Seeing the Big Picture

Mehb Khoja

Hey, everybody. Welcome back to Firm and Final. This is season three of Firm and Final. And I’m really excited about this season. This is the very first one of these for the year. And I thought for this season I would do more of like a roundtable discussion, bring in a group of experts and just kind of banter about some curated topics.

And today’s topic is really about the state of the stop loss industry. And joining me today, I got Ben Dewar who’s the SVP of Business Development at SBR. We have Vince Lewis, who’s the chief of sales and marketing officer at UME. And we got Jonathan Socko who’s the president of ECU. And I just got to say, that’s a lot of acronyms to get us started.

Right? So putting those titles to the side, you guys tell us what you guys really do and allow the audience just to get you get to know you a little bit better. Ben, why don’t we start with you?

Ben Dewar

Sure. Thanks Mehb, and thanks for having me on. I’m really excited to be with you. As far as strategic benefit resources. So unpacking that great acronym that you already hit on, what does SVP of business growth look like? For us, it’s everything growth related and supporting our producers and our underlying brokers that we work with as a wholesaler.

That’s really for me, you know, spanning from supporting our national broker relationships, supporting our national carrier relationships and then strategic partnerships that we have to provide products and services to our broker market. I referred to it as probably a self-leveling cement type of role. So for those who know me, I like acronyms and I also like analogies.

And so that’s an example of something that I will say that that’s what my role is like at SBR.

Mehb Khoja

Awesome. Vince, how about you?

Vince Lewis

Yeah. So Underwriting Management Experts. I do handle sales and marketing for the company. I’ve been here about a year and a half now. Pretty long ranging career. Too long to count, I think. I want to say, but, UME, Underwriting Management Experts, as I mentioned before, is a full service stop loss provider based out of Lansdale, Pennsylvania, just outside of Philadelphia.

We try to create disruption through innovation, independence and flexibility. A-Rated carrier, a wide array of products, including, you know, traditional level funded stop loss reinsurance, captives, you name it. And like I said, just trying to get out there and, and do right by what the industry is calling for these days.

Mehb Khoja

Awesome. Jonathan, how about you?

Jonathan Socko

Yeah. East Coast Underwriters, ECU. Jonathan Socko. I’ve been here since 2012. Hard to believe it’s been that long, but we’re a full service managing general underwriter based in South Carolina. We’ve been here since 2001, you know, host a wide range of group sizes. 25 plus is the way that we put it. So as long as a plan sponsor has at least 25 employees, you know, we’ll take a look at it.

We’ve got small group products, level funded all the way up to large group products and really everything in between. So, yeah, if it’s in the medical stop loss base, captives included, we get to have all the fun.

Mehb Khoja

That is a lot of fun. And I got to think right now, there’s some carriers in this space that are not having fun. Right. And I got to believe, at your companies, you’re talking about these recent headlines. And so what do you guys think? What’s going on in the market right now? There seems to be a lot of poor performance happening in our market.

Ben Dewar

Yeah I can kick us off there, Mehb. I think a couple things go on. Like everything, given that we sit in a product that is annually renewable, where are people sitting in their broader cycle? And as you all know, and as I think everyone on this call knows and beyond, typically you see about an 18-month window where you start to see the results of what you did for the prior underwriting cycle.

And some folks, I think, really saw an advantageous market when we were going through Covid, that some people referred to it as the hush and crush, and certainly of where, you know, claims trends were. We were probably coming down into a trough, and some folks may have over calculated that into their loss trends and where they were headed, and they’re seeing the outcomes associated with that.

The other thing going on more broadly, which is outside of what any one carrier or individual is doing, is hospital markets have not renegotiated contracts in a long time, or at least in the last 3 to 4 years, and seeing some additional pressure and trend going on that. And last but certainly not least, people are returning back to receiving care and in some sad situations have deferred care that they probably should have received a lot sooner, for oncology and care from a cancer perspective.

I welcome my other colleagues on the call to, you know, offer their perspective. But that’s what I’m seeing.

Vince Lewis

Yeah, you probably got some catch up from that, too, like you had mentioned being. And then you know, I think I saw something like claims over $1 million have increased like 45% in the last 3 or 4 years.

Mehb Khoja

Yeah. It’s out of control.

Vince Lewis

Yeah. It’s going crazy. Right. And then you start throwing in, you know, specialty drugs. You start throwing in gene therapy. So it’s just a never ending cycle. You know, the other thing I start to think about is a lot of the, the major carriers have announced, hey, we got to raise rates, and, you know, we’re going to have to increase premiums.

And so I start to think about patterns, right? Like, is there any commonality there? Right. Even like my home state of Michigan, you know, that they’re you know, they’re having issues. And I start to look at like the fact that there are, you know, most of them offer blanket no laser recap contracts.

Mehb Khoja

Right.

Vince Lewis

And so I’m sitting there saying to myself, well, how sustainable can that be over time if they’re can, you know, because this isn’t going away. You know, we all know this isn’t going away. So how does that change things? Do they decide to pull back on that? Are they going to modify it or are they just going to keep raising rates in an area which they’re limited because of the rate cap?

Mehb Khoja

Sure.

Jonathan Socko

Yeah. No, it’s a great observation. I mean, I’ve also noticed there’s seems to have been a rise in NICU claims, pediatric cases. At least we’ve noticed that pop too. I mean, Ben, back to your point about Covid. I mean, I know there was the whole thing about Covid babies. You know, I think we are starting to see some of the results of some of the other things that went on during Covid that are certainly impacting us.

But that’s one thing that we’ve noticed. But no new laser as well. I mean, because we’re seeing these cases where, you know, clean underwriting going in and these NICU things happen, you know, middle of the year, just things that are difficult, if not impossible to underwrite for, but we have noticed that and Vince your point about no new laser and market pressures.

I think that’s a great point as well. I’ve often times wondered too, I mean, bigger carriers, bigger problems too. I mean, I certainly don’t want to hypothesize, why, you know, some of the writers that it has been a little bit more public why loss ratios maybe are spiking a little bit. But, you know, there may be pricing pressures as well.

Again, that’s just, theoretical. But I oftentimes wonder if that has something to do with it.

Vince Lewis

So you’re saying, NICU claims seem to be gaining higher prevalence than say like cancer or hemophilia or any of the other major claims?

Jonathan Socko

Yeah, I mean, cancer is still the highest for us, but I have noticed a pop in NICU instances. I was looking at a couple of our reinsurance treaties recently and yeah, NICU things that you just really couldn’t account for in your underwriting. Those were top 4 or 5 in one treaty in particular, which I thought was pretty interesting.

Ben Dewar

Yeah. The one thing I was going to add is the government and beyond looks at access to fertility. I mean, that’s something that’s been on agendas. We’ll see whether or not it actually gets pushed forward. And, you know, a political environment that is a bit wonky, right now. We’ll see kind of what goes through there that could impact certainly, and has been an impact in some situations, claims wise, on fertility.

The one point Mehb I’d make before we kind of move off this topic of what’s going on in the market that I think we all need to remind ourselves on is there still is a ton of reinsurance capacity out there for folks. Yeah. And so sometimes the hysteria kicks in and it’s like, well, if the large carriers are dealing with this, oh my God is self-insurance in trouble?

And I don’t think the answer is yes at all. I think the answer is we’re going through a cycle that needs to be priced through, and people need to realize that their renewals might be a little higher in some pockets, but there’s still a ton of great carriers and great opportunities to get reinsurance out there. And we can’t let some of the bad results or, you know, trending results that go on for a few carriers impact the entire market.

Mehb Khoja

So that’s a very technical answer. And actually, you guys all provided very technical answers. But here’s my question. Right. These were some pretty big carriers publicly traded that reported missed earnings. Really due to stop loss volatility. How could big carriers like that get it wrong?

Jonathan Socko

That’s a great question. I don’t know that any of us have the perfect answer. I can only answer from our vantage point as an MGU. Right. And Ben you brought up something really interesting about the reinsurance marketplace. I was actually talking to our reinsurance intermediary not all that long ago because of all this going on.

And I was like, well, geez, is the reinsurance space going to be impacted by any of this? And I guess for me, for some of your listeners, when I talk about reinsurance, it’s not it’s not like policy level, retail level stop loss. I’m talking about the excess that many of us purchase that most folks in the industry may not even understand that…

Mehb Khoja

Yeah, you’re talking about the capacity that’s given to the insurance carriers to be able to go rate this product.

Jonathan Socko

Sure. Yeah. So I was more referring to I asked our intermediary, are the excess rates in the world that we live in? Are they just going up exponentially? And really the answer was no. It seems that the reinsurance marketplace, again, at the levels that we buy it at is very, very healthy. So for me, that’s a big sign of optimism for self insurance and stop loss again in our world.

Vince Lewis

Right? I mean, the other part too is that even though the market itself continues to kind of grow steadily, but yet the larger carriers have lost market share, which would lend itself to me to believe that there’s still capacity in the market because you got newer players coming in and they’re going to continue to try and drive market share.

Before that couldn’t happen. That didn’t happen. But now you’re seeing this opportunity because of all the losses of the larger carriers. I guess the other thing too, is that at least as it relates to the BUCA, because they were able to allocate money in certain ways because they were bundling everything so that they didn’t have to, you know, allocate all the stop loss they could give premium holidays, they could do all these different things for people to purchase stop loss insurance.

And now, you know, the claims have kind of caught up to them. And they’re like, hey, we can’t do that anymore. We got to figure out a better way, which is the only really way is just to increase premiums.

Ben Dewar

Yeah. I think rounding back to your question that you asked Mehb about, how would a large carrier get it wrong? I think some of it can be averages are evil. And when you were studying averages as an actuary not to pick on your trade…

Mehb Khoja

Bring it, baby, what do you got?

Ben Dewar

I knew you’d like it. So when you go there, I think averages can be evil. I think what it does to us as an industry is we should be pushing ourselves to the next level. Right? Like people have talked about AI. It’s in its infancy in some regards in our industry, how do we continue to use additional methodologies and how we price so we don’t find ourselves in a position, but it’s also a product that we can’t forget, does have a catastrophic risk nature that isn’t fully predictable.

And you don’t fully know that what was a $300,000 cancer claimant two years ago may be a 5 or 6 or $700,000 claimant because there’s still patient choice that exists within there, and patients are still making individualized medical decisions for their families on whether or not they want to engage in selling gene therapy. Yeah, data is not going to tell you that part.

And I think if you look at some of the results and some of the earnings calls that are discussed, severity is one of the key pieces. And so to me severity is a little bit harder to trace when you’re looking at patient decision and outcome.

Mehb Khoja

Yeah. Hard to disagree with that. And when you think about the carriers that have recently been in the news, these are such big carriers that they’re probably buying really high excessive loss layers, if any, which means they’re absorbing all of that severity and all the frequency risk. So they’re taking that pound for pound. They’re not able to outsource that to somebody else.

The way Jonathan was talking about it with the reinsurance capacity. When I look at the market, obviously some of those big names reported poor earnings results. And then here recently we’ve seen some news that some large carriers have exited the stop loss market. Right. Granular has sold. They’re now exiting. That’s the Google stop loss carrier. Unum last year exited the market.

And then just recently Allstate has sold their benefits stop loss business to Nationwide. So knowing what you know about some of those large carriers that are performing poorly. And then this news that there’s some carriers that are exiting the market, how do you guys use that intelligence with your customer base? Yeah.

Vince Lewis

I sort of find this interesting because when you read the headlines, right, all these acquisitions pointed to increased efficiency, better technologies and all this various all these various things. But the thing is that if in this market, if you can’t build a better mousetrap, then you’re going to have a hard, you know, hard way to go. And you might write all the premium in the world, but what are you doing on the back end?

How are you managing claims? Are you just given a blank check? Right. Are you just are you actually looking at the claims to see if they’re payable? Are you or again, are you just writing a blank check? So how is that backroom process being managed. And that’s usually the thing I go to. I usually talk about that and just say, hey, you may not want to hear it, but you have to pay claims, obviously in accordance to the plan document.

But is that part and parcel to some of the challenges that some of these companies face in terms of how they were able to survive going forward? And did it precipitate these actions being taken? Because I would imagine if it hadn’t, if it was going fine, they wouldn’t be looking to sell or have been sold.

Jonathan Socko

Yeah, that’s a great point, Vince. And you know, I think for myself, I view it through the lens of how is our company doing. Is that reflective of what’s going on in the market or are we doing things differently, especially as an MGU? You can kind of reflect internally. I mean, we’re obviously a much smaller fish in the pond.

I mean, you know, a lot of these carriers represent, you know, multiple billions of dollars in some cases in stop loss premium. And there’s a lot more ground to cover. You know, you’ve got, in some cases, maybe dozens of wraps. Again, I can only hypothesize not knowing how the mechanics of each of these carriers’ work, that maybe it is a little tougher to be to be selective in the marketplace versus the marketplace, I think just by design is more selective because again, you’re operating a smaller shop, tighter shop.

Maybe you’ve got 3 or 5 salespeople, handful of underwriters, as opposed to, you know, 40 salespeople and 30 underwriters. So you almost need to distinguish the marketplace in a few areas. You almost need to parse it out by direct riders, MGUs and, and really and captives as well.

Ben Dewar

Yeah. I think from a customer perspective, Mehb it’s important to think about a couple things. One, are you with a consultant, broker, producer, however you want to bucket for those particular, individuals and entities that is able to weather through different challenges that exist in the market. So if you place with somebody that does exit the market, what is that exit strategy?

And is that broker consultant on top of that? And do they have a plan B, plan C for you? If you’re in the self-funded space and need a solution. And the other component is kind of reading and watching some of the markets without naming any individual, I don’t think any of us are shocked by some of the outcomes of some of these folks exiting stop loss overall.

So. Right. Typical to understand that some folks may get into this with an intent to exit at some point. And so if they do, what do you need to do to make sure that you’ve got another solution in front of you? And what does that mean for day to day claims payment? And you know, what does that do to the overall market?

And the other component is that it shows the challenges of being a smaller player and how hard that is. And to do the right thing sometimes it means you need to exit because the volatility is just too much for your financial balance sheet. And those are all questions that I think as the market sees it, they should challenge all of us to just get better at what we do and make sure you ask the questions.

And then also, I don’t think exiting should always be frowned upon, because that may mean that they just don’t want to weather the long term storm and may cause challenges for them as a business.

Mehb Khoja

That’s a great point. I think there’s like 100 stop loss carriers in the market today. When you add up all the Blues plans, all the regional health plans, Aetna, Cigna, United, the life and disability carriers, the P&C carriers, the captives. You add it all up. There’s about 100 different options for an employer. And so I agree with you Ben.

There’s probably room for some exiting in order to make it more fruitful for everybody who’s left in the space. But now kind of taking this a step to the side. We’ve seen some new players come into this market. Last year we saw Old Republic enter the market. Prudential, which is another life and disability carrier has entered the stop loss market.

I want you guys to put your consultant hat on. And what are you advising these carriers? How do they operate their business so that they’re here for the long haul?

Jonathan Socko

Being a little facetious, I think everybody wants to have underwriting discipline. But, I think you’ve got to have a strategy, a really defined strategy on the type of business you’re attracted to when you’re first starting out. I think it would be difficult again, in my opinion, just to start off and want to go after everything we need.

The impulses are there, right? I mean, premiums are at insane levels. I mean, I remember when I first started in stop loss about 13 years ago, the premiums were nowhere near the levels that they are today. I mean, it’s almost unbelievable to look back that long and think where the premiums are. And I think it’s easy to look at the rate on a single case and say, that’s really attractive and maybe you maybe leave some of your underwriting discipline behind knowing that the rates are so high.

But, again, I think you’ve really got to be diligent. You really got to look at, your processes from underwriting to nurse medical review. You’ve got to live by your decisions. Sometimes you got to walk away from that opportunity because, hey, maybe your nurse, your underwriter catches something that just doesn’t feel quite right.

And maybe they think they caught something that the other guy or gal didn’t. So, that’s what I mean by being careful. Yeah.

Vince Lewis

Yeah. I think the other thing too, is don’t make assumptions. Just because you got a name, you know, to your point, Jonathan, if all the other components aren’t there, people are going to ferret that out pretty quickly. Price is still going to be king. And you don’t necessarily. Just because you have a name doesn’t necessarily mean you’re going to be able to get more for what, you know, pay or offer more and get more for what you’re what.

You’re bringing it to the table.

Ben Dewar

Yeah, I think Vince and Jonathan hit on a lot of good points. I think the other piece is, you know, in a world and you hit on it a little while ago, Mehb… 100 stop loss carriers. So you take a step back from that and you say there are differences by carrier, but if you’re coming in late or different… one, learn from the mistakes and successes of others.

Yeah, but don’t try to replicate those before you’re ready to do it. Certainly I’ve seen some carriers jump in and jump in on panels and they’re like, hey, we don’t know how to offer terms and conditions yet, and the pricing methodologies ready to offer those really aggressive terms and conditions like kind of meet yourself where you are. I think some carriers have tried to get ahead of themselves.

To Jonathan’s point about catching market share, I think define a differentiator, whether it’s some people are in level funding captives traditional stop loss. Maybe they want to attack the market differently and focusing on like PBMs or an Rx strategy. Find something that is different, that gives them a one up in something that allows a competitive advantage, which is very difficult to figure out in a world with as many providers as there are. I think for newer players, really having the patience and fortitude to create that differentiator will be key for them.

Mehb Khoja

That’s a really good point, but if we’re super honest, our industry is pretty boring, right? It’s been spec and agg for a long time and when players came in and said, you know what, we’re going to do something different. While that catches a buzz it doesn’t sustain. And so is there really room for product differentiation in our market?

Ben Dewar

Are you that boring at a cocktail party, Mehb?

Mehb Khoja

12/24 and 24/12 is pretty boring, Ben, let’s just be honest.

Jonathan Socko

I think there is. I always think that there’s opportunity for innovation and improvement in our industry. I mean, it feels to me like the stop loss marketplace is far different than it was when, you know, when I first got into the business and I think it’s due to product innovation and, you know, the rise of captives and consortiums and pools certainly lends itself to that.

And while you know, maybe captives in particular weren’t a novel concept when they started being utilized by the medical stop loss industry, self-insurance employee benefits industry, you know, found a way to make good use of captives. And now it’s so prominent in the marketplace. I mean, if you’re a broker or producer, I mean, you have to almost no captives to even survive and succeed amongst your peers and differentiate yourself in a marketplace.

So I’m always optimistic about the entrepreneurial spirit in the self insurance industry. And I think it will continue to innovate.

Mehb Khoja

Yeah, no doubt about that.

Ben Dewar

I think someone stepping in and figuring out how to continue to integrate benefits across an employer product, even though we buckle this oftentimes into employee benefits. But really take a Prudential as an example. They have a suite of broader products. The more that those things can be packaged and really create more solution based versus product like product. And that doesn’t just apply to Prudential, but in the industry in general, I think getting away from just selling individual products and offering more solution based approach is something that’s been talked about, but really difficult to pull off just because of both the way they’re purchased, the way they’re sold.

I think that’s a continued opportunity.

Mehb Khoja

It sounds like you’re saying bundling of products, but then typically when people go, when employers and brokers go to a stop loss provider, it’s about the unbundling because that, you know, could be an opportunity too.

Vince Lewis

Yeah. But a lot of times, you know, you may have the best solution, but because of misaligned incentives, potentially your solution may never get to the table. At least, you know, I I’ve seen it. At least you know, you’re like, hey, we got this problematic case, but hey, I got this solution I can use. And they’re like, yeah, we got to do this or yeah, I want to do that because I got something else going on.

So, to me that tends to be a little bit of a challenge as well. But in a perfect world, it’d be nice to have a somewhat integrated approach toward stop loss where you could say, hey, I’ve got the solutions to help you. I can help you save money. Try it my way.

Mehb Khoja

Yeah. Interesting. Let’s move on to the growth of self insurance way down market. And I’m talking way down market, like two lives to 25 lives. We’ve seen level funded products. We’ve seen small group captives. Jonathan, you mentioned captives. That’s, you know, probably the sexiest term in our industry right now. Is self-insurance at that level a good idea?

Jonathan Socko

I think it could be. For me, everything’s very case level dependent. Right. So what could work for a 25 life employer might not work for their counterpart. You know, that’s in the same office building. And that’s kind of where the conversation goes back to carriers entering the marketplace. Right. Like what’s really focus on, it’s in part that it’s being able to assess and evaluate the fact that every opportunity, every RFP, every plan sponsor, that they’re all literally different from one another.

So I don’t think it’s necessarily a bad idea. I think the pool of options at the size, as you were describing, certainly shrinks. But ironically enough, I was meeting with a friend last week, went to work for a startup. They have three employees. They’ve been in business a whopping two months. And.

Mehb Khoja

All right.

Jonathan Socko

They are on a level funded health plan with BUCA, because he said that was easily the cheapest option. Now, I think, amongst the three of them, the average age was probably 38 to 40 years old.

Mehb Khoja

Okay.

Jonathan Socko

I’m sure that the carrier that underwrote them said, hey, under the fully insured setting certainly looks a little bit different with the pooling, etc. but, the level funded chassis, they said something to the effect of 20 to 25% savings off the bat. So can it work? Sure. I just I think you’re going to have a harder time at some of those levels.

But certainly for your 25 plus, 50 plus, 100 plus. Yeah, absolutely. And I think captives have had a lot to do with that.

Ben Dewar

Jonathan hit on a lot of good points there. I think a couple that I just maybe double down on is he talked about sort of the makeup of the company. Right. So it comes down to a little bit as whether or not that company is ready to do it financially. Do they have the infrastructure and the people and the knowledge that they’re ready to attack, that they may or may not?

They may be so mired down in whatever business cycle they’re in, they could be going through an acquisition. There’s sometimes we obviously as an industry poke fun of, you know, bundle the opportunities, etc. and the easy button being done. Sometimes that’s needed and a broader benefit strategy for a period of time. It doesn’t make it horrible. It just means that that’s a decision because they’ve got offsetting factors going on more broadly.

They can have their largest machine break down and they’re like, that’s where I gotta put my energy towards.

Mehb Khoja

Yeah, that 25 life company is focused on making widgets, right. They don’t have a head of HR that’s thinking about benefits strategy for the coming year.

Ben Dewar

Probably not is the real answer there.

Jonathan Socko

Well that’s a great point. I mean, I never think that the move to any form of self-insurance, no matter what type of vehicle you’re using to get there, should ever be made purely based on, you know, theoretical first year savings. Just for me, only approaching it that way is a little bit of a fool’s errand.

Vince Lewis

Yeah, it’s a concept. Those who tend to try and do it on a one year proposition. And, and I’m sure you’ve seen on your end too Jonathan like how many cases after a first year in, you know, end up getting scared because they had a couple blips and they decide to move back to fully insured.

And you try to explain to them, hey, this is a process. You know, you’re going to have ups and downs. There’s going to be ebbs and flows, but you got to kind of ride it out a little bit, and at the end of the day, to take the fully insured option is always going to be the best case scenario.

But you’re going to be capped. And with that, you’re not going to save anything because you’re just going to keep pouring money back in.

Ben Dewar

What’s your opinion Mehb?

Mehb Khoja

Yeah, I think when I was in the consulting side, we were advising employers that were less than 150 employee lives to really think long and hard if they wanted to go self-insurance. And like you guys said, if you have the staff, if you have the knowledge base, if you have the support of the producer to help you hold your hand through the process, then maybe it could make sense.

But to be traditional self-insured under 150, I think that’s a challenge. I do think that the group captive model has really solved for that. And I’d invite you guys to tell me what you think. But I said this before. I really think that captives are the sexiest term in our industry right now. So definitely they’re doing something right in that space.

Ben Dewar

Yeah, for sure. And for folks that have not seen captives, if you’ve seen one captive, you’ve probably seen one captive, right? There are different structures and strategies associated with them, whether it’s the collateral needed to enter them, the cost containment strategies. Who else is let in there? Is it heterogeneous? You know, there are a variety of terms that folks need to educate themselves on and understand what they’re really getting themselves involved in becoming almost their own insurance company.

And what does it do to them? And it certainly can change and, you know, liberalize a little bit of what can be really scary. It can be scary to go off self-funded. And now you’ve got a pool in a community that can help you do that. It also can mean that you could become stuck a little bit in that captive per se.

Not stuck forever, but certainly a not as easy as just leaving a reinsurance contract. So I think it’s really important for people to kind of understand those concepts and how they all work.

Mehb Khoja

Yeah, absolutely.

Jonathan Socko

That’s a great point, Ben. I think the other thing that I look at too, I mean, again, you know, dealing in a space that’s more devoted to mid-market employers. So averaging 100 employees or so, you know, max cost is still important. So I mentioned a minute ago, I mean, groups really should try to avoid making decisions based on one year projected savings.

And you know, I think that there tends to be a little bit of a misconception on what captives are actually doing. They’re certainly going to help you smooth rate and, help smooth out the variability that comes year to year and influxes in premium and things you can’t account for in your underwriting of large claims. But you still have to control that aggregate, you know, I mean, that’s two thirds of your total max spend on stop loss.

And I could be very wrong. But, for me, captives are a solve for middle market on premium. Not necessarily to stabilize your aggregate. I mean, your aggregate is still your own self-funded claims experience. And if underwriting just completely misjudges your attachment point and you blow through it, I’m not sure how much the captive is going to do to solve for attachment increases.

Just my purview.

Mehb Khoja

Yeah. And I think that that’s a great point about underwriting. And so to that end, there’s some new AI underwriting tools that are specifically being used in this, like down market space. Without naming names of companies, you guys give me like a thumbs up or thumbs down. Are these new school underwriting tools in our space working?

Jonathan Socko

Yeah, I was kind of there too. I’d say the results are mixed, mixed signs that it can be very, very encouraging, but it’s a little early to tell.

Mehb Khoja

Let’s expand on that. What’s working and what’s not working. And again, we don’t have to name specific tools. I’m just I’m more curious about the process and what’s getting caught and what’s maybe getting missed.

Ben Dewar

In lieu of data. It’s presenting data, right. And so as an underwriter, of course, you like to bathe in data and, you know, figure out what’s going on, you know, with the case and ultimately try to make a pricing decision that can work and land in a profitable spot for both parties. What’s tricky about it is some of the PHI and the underlying data that you can’t have access to because you’re subscribing to databases and other things that are proprietary that they can’t give you access to because there has not been sent to you directly.

We as an industry need to continue to solve for that black box of data, if you will, that we don’t get access to. And I’m wearing the underwriting hat when I say that the more and more that as a group, we can solve for that and get access to that data and understand what’s going on there. Those tools will become stronger and stronger because they start producing almost what good self-funded data would look like, because a lot of folks are using it to convert fully insured cases that do not have data.

I think once that materializes, there’s a continued opportunity to say underwriters need to understand how to use the data. Some underwriters get the data today, and they’re like a deer in the headlights, because they’ve never seen a data output like that. And because of that, that ultimately creates a situation where the underwriter doesn’t know what to do. And I think that creates some of that thumbs in the middle scenario where it doesn’t have the impact that somebody would really want it to have.

Vince Lewis

Yeah, I was an underwriter for 15 years before I got into sales. And, you know, I still believe and will believe till the day I get out of this business is that underwriting is an art. It’s not a science. And AI is a tool. It’s part of the entire puzzle. Right. So if you’re combining that with whatever underwriting applications that you have, it should put you in a strong position to be able to assess risk properly.

And yeah, I mean, I agree, like a lot of times people don’t know what to do with the scores. We’ve tried various tools at UME and we have found that most of them have been somewhat lacking. We found a couple that we like and we’ve kind of used that in combination with our manual and other things.

Mehb Khoja

Sure.

Vince Lewis

But more often than not, though, it’s just not giving us the efficacy that we’ve been looking for in terms of trying to be able to hone in on something and price it properly. Anyone I’ve heard that has just used solely relying on AI to rate cases, it’s not going well.

Ben Dewar

One part we didn’t hit on Mehb was opportunity cost. Certainly in the fourth quarter, where all of us, we probably want for sleep. We also want more hours in the day. Right? I can play a critical role in selecting where you spend the time. And so the earlier on that you can make a selection on a case that’s like, yeah, there’s no way we’re going to be able to beat what’s in force or we’re not can provide a competitive opportunity for anyone, whether you’re on the consulting side or the carrier side.

I think the more that folks can harness tools that allow them to make those decisions of time is critical.

Mehb Khoja

Yeah, absolutely. And guys, this has been a fantastic discussion. Thanks for being the guests that kicked off season three. Let’s get you out of here with, why don’t you make a really big prediction of what you think the market holds for us in 2025? Jonathan, why don’t we start with you?

Jonathan Socko

Yeah, sure. I think it’ll continue to be competitive. I think for some of the reasons that we talked about at the jump here, I think there may be a little bit of tightening, but I really think it is going to depend on where you play in the marketplace. I don’t think, you know, 100% of the stop loss market is all of a sudden going to come to this big screeching halt, and it’s just a firm and rock hard marketplace.

I really don’t think that’s what’s going to happen, firm in spots and competitive in others.

Mehb Khoja

Very good. Ben, how about you?

Ben Dewar

I think we’ll see stronger growth in 25. I think there were certainly, you know, turmoil that some folks faced more in the maybe in the broker, in the employer markets in 2024. 25 is a year where certainly from a legislative standpoint, people have seen some changes going on. A lot going on in that space. To me, there’s continued opportunity to everything we’ve been talking about today to go out there and market your medical plan and market your stop loss.

So I’m bullish that we’ll see continued growth this year.

Mehb Khoja

Okay, Vince you close this up.

Vince Lewis

Well I think in addition to, I think you’re going to continue to see significant growth in the captive space. I don’t know where it stands today. I don’t think I’ve seen any hard numbers. But I got to imagine you’re probably within the next 3 to 5 years, you’re going to probably see 25% of the market at least be based on medical stop loss captives.

And the other prediction I’m going to make is it’s going to I think there’s going to be some curtailing, like I mentioned earlier, about the rate cap on your laser rate cap options, I think carriers are going to have to take a serious look at that and see if they want to continue to apply that across their books of business in the way they’ve been doing it.

Something’s got to give. I think we’re kind of at a breaking point, at least for a lot of folks right now.

Mehb Khoja

I’m with Vince. I agree with the curtailing of terms and conditions, and I also suspect we’ll see a few more carrier exits before this year is over. And so with that, I want to thank my guests, Jonathan Socko, Ben Dewar, and Vince Lewis. Everybody have a great day and we’ll see you next time on Firm and Final.

Jonathan Socko

Thank you.