Stop Loss

Question 1

Stop Loss Insurance

Specific Stop-Loss

Answer 1

Covers plan’s exposure to large losses per member

Question 2

Stop Loss Insurance

Aggregate Stop-Loss

Answer 2

Covers large losses of the entire plan not otherwise covered by SSL

Question 3

Stop Loss Insurance

Minimum Attachment Point

Answer 3

Protects carrier against antiselection if there is substantial decrease in enrollment

Question 4

Stop Loss Insurance

Aggregate Corridor

Answer 4

Plan’s maximum net possible loss

• Gap between expected claims and aggregate attachment point

Question 5

Stop Loss Insurance

Stop Loss Insurance Business Functions

Answer 5

• Marketing/Sales/Distribution
• Stop-Loss Underwriting
• Policy/Claims Admin and Reporting
• Policy Compliance
• Risk-Taking

Question 6

Stop Loss Insurance

Key Variables Within Stop Loss Insurance

Answer 6

• Benefits Covered
• Contract Basis = “Incurred/Paid”
• Known vs. Unknown Risks = Lasers
• Maximum Liability Covered by SLI (ASL)

Question 7

Stop Loss Insurance

Specific Stop Loss Variations

Answer 7

• No Laser Guarantee
• Aggregating Specific = Plan retains risk for aggregate amount above specific deductible

Question 8

Stop Loss Insurance

Aggregate Stop Loss Variations

Answer 8

• Attachment Point below 125%
• Aggregate-Only SLI
• Attachment Point below 100% = retained corridor

Question 9

Stop Loss Insurance

Optional Features of Stop-Loss Products

Answer 9

• Advance Funding
• Specific/Aggregate Accommodation
• Specific Reimbursement
• Terminal Liability Option = add runout protection

Question 10

Stop Loss Insurance

Specific Stop Loss Premium Rates: Steps

Answer 10

1. Collect claims and exposure data
2. Adjustments to claim amounts (trend, common benefits)
3. Create CPD
4. Calculate Specific Base Claim Rates
5. Adjustments (group, benefit plan, contract provisions, cost controls)
6. Expense/Risk Loading

Question 11

Stop Loss Insurance

Reasons to Use Manual to Calculate Attachment Point

Answer 11

Typically based on group’s experience

• Small group w/o 100% credible data
• Benchmarking
• No experience available
• Determining adjustments for changes in benefit plans

Question 12

Stop Loss Insurance

Aggregate Premium Rates: Development

Answer 12

1. Run Monte Carlo Simulation (# of EEs, agg. factor, SSL deductible, agg. benefit limit)
2. Premium = Risk % * Expected Claims
3. Load for Expenses/Profit

Question 13

Stop Loss Insurance

Process Risk

Answer 13

Potential variations of actual claims vs. expected

Question 14

Stop Loss Insurance

Parameter Risk

Answer 14

Potential for stop loss UW to misestimate the expected claims

Question 15

Stop Loss Insurance

Specific Stop-Loss UW Considerations

Answer 15

• Eligibility/Enrollment Information
• Underlying plan design
• Competition
• Past SL experience
• Known loss data
• Data Quality

Question 16

Stop Loss Insurance

Advantages of Lasers (Carrier and Self-Insured)

Answer 16

• Stop Loss Carrier
  
  • High cost claimant remove from risk pool
• Self-Insured Plan
  
  • Lower SL Premium

Question 17

Stop Loss Insurance

Disadvantages of Lasers (Carrier and Self-Insured)

Answer 17

• Stop Loss Carrier
  
  • Premium could be higher if member is included
• Self-Insured Plan
  
  • Plan may be better off without laser if carrier underestimates actual liability

Question 18

Stop Loss Insurance

Disadvantages of Aggregating Specific (Carrier and Self-Insured)

Answer 18

• Stop Loss Carrier
  
  • Less being covered and lower potential profit
  • More complexity
• Self-Insured Plan
  
  • Plan is taking additional risk

Question 19

Stop Loss Insurance

Known Loss Underwriting Approachs

Answer 19

• Add expected liability into premium calculation
• Modify risk margin
• Add laser

Question 20

Stop Loss Insurance

Reserving Methods for Specific/Aggregate Stop Loss

Answer 20

• Specific
  
  • Completion Factors
  • Loss Ratio
• Aggregate
  
  • Policy YTD
  • Loss Ratio

Question 21

Stop Loss Insurance

Stop Loss Filing

Answer 21

• Form Filing = Contract documents
• Rate Filing
• Actuarial Memorandum
  
  • Description
  • Rates = sound and reasonable
  • Anticipated LR and MLR compliance
  • Certify that filing is compliant with law