Keys to Controlling Renewal Rates
There’s a lot of buzz about stop-loss renewals right now. I love seeing the different perspectives, but most of them lack insight and information. For instance, no one is talking about:
- The impact of retrocessionaire rates.
- That the markets you go to matter.
- Why you should do an alternate market check.
Cost of Reinsurance for Reinsurance
The avalanche of factors that bubbled up and drove claims cost to spike this summer didn’t just hit plan sponsors with increased cost. It also hit stop-loss direct writers and managing general underwriters (MGUs) who share risk with the retrocessionaire. These are the carriers that provide reinsurance to the stop-loss market. The stop-loss carrier name you see on your policy is taking risk on your plan. In many cases, however, they cede risk to another reinsurer. Like plan sponsors, stop-loss carriers have a policy that renews annually with a retrocessionaire. By September, after the summer spike, many of these excess reinsurance markets notified their stop-loss clients that losses were well above projections and they should expect increases of 30% or more at renewal on these excess layers.
At that point, your plan’s strong performance didn’t matter. Somewhere around 20% became this renewal season’s baseline “leveraged trend increase.” That is, unless you knew MGUs and carriers who had already renewed their annual retrocessionaire treaty before this hit. Similar to plan sponsors, the bulk of MGUs’ renewals are Jan. 1, but some are off-cycle throughout the year. Those that locked in renewals prior to the summer slam had a massive advantage this renewal season, and the plan sponsors we market for were able to take full advantage.
The Market Matters
In stop loss, the big name direct writers tend to dominate the self-funded market for plan sponsors who use PPO networks. These stop-loss carriers who show up as the “who’s who of reinsurance” are, unfortunately, not aggressive at pricing nontraditional plans. Their underwriters mostly have no idea how to adjust their standard underwriting models for a plan operating without a network.
To get expertise in nontraditional underwriting and get proper credit for your plan, you almost have to enlist an MGU. These MGUs have the flexibility and desire to properly underwrite RBP solutions. In addition, these high-quality MGUs are more creative with their ability to firm up rates. Be careful though; don’t assume all MGUs are good. There are some vultures in this space grabbing premium dollars and not paying claims. Anyone with experience placing stop loss will know how to put you with markets known for strong claims paying ability and not ones that just spit out competitive rates.
I market to select direct writers as well as a group of forward-thinking and high-quality MGUs. Over the years, the MGUs have really stood out. Not only do they understand how to underwrite RBP, but the good ones also understand ClaimDOC’s program. They understand that plan reimbursement shouldn’t be managed strictly under the guidance of policies related to the summary plan description and plan document. Being excellent at RBP means, as a fiduciary, you sometimes have to give up a battle on one claim to win the war on the overall plan spend. Our good partners have seen our performance over the years, and they trust we are always making decisions in the best interest of controlling both plan spend and risk.
Some MGUs appreciate our performance with controlling cost to the point they will reimburse the plan sponsor on claims they aren’t technically required to. They acknowledge the positive impact we’ve had on their loss ratios, and they put their money behind the mission. We just had one of our markets step up and reimburse a plan sponsor $42,000 on two claims where they weren’t required to do so. Markets have to be competitive to renew business, however, there is unappreciated value with those that know how to be good partners to their clients.
Market Check
My role at ClaimDOC is to head up our Risk Analysis and Marketing (RAAM) service. I manage the proposal process with the markets we quote. We do this as a free service to our brokers and, unlike the brokers’ broker shops, we don’t charge anything. “We don’t charge anything” is a common phrase in benefits, which usually means you are taking money in some other way from the vendor you place the business with. “Best in class” is now code for “the vendor that will pay me the most.” We don’t charge, and we don’t take money from any market. We do this because getting the best rates gives ClaimDOC the best chance to win the business.
It’s easy for a client or a broker to request that we take their plan to market and see what competitive rates exist. I understand some brokers are uncomfortable with exposing something they could have done previously, but I have never seen a client get upset with their broker for having us do a market check. Here is an example of the work we did.
We are in an era of transparency with medical plans, yet it often feels like stop loss has been left behind. If you are using an RBP solution and you aren’t getting proper credit, just know you are likely subsidizing plan sponsors using networks and that should bother you.