Stop Loss Group Cap-ves

Transcription

1 Stop Loss Group Cap-ves

2 Andrew Cavenagh Pareto Cap-ve Services Founder & Managing Director

3 Regulatory Matrix States regulate: Fully- insured programs (e.g. Blue Cross) Stop loss policies MEWAs ERISA regulates: Self- funded programs DE regulates: Cap-ves RRGs ACA Impacts All

4 Group Cap-ves Three Major Structures Almost all are actually stop loss cap-ves not employee benefit cap-ves Cap-ve Direct Risk Reten-on Group Fronted Cap-ve

5 Cap-ve Direct Structure: Cap-ve issues stop loss policy directly to employer/owner Cap-ve purchases reinsurance to help protect against large claims Pros: Low fric-onal costs Very flexible Cons: Limited capital Not approved to write business in any state but state of domicile No waiver on securi-es issues

6 Risk Reten-on Group (RRG) Structure: RRG issues stop loss policy directly to employer/owner RRG purchases reinsurance to help protect against large claims Pros: Low fric-onal costs Very flexible Waiver on federal securi-es issues PermiYed to write business in all states Cons: Limited capital Non- domiciliary states not always coopera-ve

7 Fronted Cap-ve Structure: AdmiYed carrier issues stop loss policy to employer/owner AdmiYed carrier reinsures por-on of risk to cap-ve Pros: Rated balance sheet Approved in all states where admiyed carrier is approved Cons: No waiver on securi-es issues Cost of rated balance sheet of admiyed carrier

8 Contracts

9 Structure Highlights Each employer Establishes their own self funded benefit plan Is issued their own stop loss policy Enters into their own TPA agreement Cap-ve is ac-ng as a reinsurer Cap-ve does not issue a stop loss policy Stop loss carrier s policy defines the coverage

10 History & Evolu-on Growth of Fronted Model Credit Risk Underwri-ng Discipline Reinsurance Support Regulatory Acceptance Carrier Involvement

11 Fully Insured Structure Capital from investors expec-ng a ROI Fully Insured Funding Capital / Collateral Insurance Company Claim Reserve Insurance Company Stop Loss and Claims Reserve Employer Captive and Pooled Claim Claims Reserve Fully Insured Premiums Paid Admin, Taxes, and Fees

12 Fully Insured Structure Capital from investors expec-ng a ROI Fully Insured Funding Capital / Collateral Self Insured Funding Capital / Collateral Insurance Insurance Company Company Claim Stop Reserve Loss and Claims Reserve Employer Captive and Claim Pooled Claims Reserve Admin, Taxes, and Fees Fully Insured Premiums Paid Stop Loss Insurance Company Claim Reserve Group Cap-ve Employer Self Insured Claims Liability Admin, Taxes, and Fees

13 Traditional Self-Funded Health Plan Unlimited Single Employer View of Funding Per Claimant $100K Stop Loss Stop-Loss Insurance/Excess Stop-loss insurance on claims >$100K per claimant and aggregate basis Employer Claim Reserve/ Self- insured Reten;on ER retains claim risk on a per claimant and aggregate basis Aggregate Health Claims Member Aggregate Stop Loss

14 Self-Funding with Group Captive Unlimited Single Employer View of Funding Stop-Loss Insurance/Excess Stop-loss insurance on claims >$250K per claimant and aggregate basis $250K Stop Loss Per Claimant $25K Stop Loss Captive Members share claim risk on a per claimant and aggregate basis between $25,000 and $250,000 Employer Claim Reserve/ Self- insured Reten;on ER retains claim risk on a per claimant and aggregate basis Collateral Captive Aggregate Stop Loss Aggregate Health Claims Member Aggregate Stop Loss

15 Stop Loss Group Cap-ves Tradi-onal Stop Loss Group Cap-ves Mid- Market Stop Loss Group Cap-ves Carrier Sponsored Series LLCs Member Owned

16 Tradi-onal Stop Loss Group Cap-ve Typically for larger employers that are currently self insured Employers can maintain their current specific deduc-bles Cap-ve will take a finite risk posi-on above each employers deduc-ble Feel they are an above average stop loss risk Cap-ve risk may be a small part of of their total benefits expenditure

17 Carrier Sponsored Group Cap-ve Stop loss carrier owns or is closely affiliated with the cap-ve Turn Key solu-on for employers Likely easier to start new programs Employers likely to experience less control and autonomy

18 Series LLC Cap-ve is owned by a third party Can be turn key solu-on for employers Likely easier to start new programs Employers likely to experience less control and autonomy

19 Member Owned Cap-ve is owned by the employers Employers have more autonomy Greater independence from stop loss carriers More difficult to start new programs Forma-on and capitaliza-on costs are likely higher

20 Stop Loss Group Cap-ves Today Between 30 and 50 programs Programs vary in size, structure and growth strategies Stop loss carriers are inves-ng in the group cap-ve space Tremendous buzz amongst brokers and TPAs

21 Value Proposi-on - Employer Address one of their greatest frustra-ons Transparency Stability Control Only pay for what you use Opportunity to influence future costs

22 Value Proposi-on - Broker Ability to be proac-ve on behalf of clients Self insured plaeorm presents a beyer opportunity to implement cost containment ini-a-ves Differen-ate the agency

23 Value Proposi-on Stop Loss Carrier Par-cipate in a market segment that has been historically difficult to penetrate BeYer stability and protec-on More aggressive in their pricing than on a stand alone basis Differen-ate themselves from their peers

24 Challenges History & Evolu-on Size Underwri-ng Target Groups Importance of True Cap-ve Mentality Assump-on of automa-cally lower claims You don t know what you don t know

25 Challenges to Star-ng and Maintaining Programs Star-ng: Herding Cats & uneducated agents Ini-al capital requirements Limited scope of program Unit cost rela-onship Newness Maintaining: Cri-cal mass Underwri-ng discipline

26 Outside Market Influences Regulatory 2014 carrier renewals 2015 PPACA mandates State issues Carrier CA and CO example Risk pools Level funding

27 Lessons Learned Small programs are bad Too much risk and vola-lity Give industry a black eye Brokers need to be worthy the -tle Trusted Advisor Understand self insurance Provide true leadership and guidance Not op-ons

28 What the Future will Hold Stubbed Toes Some programs will blow up Not enough cri-cal mass Start too small and never get enough momentum Limited market opportunity Program sponsors desire for ownership limits growth poten-al

29 What the Future will Hold Regulatory Considera-ons California s upcoming stop loss regula-ons: $35,000 specific deduc-ble Aggregate ayachment minimum of $5,000 per employee Other states carefully watching California reac-on and development

30 What the Future will Hold Market is likely to grow exponen-ally over the next several years Mindset of midsized fully insured employer Increase in Health Risk Management