Big Consulting Firms Influence Stop Loss & Reinsurance

Mehb Khoja

Hey, everybody, welcome back to Firm & Final. I’m Mehb Khoja, I’m your host. And today we’re talking about how large consulting firms play a role in stop loss and reinsurance.

Joining me today, I have Andrew Peel who is the national stop loss leader at Mercer. We have Laurie Horan who is a senior financial analyst at Marsh McLennan agency, and we have Carol Adams, who is a senior vice president and actuary at Guy Carpenter.

And you guys all have one thing in common. You all work for Marsh McLennan companies.

So as we get started, I thought it would be great if you guys just gave a brief intro about yourselves and what role you play in the stop loss and reinsurance industries. Laurie, why don’t we start with you?

Laurie Horan LeBlanc

Sure. So my name is Laurie Horan LeBlanc, actually, and I have been working at Marsh for the last six years. I started off my career in underwriting at an MGU. Went to a carrier and then made my way over to the broker side. So I have really enjoyed learning more about stop loss, from the different perspective of being closer to the client, as well as just being able to use my underwriting knowledge in that capacity.

Mehb Khoja

Awesome. Carol, how about you?

Carol Adams

Yeah. Thank you, Mehb, for having me. Carol Adams I work in the life accident and health practice of Guy Carpenter. I have over 30 plus years of experience in the life, accident and health side. I lead our employer stop loss vertical within our life, accident and health practice. We work with employers, captives, health plans, insurers and reinsurers.

And it’s a pleasure to be here in our conversation.

Mehb Khoja

Awesome. And Andrew, why don’t you bring us home?

Andrew Peel

I appreciate you having me, Mehb. Andrew Peel, as Mehb mentioned I’m Mercer’s national stop loss leader. Been with Mercer for 18 years. Been in this role for four. Mercer has a stop loss center of excellence that handles all stop loss placements for our clients throughout the country. So before I was the national stop loss leader, I was our East Region lead.

And pretty much since I started with Mercer, I’ve been heavily involved in stop loss. So whether it’s, you know, traditional stop loss, captives, within Mercer and the MMC family of companies, we’re certainly here to help with clients and all different needs.

Mehb Khoja

Yeah. Awesome. And just full disclosure, I worked previously at Mercer for 14 years, so I’m very familiar with the stuff that Andrew just explained. I’ve worked on that team as well and very familiar with all the other Marsh McLennan companies.

And right now it feels like it’s really been a tale of two markets at the moment. When we talk to the big stop loss consulting firms and when we talk to stop loss carriers, it feels to me like stop loss carriers are struggling.

It’s, you know, they want to feel like it’s a hardening market, but the brokers are telling a different story. And while there seems to be some loss ratio challenges out there, it still seems like there’s a lot of stop loss capacity.

So what gives? And really, I would start with, Andrew and Laurie from a stop loss broker’s perspective, what’s the deal with the market right now?

Andrew Peel

Yeah, I think it’s kind of a mixed bag right now. I do think that the market is a little bit harder than it’s been from the sense that for groups that are running closer to target or maybe not running well, it’s a little bit harder for us to find a good home for them, harder to find a stop loss carrier is willing to take a flier on them and provide kind of better pricing than maybe their incumbent.

But the flip side is also true for the groups that are running well, it’s a very aggressive market. Seems like the stop loss carriers are all fighting over the good cases. It’s a bit of a race to the bottom there, so it’s not uncommon for groups that are running well to go out to bid to end up getting renewals that are close to current or even below current.

Again, because everyone wants those good cases. It’s just the cases that are not running as well. It’s a bit harder to find a home. And if I look at the past couple of years, we’ve seen average renewal increases tick up a few points, I think largely driven by the increased frequency and severity of high cost claimants that have hit our carriers books.

But I don’t think it’s been anything widespread. And I also don’t think it’s consistent from carrier to carrier. We’ve seen a few carriers over the past year or so have some real loss ratio struggles, but that’s not also true of everybody, right? Stop loss is a bit cyclical. You would expect as a stop loss carrier, you know, every several years you’re going to have one of those years where it’s a real struggle.

We haven’t seen that across the board for all carriers. So it’s an interesting dynamic right now of both, you know, an aggressive market and some challenges for the other groups.

Mehb Khoja

Yeah. Laurie, are you seeing similar or something different?

Laurie Horan LeBlanc

I would echo that statement pretty much exactly. But I would also add that, you know, I think that really then emphasizes our role in the market as far as trying to work with carriers, build relationships, make sure that we’re getting the best deal we can for the clients overall. It also puts a lot of pressure on us to try to get better data to provide to the carriers so that they can fine tune that process.

But I would agree. I think there’ll be more convergence. There’ll be the extremes, but there’ll be more convergence around leverage trend this year. We’re just trying to plan and make sure that we’re all tracking to the same model.

Mehb Khoja

Sure. Carol, what’s your sense from like a reinsurance perspective? Is it a hardening market or is it a market full of capacity?

Carol Adams

Yeah. So I would echo what Andrew and Laurie said. And in some carriers, insurance carriers are struggling for profitability. But some have already worked through those challenges. So some have kept ahead of the trends and already built that in. Some are going through that pain. So it really depends what cycle you’re in from the insurance perspective there.

Now looking on the reinsurance side, we are starting to see a broader range of renewal increases. So giving more credit to those portfolios that are running well and then also adjusting on the higher side. So for those blocks of businesses that have some more challenges on the loss ratio.

Mehb Khoja

Yeah. Very interesting. And you guys all said this is like a cyclical market out there. And you know, carriers and reinsurers at different times will struggle. We’re seeing that there is some new capacity coming in to both the stop loss and reinsurance space. What makes this industry attractive for these new entrants?

Andrew Peel

I mean, I would say the profit margins, right. If you look at what a stop loss carrier typically targets from a loss ratio perspective, you know, it’s somewhere in the 70% to 75% range. And I think we all know not all of that is profit margin, but a good chunk of it is. So if you’re able to write the correct business, if you’re able to write profitable business, there’s some large margins associated with that.

So for a, you know, a company who’s looking to get into stop loss, that’s appealing, right, is that large profit margin. It’s easier said than done though, right? Getting into the market and trying to build a book from the ground up is very challenging. There’s a lot of carriers already out there.

It’s very difficult to earn market share. So, you know, you almost have to look at, you know, buying a block to kind of get yourself going versus building it up organically. But from the outside looking in, you know, for a carrier who’s looking for the first time, those profit margins are certainly appealing.

Carol Adams

And I’d add to that saying that it’s a $40 billion marketplace. Right. So that’s going to catch companies attentions. And I whether it’s-

Laurie Horan LeBlanc

I was going to say the same thing: growth market.

Carol Adams

Whether it’s like new capacity or whether it’s private equity that’s coming into the market space, venture capital, existing players looking to expand their product offerings. It’s a big number, year over year compounded growth of double digits. So a lot of favorable things in the marketplace. Plus if you think about it, you know employer stop loss.

There’s not, you know, you have your filings of course on the carrier side. But there’s not a lot of hurdles or barriers to entry. You can get into the market now. You know, growing and keeping it profitable is the other challenge of it. But getting into the market is pretty attractive.

Andrew Peel

I would also say that, you know, I feel like the number of clients that are considering moving from fully insured to self-funded continues to grow every year, which is further expanding the market. So, you talk about a $40 billion industry that’s ever growing as more and more groups kind of move into that market and need stop loss.

Laurie Horan LeBlanc

Yeah. And I was going to add too like the technology with AI and being able to more easily evaluate. I think that also can make for a niche market for people to either enter or try to put their foot in that place and go forward as far as, you know, entering the market.

Mehb Khoja

All right. So I want to challenge something that Andrew said about the stop loss carriers being in a market that has a lot of margins in it. You know, when I think back to the NAIC reports from ten, 12 years ago, it used to be that stop loss loss ratios ran in the 60s, maybe low 70s. And I feel at that level there is a lot of margin in the product, but based on the recent NAIC results, the market’s running in the low 80s.

And when you think of premium tax being 2.5%, when you think of broker commissions and overrides being anywhere between 5 to 10%, and then just your typical costs of operating your own business, let alone driving an underwriting margin, I don’t think the margins are as high as they used to be. So I guess I’ll ask the question again—why is it that new entrants are coming into this market if the margins are just not what they used to be in the past?

Andrew Peel

Yeah, I think that’s fair. You know, as far as what the target loss ratio is, right? In theory the margins would be there to for it to be really attractive. But I would lean more towards kind of what Laurie was saying before is it’s a very large industry. It’s a $40 billion industry that’s ever growing. So I’m sure carriers who are coming into the market for the first time feel they can do a better job, right.

They wouldn’t be doing so, you know, getting into it unless they felt like they could be profitable. So I just think the opportunity is there to grow, based off of the size of the market.

Mehb Khoja

So we do have a lot of new carriers and reinsurers coming into this space, I guess, from like, your seat as the advisor to employers or the advisor to a health plan or a stop loss carrier who’s looking for reinsurance, how do you get them comfortable with new capacity, with a new stop loss carrier, a new reinsurer in the space?

Andrew Peel

Yeah, from my end it takes a lot. You know, we have a number of carrier partners that we work with that we have agreements with. It’s based off of a long history. It’s based off of premium volume, their place in the market. So for a new entrant they really have to prove themselves for a while before we’re really comfortable recommending them.

And you know, it’s less on the terms and conditions standpoint because, you know, we do our due diligence to make sure that the contracts are secure, etc.. But for a new entrant who doesn’t have a lot of premium volume and history related to claims payment, we have to be comfortable telling clients that, you know, if there is a claim, it is going to be paid, that this carrier is going to be around for the long haul, etc..

So, we go through a pretty thorough process on our end with new entrants to maybe give them some opportunities, but it really takes a while to build up that trust before we’re able to, you know, strongly recommend that, hey, this is a good carrier. We think this is a good fit.

Laurie Horan LeBlanc

Yeah. No, I was just going to add as well that, you know, I think that without that test, I think that the market can sometimes question whether or not the deal is too good to be true. So we try to monitor that as well when we’re seeing that maybe somebody is just being a little too aggressive. You know, that’s a little bit of a red flag.

We want to see competitive rates. But we also want to make sure that clients aren’t facing extremely high increases in subsequent years or, you know, not having products that they’ve had in the past. So just doing our due diligence is even more important.

Andrew Peel

Yeah, Laurie, I think that’s a common concern is, you know, is a carrier buying the business, right. If it’s a new entrant and the rate’s really low, there may be some hesitancy there. Is the carrier buying the business? Now obviously there’s ways to become more secure, that they’re not buying the business by having appropriate renewal protections in place.

But it’s still a valid concern. And it’s difficult as an advisor to say that they aren’t trying to win the business or buy the business. If we don’t have that history and experience with them and saying this is not their normal practice, you know, they’re a good, reputable carrier. If they don’t have that history, there can definitely be more caution before we go ahead and recommend them.

Laurie Horan LeBlanc

And it’s one thing to test the quoting market to be comfortable with that. But until you actually get to a point where you have claims with that particular carrier, that’s where you really test how they’re going to operate and how you’re going to be able to, you know, work with them in order to make sure that claims are paid expediently and appropriately.

Mehb Khoja

Everything’s easy until you have a $5 million claim. Right, Carol, from your seat as, like, advisor to insurance companies. How do you get comfortable advising that they go with a new capacity provider?

Carol Adams

Yeah, our process is very similar to, what Andrew and Laurie are saying. It is a very rigorous process that we go through to have an approved market on our list to offer to our clients. So it’s not only financial and capabilities, it’s also commitment to the marketplace. It’s also reputation. So, you know, we put new entrants under a lot of scrutiny.

We even put the markets that are on our lists under a lot of scrutiny. Right. It’s a constant effort to make sure, you know, we are comfortable with who we are recommending to our clients. Now to our discussion earlier, there are some new players who had seats at old players. So you are seeing people and it’s very much a people and relationship business.

So you are seeing people crop up in new markets and, you know, representing new papers, but there are people who have been long standing in the business and also are well-regarded and have that reputation too. So those things sometimes make it easier to get comfortable with recommending a new market to our client base.

Mehb Khoja

Okay, so that’s a great point. I want to press on that for a second. What’s more important, do you trust the credibility of the people on the team, or the credibility of the insurance paper, or the reinsurer and their level of surplus and their AM Best rating? What’s more important?

Carol Adams

It has to go hand in hand. I mean, you can’t pick one. Obviously, financially, you have to have a strong entity. If you have great people without that bag of money supporting it, that’s not going to work. But at the end of the day, there is an element of relationship that’s very critical to doing business. We’ve all been in this industry for a long time.

Reputation is everything. And, you know, people who have done well, who are committed, who have a longer term view and have been in the market for a while to see different things, different cycles, not react, overreact, under react, certainly play a valuable role in the market.

Mehb Khoja

Reputation is everything. And you guys have all mentioned that you really get tested when it comes down time to paying a claim. Tell me what’s like the worst claims situation you’ve ever seen?

Andrew Peel

I’ll just give one recently and it’s something that we’re starting to see more is with providers waiting until the end of the filing period to actually file claims for possibly long hospital stays. So you could have incurred dates on a claim that go back a couple of years, both because of the long hospital stay and the provider waiting until the end of the filing period, which can certainly lead to issues from a claim payment processing standpoint.

And it’s very difficult to push back on the administrators as far as their process is concerned, right. I think when you look at a typical process, like from our end on a really long hospital stay, there is a lot of holes that you can poke at what actually transpired and the lengthy delays between filing up for additional records, etc. or additional questions that come up.

but we’ve recently seen, you know, a few instances where those long tails and those delays have led to claims falling outside of the policy period. It’s a big reason why I think we’ve seen the industry that historically was comfortable with, you know, a 24-12 contract basis on new business.

You know, it’s very hard now to recommend a client move to a new carrier on a 24-12 basis, because we don’t know what we don’t know, and we don’t want to advise a client to make that move and then end up with a claim denial as a result of it. So it’s just a big reason why, you know, 36-12 has started to become more industry standard from a contract basis standpoint to try and eliminate that gap as much as possible.

Mehb Khoja

Interesting.

Carol Adams

I would just say in general, the worst claims we end up seeing are the surprise ones, right? The, you know, if you think about it from a reinsurance perspective, the ones the carrier doesn’t know about, the ones they find out late, and then subsequently the reinsurer finds out late. Now you’re heading into a renewal with some big surprises that no one was expecting along the way.

And we have to figure out how to deal with that.

Andrew Peel

Yeah, I think there are some real gaps in kind of the advanced notification process on the administrator side. Somebody knows that claim exists somewhere. Right? And it makes it very difficult for like a disclosure. So if you’re moving a client to a new carrier and then all of a sudden one of these claims hits, and then there’s a lot of questions, once you look at the dates of stay for the hospital, you know, how did nobody know about this?

You know, we would have done things differently from an underwriting standpoint if we had known about this claimant. There’s a lot of finger pointing there. And I just think some do a better job than others. But no one does a really great job at providing that advance notification that something is out there that hasn’t yet hit a claim report.

Laurie Horan LeBlanc

Yeah. And I was just going to mention too that, you know, the hospitals are often holding bills, but, you know, interim bills from hospitals can be an issue as well. If a claimant is in the hospital and we’re not getting any sort of paid claim information about it, we’re then in a position of trying to deal with it when it finally pops.

And that is devastating to the client. It’s, you know, it’s a surprise to everybody. And you know, then trying to figure out what the best solution is to fix the problem.

Mehb Khoja

Let’s shift the topic a little bit. And I think one of the hot topics in stop loss and reinsurance right now is captives. It could be small group captives. And that’s, you know, a product that a bunch of smaller groups are banding together. Or it could be a single parent captive that larger employers are using. Are you guys coming across captives in the work that you guys do?

Andrew Peel

Every single day.

Mehb Khoja

Tell me more.

Andrew Peel

Yeah. So for us, it’s more so on the single parent captives than the smaller stuff. On the smaller stuff, it does come across my desk every so often. It’s typically your fully-insured clients that are looking to go self-funded for the first time, but aren’t necessarily comfortable with the risk associated with that and the volatility. So that can be kind of a foot in the door to self-funding.

But that is less frequent. I have a lot of conversations on a daily basis related to single parent captives, typically from my end, makes the most sense when it’s a larger jumbo employer who already has a captive that is set up for other lines of coverage, and they are looking to expand the portfolio to, you know, reduce the volatility within the captive by adding premium volume.

And they’re looking to participate more in the risk. Right. So if you have a group who you know is comfortable taking risk and wants to pay less in fixed premium to a stop loss carrier and kind of self-fund more of that risk internally, that can be a good solution for a larger employer, but it’s also dependent upon what their experience has been.

I kind of take issue with some out in the market who will pitch single parent captives as the best thing since sliced bread and like it’s a one size fits all, like this is where everybody should be moving to. I think that’s naive.

Mehb Khoja

You don’t agree with that?

Andrew Peel

I don’t agree with that at all. I think that there needs to be, you know, an analysis, there needs to be a study that’s done that takes a look at the history that group has had. What kind of profitability they’ve had from a stop loss perspective? Because if you have a group who is running consistently poor, right, and has been actually having more stop loss reimbursements than they’ve been paying in premium, the single parent captive isn’t a fix for that, right?

I think people sometimes feel like the captive is the fix. It’s just an alternative funding solution that allows you to participate in the risk. So if the risk is good, then you’re able to keep more of that money in-house and not paid it out in stop loss premium. But the flip side is also true, right? If you’re not running well, this isn’t going to all of a sudden turn your experience more favorable.

And then you’re bearing more of that negative risk. So I think there really needs to be on a case by case basis, you know, a true feasibility study that’s done to figure out—is this a good fit? Sometimes that’s larger than just a stop loss conversation. Right. So if it’s an existing captive then there’s other lines of coverage there.

Maybe there’s some other reasons why putting a stop loss in the captive makes sense, even if it ends up being, you know, a break even versus, you know, huge savings that the analysis shows. But I just don’t think it’s a one size fits all. I think it’s definitely something that comes up quite frequently and we look at it.

But I think the answer’s got to be dependent upon what the actual data shows.

Mehb Khoja

Sure. Laurie, are you guys seeing small group captives in the work that you’re doing?

Laurie Horan LeBlanc

We are, we are, we’re seeing interest there. MMA actually offers to in-house captive so that they, you know, that’s available to clients. We’ve seen some clients take external captive scenarios and go that route. But I do think, you know, the captive scenario is great when they’re getting refunds and operating positively. But I agree with Andrew in that, you know, if the claims experience does turn, then it can sometimes feel a little bit different to that particular captive.

I think the terms that are sold along with that, you know, are they able to offer no new lasers? Do they have comprehensive coverage? Those types of things do definitely come into play so that the client isn’t left in the lurch because they had poor experience.

Mehb Khoja

Carol, how about you? Do you see captives in your space and even if you’re utilizing a small group captive or a single parent captive, a lot of times those entities still need reinsurance as well.

Carol Adams

Yeah, we work very closely with our Marsh colleagues on single parent captives, not only looking at the structures, but analyzing the experience, the information and placing the ultimate reinsurance strategy, you know, for that particular situation. As Andrew mentioned, looking at the analytics and seeing what the right fit is, it’s not a one size fits all.

They really are, you know, very different and unique and, you know, making sure that we’re finding the proper reinsurance structure on top of the captive primarily for single parent captives is where we’re playing in that space.

Mehb Khoja

Great. Well, I want to get you guys out of here with one last question, and I appreciate you guys joining for this conversation. As you think about employers, Laurie and Andrew, and then as you think about the reinsurers or really the health plans and the stop loss carriers that you’re providing reinsurance to, Carol, what’s one piece of advice that you give your client as we go into the 2026 renewals?

Andrew, why don’t we start with you?

Andrew Peel

Yeah, I would just say just making sure that you have a level of oversight into your high cost claims activity. I think we have, you know, across the board, we’ve talked about the increase in frequency and severity of high cost claimants. So having strong stop loss contracts, carrier partners that that’s hugely important. But I think more and more clients are looking to us to not only place their stop loss coverage but help with their high cost claims activity.

So just having some line of sight into those claims on a regular basis and, you know, finding ways to either improve the experience for high cost claimants or try and prevent high cost claimants from happening. That level of oversight is key, and I think employers are really honing in on that. So, you know, finding someone who’s going to do that on a regular basis consistently is, I think, hugely important.

Laurie Horan LeBlanc

Yeah. And I would just add, you know, I agree with Andrew and I would say, you know, to our peers who are in the field offices that getting good data is going to help to try to allay concerns. An underwriter that’s left to their imagination is probably not a good thing.

Mehb Khoja

Not in today’s time.

Laurie Horan LeBlanc

No it usually leans to the negative.

So you want to be able to provide that data and put their mind at ease so that they are comfortable with their decisions. And, you know, you walk into a contract that is solid and you don’t have to worry about on a go forward basis.

Carol Adams

And looking at the insurance carrier perspective, it’s understanding their portfolio, understanding their book of business. You know, we talked at the beginning about carriers being in different phases of the market. Some are challenged for profitability, some have already taken some corrective action. So it’s really helping our clients understand kind of where they are in that phase and placing the reinsurance based on those goals and objectives.

Mehb Khoja

Awesome. Well, this has been a great conversation. I want to thank Laurie and Andrew and Carol for joining me. We’ll see you next time on Firm & Final. Thank you.