Description: This article details the medical stop-loss coverages purchased by HMOs, small insurers and providers taking delegated financial risk in payor agreements. Along the way we will identify strategies purchasers often use to save money on medical stop-loss.

Description: In the game of chess, both players have perfect knowledge of the board. In poker, however, players deal with asymmetric information as well as the fact that your opponent can lie. There is an old expression that smart people are “playing chess when their opponents are playing checkers.” However, playing chess when your opponent is playing poker is a recipe for disaster (for the chess player, that is). Parameter risk is more akin to poker than chess, and it is often overlooked in favor of volatility risk in stop loss and reinsurance pricing. Unlike volatility risk, however, parameter risk does not necessarily decrease as the group size increases. Understanding the impact of parameter risk can help avoid mispricing the risk at hand as well as the impulse to provide false precision. False precision can lead to poor underwriting decisions and financial losses. In this session, the presenters will provide examples of parameter risk as well as potential solutions to incorporate when building simulation models. By attending this session you will be able to recognize potential areas of parameter risk and understand techniques to incorporate parameter risk in simulation modeling.