss for: Cover on family until age 26
track composition of family and average number of people covered
No lifetime maximums Some Stop Loss carriers have announced (and many have
implemented) intention to revise stop loss policies to increase plan maximums including no limit options
Potential explosion of high cost claims when limits are increased or removed
No rescissions Qualify for early retiree pool
Health Care Reform and Stop Loss
Other Things to Consider Mandated coverage for biological Rx
Employer must report value of coverage
Clinical trial exposure
Market Size – Health Care Reform
No Consensus on How Health Care Reform will Impact Total Size of the Stop Loss Market
Some Believe that HCR will Increase the Size of the Market as Employers with Higher than Average Paid Employees Attempt to Keep Control of Health Care Costs
These employees will not qualify for subsidies on the exchange
May open opportunity for new/expanded product innovation, such as limited medical to fill some gaps and specialty carve-out products to limit employer exposures
Very Large Employers will buy Stop Loss for the First Time due to Unlimited Benefits and Increased Liability for Catastrophic Claims
Market Size – Health Care Reform (cont’d)
Others Believe that HCR will Decrease the Size of the Market as Reporting and Tracking Requirements for the Employers Become More Burdensome
Lower paid employees will have incentive to move to exchanges
Fees on Self-insured plans
Presentation by Milliman saying they believe 10 – 20% of employers will move out of self-funded plans
Other Potential Changes to Market
Transparency in Costs – Administration and Brokerage Taken Out of “Insurance Costs”
Already happening
Pressure on Providers for Transparency May Reduce the Differential by Network (Consumer Driven)
No material effect yet
Poor Results for Risk-Takers May Potentially Slightly Reduce Capacity
Continued Consolidation
Chaos Breeds Opportunity
How to Get New Groups or Keep Existing Groups Be prepared to help with administrative burdens for
reporting by group
Discount, discount, discount Without low claim costs, will not be able to compete
Low expenses Directs operate at low expenses and leverage
administrative services. Take administration and commission out of premium
Specialty carve-outs may reduce employers first dollar aggregate risks
Thank You !
Alison J. Saifer, FSA, MAAAPresident
[email protected](215) 862-8390
www.actmgmt.com
Actuarial Management Strategies, Inc.AMS