Medical stop loss captive – the evolution revolution continues
Phillips Giles (pictured) from Skyward Specialty Insurance provides an update for The evolution revolution of MSL captives, first published by Captive International in October 2022.
Interest in medical stop loss group captives has never been stronger, driven by the relentless rise in medical costs and employers’ ongoing search for more effective risk financing strategies. This growth shows no sign of slowing. With continued adoption among small to mid-sized self-insured employers, it is not unreasonable to project group captives accounting for 25% of the total stop loss market within the next few years.
The medical stop loss captive market has grown increasingly crowded and competitive as new programmes continue to enter the space. Yet in what has become a “noisy” marketplace, the challenge for new group captives is no longer just to participate, but to differentiate. Each must find a way to elevate their voice clearly, credibly and convincingly above the constant hum of competing programmes. So, what does it take for a captive to succeed in this environment?
Medical stop loss captives have evolved tremendously over the past several years. The new group captive programmes being built today represent what should now be considered the third or fourth generation of stop loss captive design – models that transcend the growing commoditisation of earlier generations by embedding continually progressive risk-control and cost-containment strategies. These modern captives no longer function merely as risk-sharing conduits; they operate as integrated, performance-driven platforms with clearly defined and measurable objectives.
To understand how far the industry has progressed, it’s important to revisit its origins. The first generation of stop loss captives generally served as simple mechanisms for sharing layers of risk between the stop loss carrier and captive members. They offered limited risk mitigation or cost control beyond a standard PPO network and perhaps a basic pharmaceutical initiative. While employer-level plan costs were somewhat managed, the captive’s retained layer often received inadequate attention. Such an approach might have been acceptable in a standalone self-funded environment, where risk above the specific deductible is fully transferred, but a captive is fundamentally a risk-sharing partnership with its stop loss carrier. Claims with the potential to penetrate through the specific deductible and into the captive’s retained layer must be proactively controlled for the programme to achieve sustainable profitability.
Value over volume:
Today, the industry has moved well beyond this narrow standard. The newer, performance-oriented captive generation has advanced dramatically in both sophistication and risk-control capability. Predictive analytics and AI-driven insights allow modern captives not only to respond to large claims, but to identify and mitigate emerging risks before they materialise. This shift marks a pivotal evolution in both strategy and execution.
Across all generations, one fundamental principle has remained constant: the success of any group captive is driven by the quality, engagement and cohesion of its membership. Disciplined member selectivity, performance expectations and long-term commitment clearly enhance results and strengthen profitability. Members, and their advisers or brokers, must be focused on sustainable value creation rather than short-term premium reductions. Active participation in risk assumption and collateralisation further reinforces engagement and improves persistency. In an increasingly competitive landscape, a high-performing captive must offer a value proposition strong enough to be selective about membership. Captives that fail to evolve dynamically will inevitably dissolve.
Medical stop loss captive success begins with a clear, well-defined and compelling value proposition. A captive must demonstrate its ability to help self-insured employers reduce and stabilise their risk cost on a long-term basis, an objective often difficult to achieve efficiently when operating as individual self-insurers. The most effective programmes offer a coordinated platform of best-in-class solution partners, each carefully vetted for measurable savings effectiveness.
The first gen: volume over value
Captive programmes that emphasise broad “plan flexibility”, allowing members to use any combination of TPAs, PBMs or provider networks, often lack the structural discipline needed to achieve consistent profitability. Many of these groups prioritised amplified membership growth, assuming increased volume would naturally improve risk dispersion and strengthen overall pooling performance. In these arrangements, overall performance can become distorted as the favourable results of well-managed members offset losses from those that have not implemented effective cost-containment or clinical management strategies. This risk pooling imbalance limits the captive’s ability to build surplus and sustain long-term rate stability. Over time, well-performing members might face rate increases that do not accurately reflect their own performance, while weaker participants benefit from the cross-subsidisation. If stronger members exit the programme, the captive’s overall stability and financial integrity begins to erode, lea
While new versions of these self-styled “flexible” captive models continue to enter the market, they reflect the same limitations seen in earlier generations and are increasingly outdated. They have been supplanted by programmes grounded in progressive, results-driven cost-control strategies that deliver measurable and sustainable financial benefits to members. Establishing clear governance standards and disciplined member selection criteria is therefore essential to maintaining long-term viability. By aligning participation requirements, performance expectations and oversight mechanisms, the captive can ensure that all members contribute equitably to the pool’s financial health and strategic objectives.
The next gen: performance-driven platforms
The most effective captives now require structured participation in a curated risk control platform. Independent TPAs, transparent PBMs and specialty vendors work collaboratively to manage complex therapies, infusion care and alternative networks such as direct contracting or reference-based pricing. This integration ensures coordinated, measurable outcomes, replacing more amorphous and fragmented approaches with consistent, performance-driven results.
Well-designed group captives offer a clear strategy for long-term cost control. Many open-access programmes, which often prioritise growth volume and “flexibility” over performance outcomes, might struggle to deliver predictable savings. By contrast, selective-access, agency-specific and homogeneous-industry captives, with shared member characteristics, foster stronger adoption of progressive risk-control initiatives, equitable contribution to the pool and greater financial stability.
Recent trends show a pronounced shift towards these more tightly controlled models typically strengthens outcomes for members. Leading programmes emphasise transparent PBM management, specialty drug and infusion oversight and innovative approaches such as provider cash-pay models. Experienced TPAs and programme managers ensure these components work seamlessly, balancing necessary flexibility with disciplined, results-oriented governance.
Through selective membership, mandatory engagement in best-in-class strategies and coordinated oversight, more progressive (next-gen) captives can deliver predictable, measurable savings while sustaining long-term financial health. This results-driven model replaces outdated “flexible” programmes, aligning member performance with the captive’s stability and growth and setting a new standard for sustainable medical stop loss solutions.
Programme manager – the gatekeepers
As group captives evolve into more sophisticated, performance-driven vehicles, the programme manager becomes even more important as the central driver of both strategic and operational success. A captive’s effectiveness hinges on a well-designed and consistently managed operational platform. By integrating member selection, cost-control strategies underwriting discipline and service coordination, the programme manager delivers measurable outcomes, preserves financial stability and protects the value the captive provides to its members.
In most structures, the programme manager defines, implements and sustains the captive’s strategic platform, the foundation for all operational, underwriting and member-service functions. Their responsibilities span every aspect of the programme: qualifying and coordinating service providers and solution partners, managing programme distribution and broker development, soliciting and evaluating producers, preparing and submitting stop-loss carrier RFPs and coordinating proposal delivery. They also work closely with the captive manager to ensure domicile compliance, appropriate accounting and financial reporting.
More than an administrator, the programme manager serves as the captive’s gatekeeper. This role demands objectivity, integrity and full transparency. All fees, commissions and expenses associated with the programme should be clearly disclosed so captive members fully understand the financial structure and its impact on performance. Effective programme managers uphold disciplined participation standards, pre-screen and qualify risks before admission and ensure that brokers and clients adhere to the captive’s underwriting and operational expectations. This includes compliance with cost-control initiatives, collateralisation requirements and overall performance accountability. Maintaining a consistent underwriting philosophy is critical to long-term success. Disciplined programme managers avoid introducing substandard or speculative risks simply to increase premium volume or their fee income, recognising such actions could compromise financial stability and erode member value.
While the programme manager functions as the gatekeeper, the stop loss carrier serves as the safekeeper, ensuring all admitted risks are properly evaluated and appropriately priced. The partnership between programme manager and the stop loss carrier is essential to preserving the captive’s financial strength, underwriting discipline and long-term sustainability.
Looking ahead: evolve or dissolve
The evolution of medical stop loss captives is far from complete. As programmes grow more sophisticated, their success will hinge on disciplined member selection, coordinated and mandatory cost-control strategies and a culture rooted in transparency and accountability. By leveraging data-driven insights, fostering strong partnerships among carriers, programme managers and service providers and aligning incentives with measurable outcomes, next-gen captives are positioned to deliver long-term financial stability, predictable savings and tangible value for their members. In an increasingly crowded market, captives that prioritise selectivity, performance, governance and strategic oversight will emerge as enduring, high-impact solutions for self-insured employers navigating the complexities of the captive landscape.
Phillip Giles is chief growth officer at Skyward Specialty Insurance. He can be contacted at: pgiles@skywardinsurance.com
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