Innovative Solutions for Health and Benefits Programmes
1. Innovative Solutions for health
and benefits programmes
The latest thinking
on compliant
solutions for crossborder businesses
Workshop belonging to
the “Inspire” section
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4. What are trying to inspire?
International health and benefits solutions can be critical to
financial efficiency, employee retention and cross-border
mobility. Solutions are maturing and this session explores
developments which are increasingly in the domain of the
risk manager.
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5. What do we mean by
Employee Benefits?
Health and benefits programmes are all solutions, whether
implying risk transfer or not, implemented by employers, in
addition to mandatory public provisions, to protect their staff
from the consequences of the following risks:
• Longevity: or outliving your accumulated retirement assets
• Death: in the form of lump sum or annuities
• Loss of income: temporary, permanent / total, partial /
physical, economic
• Medical expenses: in-patient / outpatient
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7. Managing risk in employee benefits
Why Now?
FINANCIAL CRISIS
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INCREASING REGULATION
NEED FOR GREATER CONTROL
AND UNDERSTANDING
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8. What are the issues?
Regulation
• Employee Benefits are regulated in many markets
• Can be mandatory
Financial Impact
• Cost of EB programmes are high – Euros 500–1,000 per employee (ex US)
• Potential cost of liabilities can be higher than P&C risk
Reputational Risk
• A good EB programme can act as an attraction/retention tool for employees
• Can impact on reputation of organisation if things go wrong
Risk Strategy
• Programmes are often structured and placed without reference to organisational risk
strategy or approach
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9. Why Risk Management should get involved
Apply knowledge of risk management solutions, including
global structures
Risk
Management
can …..
Apply solutions in accordance with Enterprise Risk
Management programme
Leverage relationships with global insurers to deliver
improved terms
Link employee benefit provision to corporate activities
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10. Human capital risks must be managed
jointly
REGULATION
INFLATION
DISABILITY
REPUTATION
ACCIDENT
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DESIGN
FINANCIAL CRISIS
LONGEVITY
CATASTROPHE
CURRENCY
COUNTER PARTY
DEATH
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11. Division of Labor
HUMAN RESOURCES
RISK
• Align insurance coverages
with local employment
market
• Ensure consistency in
compensation & benefits
• Align with stakeholders
• Communicate to
employees
• Ensure compliance with
legal & tax regulations
• Organization of global
insurance programs
• Advise on risk reduction
opportunities
• Consolidate global
reporting and forecasting
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12. Opportunity for HR and RM to work together
JOINT SOLUTION
Financial
risk
Strategic
risk
People
risk
Compliance
risk
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HR to design benefits
Retain
Attract
Motivate
RM to evaluate risks
Cost
Effectiveness
Efficiency
Market
risk
Operational
risk
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14. Hierarchy of solutions
Captives
Consolidated programmes
Coordinated programmes
(including pooling)
Local / regional policies
(transfer of risk)
Self insurance (usually with
SL/Cat Cover)
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15. Multinational pooling
Plan B
Plan A
Pooled Claims
Pooled Profit
Plan E
Plan C
Claims
Plan F
Multinational Pooling:
Potential of international
dividends
Increased premiums from
local country polices into
single network
Less extreme
underwriting results
across pooled portfolio –
reduction in volatility and
risk charges
Better portfolio
consistency – reduced
admin expenses
May use more than one
network
Plan D
Premiums
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16. Multinational pooling
Financial benefits through multi-country ‘profit sharing’
on some employee benefit plans
Possibility of less onerous medical underwriting
procedures
•Drives:
Management Information
Potential access to group arrangements for small
populations.
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17. Types of Multinational Pools
Stop Loss (100% / 125% / 150%)
Risk Charge
Loss Carry Forward 3 or 5 Year Deficit write off
Loss Carry Forward Indefinite
Loss Free (Annual / Terminal)
Single Pooling Partner
Reinsurer
Pool Risk (Multinational Company)
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18. Consolidated programmes
Traditionally, there have been few options to achieve this in a truly coordinated way:
o Utilise multinational pooling networks
o Utilise pan-European risk policies (limited to risk benefits only and EU countries)
o Seek to implement local solutions with a single insurance provider in each country,
without coordination
Recently, we have seen a shift in insurer-thinking towards a more globally coordinated
approach, building on existing insurance solutions in country
The innovative elements are around:
o Single insurer
o Centralised account management across all countries
o Combination of EU and non-EU countries via local country plans and international
plans (small headcounts)
o Programme-level discounts / Free Cover Limits
o Risk-based fee structure based on tariff rates and experiential rates
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19. Consolidation solutions
Multinational Pooling
•Traditional pooling approach
•Local policies placed with local insurers
•Slight impact on local costs and terms
•Dividend potentially payable 12 – 18
months after pooling
Partnership ‘Plus’
•As per Partnership
•Centralised pricing mechanism, reflecting
both local tariff rates and client risk profile
•Centralised account management team
•Central programme terms (such as FCL)
offered
•Offered via Global insurer and local
affiliates
Partnership
•Exclusive pooling arrangement
•In return for volume and fixed duration contract,
upfront discounts provided, in place of dividends
•Pooling network utilised
•Local pricing still applies
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Captives
•Utilisation of inhouse reinsurer
Global Partnership
•Utilisation of ‘international policies’ to
provide cover
•May not be fully ‘admitted’ in all countries
•Allows low headcount countries to be
included in global programme
•Central risk pricing and account
management provided
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20. Partnership ‘Plus’
Programme Level Coordination
Central Account Management, pricing and terms
Country 1
Country 3
Country 4
Country 5
Locally agreed terms
and conditions
Country 2
Locally agreed terms
and conditions
Locally agreed terms
and conditions
Locally agreed terms
and conditions
Locally agreed terms
and conditions
Work with multinational insurer and local cover delivered via local affiliates
Centrally coordinated, with programme level pricing structure and terms
Upfront discounts rather than international dividends
Discounts may change over contract period to reflect risk profile of client
All local policies are fully admitted/compliant
Some benefits may remain outside programme due to capabilities of local affiliates
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21. Global partnership
Programme Level Coordination
Central Account Management, pricing and terms
United Kingdom
Countries
- UK
- Belgium
- Germany
France
- Netherlands
EMEA Region
Countries
- UAE
- Oman
- Saudi Arabia
- Czech Republic
- Georgia
- Hungary
- Romania
- Slovakia
- Turkey
- Ukraine
- Russia
- Poland
Asia Region
Countries
- Hong Kong
- Singapore
- China
- Japan
- Thailand
Country 1
Country 2
Locally agreed terms
and conditions
Locally agreed terms
and conditions
Country 3
Country 4
Locally agreed terms
and conditions
Locally agreed terms
and conditions
Provides greater scope of cover in terms of geography
Centrally coordinated, with programme level terms and pricing
Policies not fully admitted but provide compliant cover
Some benefits may remain outside programme due to capabilities of local affiliates
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23. Captive Insurance – Employee Benefits
Key Statistics
• 50% of the top 500 global
companies have captives
• Of the 5,000 registered captives,
we estimate approximately 50
cover employee benefits (e.g.
Unilever, Heinz, Coca-Cola, Kraft)
• Captive Solution:
- Annual Savings Estimate 15%25% v’s commercial premium for
similar arrangements.
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24. What are the characteristics of employee
benefit risk?
Exposure: well quantified as a result of sums insured
Possible Maximum Loss (PML): very large with limitations on reinsurance for catastropic (CAT)
events beyond 1 in 100 years, e.g. World Trade Centre in 2001
Frequency: high / stable for groups > 1,000 employees
Severity: low (except for CAT scenerios)
Aggregate claims: very predictable with growth trend > inflation, e.g. medical
Duration of Liabilities: short- to medium-tail (except disability plans)
0.12
0.1
0.08
0.06
0.04
0.02
0
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25. Captive Reinsurance Spectrum
None
Captive Signs Pooling
Agreement
• No risk transfer. Dividends
flow directly to captive.
Potential cash flow and tax
advantages
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Some
Captive Loss-Free Guarantee
Most
Captive Reinsurance
Captive assumes 100% of risk if Advance premium cessions on a full
pool cancelled while in deficit
or partial basis. Premiums flow to
position. Network risk charge
captive. Claims are typically settled
eliminated
quarterly in arrears with exception
of cash call limits. The captive earns
incremental investment returns on
cash flow
Where 100% of the risk is reinsured,
insurance pooling networks provide
administration, premium collection,
claims and fronting services
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26. Drivers for Captive Financing
Financial
Risk Management/Governance
• Reduce Total Cost of Risk Benefit
Financing
• Provide captive ultimate control over
local premium rates
• Eliminate risk charges and insurance
commissions
• Link global service provider network costs
to agreed service KPIs
• Enhance cash flow by accelerated timing
of cashflows
• Improve investment returns via transfer
of existing claims reserves to captive
• Realize potential tax advantages
• Enhanced ability to quantify Total Cost of
Risk Benefit Financing
• Enhanced management information on
key drivers to Total Cost of Risk Benefit
Financing.
• Drive service enhancements across
local/global service providers
• Identify/unlock excessive network
(re)insurance charges
• Directly access global reinsurance
markets, if needed
• Improve quality of claim management
and cost information, via negotiation
and/ or unbundling
• Reduce claims volatility and allow greater
risk diversification for a property and
casualty captive
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30. Other stakeholders
HR
Finance
Legal
Procurement
Benefit Advisors
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• Benefit Design
• Link with Workforce strategies
• Benchmarking against market
• Overall cost of EB provision
• Compliance with accounting policies
• Compliance with contracting requirements
• Application of standard terms and conditions
• Selection of suppliers and ensuring best deal
• Management of placement and marketing activities
• Advice on programme structure
• Advocacy services
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34. Client situation
Case Study 1
• Existing multinational pooling arrangements
• General strategy to consolidate vendors where possible but the pooling arrangements had not
achieved this as local providers still remain
• Not achieving economies of scale across their EB programme
• Headcount in a number of countries are small and aggregation was not occurring
• Needed a solution to consolidate vendors and, leveraging regional footprint
Approach
• Approached the multinational pooling providers with an initial RFI to establish if they were
interested in a ‘consolidated approach’
• Four selected to move forward into a full RFP
• Established a scoring structure and scored each response across criteria agreed with client
• Key to the scoring was the network’s ability to demonstrate a coordinated programme – NOT
traditional pooling
Result
• Preferred provider selected
• Undertook detailed financial analysis of the offers, the impact on local premiums and the
potential savings.
• Key aspects were centralised coordination across all policies, programme level terms and
conditions and programme level pricing, taking into account group experience
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35. Client Situation
Case Study 2
• DLA Piper - Largest law firm in the world. 750 partners outside USA
• Members Agreement required partners to put Life assurance in place but never fully complied with.
• Wished to ensure cover and satisfy moral obligations to survivors
• Wished to consolidate provision and implement a global Life programme for all partners (mandatory
cover) to ensure that terms of Member Agreement complied with
• Given relationships elsewhere, DLA wanted to work with Zurich
Approach
• Engaged with Zurich to investigate their ability and appetite for the programme
• Utilising an EB audit report, reviewed Partner provision across the countries in scope
• Given the diverse countries and the scattered populations, a fully compliant programme was not
possible and DLA accepted this.
• Designed a simple banding structure in terms of benefit levels, pinned to Partner Earnings
Result
• In conjunction with Zurich, we designed a global programme which met all of DLA’s requirements,
utilising both local and Zurich International plans
• The global benefit structure agreed is:
• Earnings up to GBP250k – cover of GBP500k
• Earnings between GBP250k and GBP1m – cover of GBP1m
• Earnings between GBP1m to GBP1.5m – cover of GBP1.5m
• Also allows for ‘grandfathering’ of benefit levels in certain countries
• Global rate per mille and premium level agreed, combining local premiums and rates
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37. Conditions for success
Commitment
Willingness to
manage the “pool”
Close cooperation
between ALL parties
Communication
to subsidiaries
Patience and longterm perspective
Buy-in of local
responsibles
Clarity of targets
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