Understanding Stop-Loss Underwriting: A Broker's Guide to the Fundamentals

# Understanding Stop-Loss Underwriting: A Broker's Guide to the Fundamentals

Stop loss insurance is a cornerstone of self-funded health plans, offering financial protection against catastrophic claims that exceed a predetermined threshold. While the concept is simple—reimbursing employers for claims above a specific deductible—the process by which carriers determine premium rates is highly nuanced.

## The Two Pillars of Stop-Loss Pricing

Stop loss underwriting blends actuarial modeling with real-world claims experience. At its core, the process is driven by two primary components:

1. **Manual rates**, which reflect population-level expectations based on actuarial tables
2. **Experience-based rates**, which incorporate the group's historical claims performance

These two elements are blended to produce the final quoted premium. The weight assigned to each component depends on several factors:

- Group size and data credibility
- Historical claims stability
- The carrier's underwriting philosophy
- Individual underwriter discretion

## Why This Matters for Brokers

Understanding underwriting mechanics isn't just academic—it's a competitive advantage. Together, these dynamics explain why quotes for the same group can vary significantly across carriers. A broker who understands the mechanics behind underwriting is better positioned to:

- Negotiate competitive rates
- Select the right carrier for each group's profile
- Set realistic renewal expectations
- Explain pricing decisions to clients

## Beyond the Basics

Additional forces shape stop-loss pricing beyond the manual/experience blend:

- **Leveraged trend**: Amplifies cost increases above the deductible
- **Guardrails**: Minimum percent-to-manual thresholds limit how low carriers can quote
- **Market pressures**: Specialty drugs, gene therapies, and predictive analytics add complexity

The stop-loss market continues to evolve rapidly. In 2024, 63% of covered workers were enrolled in self-funded plans ([KFF Employer Health Benefits Survey, 2024](https://www.kff.org/health-costs/report/2024-employer-health-benefits-survey/)), making stop-loss expertise more valuable than ever for brokers serving this growing market.

## Key Takeaways

- Stop-loss pricing combines actuarial manual rates with group-specific claims experience
- The blend between these components varies by carrier and group characteristics
- Understanding these mechanics helps brokers select optimal carriers and negotiate better rates
- Additional factors like leveraged trend and regulatory guardrails add pricing complexity

*This article is part of our series on stop-loss underwriting. For a comprehensive overview, see our whitepaper: [Stop Loss Underwriting: A Deep Dive](/resources/whitepapers/stop-loss-underwriting-deep-dive).*