Lockton’s Q3 2026 People Solutions Market Update, published in early October, tells employers to budget for medical stop-loss renewal increases of up to 30% for 2027, against roughly 20% average target increases for the 2026 cycle. That guidance lands on top of a January 2026 placement cycle that Mercer says averaged 23% increases, up from 18% the prior cycle, with even well-performing groups absorbing 15% instead of the single-digit renewals they had come to expect.
The headline number is a budgeting problem. The reserve problem underneath it is subtler, and it is the one finance leaders should take into their next funding review: carriers are repricing the attachment point on claims data they increasingly do not trust, and plan sponsors who hold their specific deductibles flat are absorbing more retained severity every cycle whether they intended to or not.
Carriers are pricing with less information, not more
The most telling data point in Lockton’s update is not a rate. It is a timing statistic: 46% of January 1 policyholders were able to finalize coverage using August claims data in 2025. In 2026, that fell to 32%. Underwriting decisions are moving later in the calendar because carriers want cleaner, fresher claims runs closer to the effective date, and Lockton reports Q4 2025 claim filings ran more than 40% above prior years, stretching reimbursement processing on complex claims from a historical seven to 10 days to over a month.
Read together, those figures say carriers are pricing the same risk with more uncertainty, and they are charging for that uncertainty. Mercer frames the baseline shift the same way: leveraged trend, the effect of medical trend on claims developing above a fixed deductible, is running approximately 5 percentage points above headline medical trend industry-wide, and underwriters now start from that higher baseline before even looking at a group’s own experience.
What is underneath the repricing
The claims data explains why carriers moved. Tokio Marine HCC’s 2026 Annual Market Report, drawing on six years of proprietary stop-loss claims data, found claims above $2 million have risen 213% since policy year 2020, and that the 2025 claims trend came in even higher than 2024. Children under age ten now account for 39% of all stop-loss claims exceeding $1 million, driven by perinatal, neonatal, and congenital conditions, with infants under one averaging $1.37 million in severity on claims above $500,000. Cancer accounts for just over 35% of total paid stop-loss claims. The report also flags a trend surprise: January 2024 and 2025 stop-loss trends came in 5.0 and 9.2 percentage points above the prior five-year average.
The reinsurance layer is tightening in parallel. Gallagher Re reported this year that three major reinsurers have exited the U.S. medical reinsurance market, and Cigna, the largest stop-loss underwriter, has acknowledged sizable price increases as it works through a multiyear margin restoration effort it expects to continue through 2027.
Who it affects
Self-funded employers renewing stop-loss coverage for January 1, 2027 face this first, especially mid-market groups in the 500 to 1,500 employee range that lack the scale to self-negotiate terms. Public entities and universities with self-funded health plans, hospital systems funding employee health benefits, and single-parent captive owners already writing casualty lines are all in the path. Groups with ongoing large claimants face a second exposure: Mercer reports underwriters are lasering claimants more frequently at renewal, and decline-to-quote rates have risen, shrinking the market of alternatives. We covered the retained-IBNR mechanics of lasering in Stop-Loss Lasering Leaves Self-Insureds With Unhedged IBNR.
Where this shows up in your reserves
The diagnostic is the gap between your specific deductible and your IBNR trend assumption. Open the health plan section of your actuarial report and find the trend rate applied to claims developing above the attachment point. If that assumption reflects headline medical trend of 8% to 9% rather than a leveraged trend 5 points higher, your IBNR for the retained layer is understated, because claims penetrating a $100,000, $150,000, or $200,000 deductible are growing much faster than the average claim. On the stop-loss reconciliation, compare the specific deductible in force at the start of the plan year against the deductible your IBNR was last rebased on. If the deductible has not moved in two or more years while $1 million-plus claim frequency compounded, the attachment is effectively lower in real terms than when it was set, and the retained layer between it and the policy is carrying more risk than the actuarial basis assumed. The same test applies to any aggregate attachment, where a full year of accelerated claim emergence can exhaust the corridor before the aggregate kicks in. The mechanics of that retained layer are laid out in IBNR for Self-Funded Health Plans.
What this means for your next review
Put the attachment point on the agenda as a standing item, not a renewal event. The question for your actuary is direct: does the leveraged trend rate embedded in our IBNR for claims above the specific deductible match what carriers are now pricing, roughly 5 points above headline medical trend? If not, ask for a sensitivity run showing IBNR at both trend assumptions and the dollar difference in the retained layer. For groups weighing alternatives, Lockton notes captives, consortiums, and purchasing groups are gaining traction; the trade-offs are examined in Group Stop-Loss Captives Absorb the 2026 Claim Surge.
Decision-maker checklist
- Pull the trend assumption from your health plan IBNR calculation and confirm whether it is a leveraged trend specific to claims above the deductible or a blended medical trend applied across the book.
- Ask your actuary for a sensitivity estimate of retained-layer IBNR at trend 5 points higher, and quantify the gap against current accruals before the January renewal locks terms.
- Get your claims run to your broker earlier than last year. With only 32% of January 1 placements finalizing on August data, late data now feeds directly into pricing and lasering decisions.
- Review renewal protections now: rate caps and no-new-laser provisions determine whether a bad renewal is a budget event or an open-ended liability.
- If you have an ongoing large claimant, model the retained cost of a laser at renewal against the premium increase, since a 20% increase with a new $1 million laser can be a worse outcome than 30% without one.
What to watch
The January 1, 2027 placement cycle is the test. Mercer and Lockton will report actual results in Q1 2027; if placements come in at the top of the 23% to 30% range, the leveraged trend repricing is confirmed and attachment adequacy becomes a permanent agenda item. If carriers soften, it will likely be because 2026’s underwriting discipline restored margins, not because the underlying claim severity reversed. Either way, the trend surprise data from Tokio Marine HCC suggests the claims curve is still steepening, and plans that rebased IBNR on pre-2024 experience are the most exposed.
Sources
- Lockton People Solutions Market Update, Q3 2026, Medical Stop Loss
- Lockton People Solutions Market Update, Q2 2026: Stop Loss Volatility Adds to the Complexity
- Mercer: As the Stop-Loss Market Hardens, Renewal Protections Matter More Than Ever (June 3, 2026)
- Tokio Marine HCC 2026 Annual Market Report press release (June 1, 2026)
- The Stop-Loss Market is Hung Over, Risk Managers blog (October 1, 2026)