As Seen On Captive Insurance Company Reports
As organizations have grown and globalization has created an international workforce, a lot of employers are faced with challenges around the selection, administration, and management of their employee benefits across the globe. International benefits programs can be a complex maze to navigate, given the varying local cultures, business practices, and legislation.
We are seeing an uptick in organizations looking to harmonize their global programs. The COVID-19 pandemic has accelerated this need. With increasing globalization and limitations of travel, employees are spending more time online, virtually engaging with colleagues across the world. We have come to rely on digital connectivity, which makes it easier to share ideas and understand the experiences of others. As many organizations moved to a remote work environment, employees are wondering why they ever needed to be in a specific location every day, and relocation is on the rise. With all of this said, a siloed benefits program may not align with the upwards trend of globalization. As your international employees meet online, you will want them to find comparable policies and practices being followed, regardless of physical location.
Multinational corporations as employers are relying on businesses or consumers from other countries to drive business growth. It is important to understand how to appeal to a diverse customer and employee base—how to celebrate differences while bringing everyone together. Benefits and wellness programs can serve as a unifier, engrained in your culture as a way for employees to feel a sense of belonging. Creating and maintaining a strong culture are exceedingly difficult when you have an international workforce, and a synchronized benefits program is a great way to “unite” your people.
Traditionally, there have been two major schools of thought on international programs. One is to have a completely decentralized benefits program, where each country’s local teams have control over benefit offerings. This approach has the least resistance as local teams are able to make decisions in the best interest of the local employees. From a global perspective, this limits the benefits that accrue to the organization as there is no coordination of insurers, limiting the ability to get preferential pricing. From an employee’s perspective, moving from one country to another for short-term and long-term assignments can mean a complete overhaul of their benefits. Alternatively, the second approach is where the head office controls most major aspects of the benefit offerings globally—including the insurers and the benefit plan designs. This option usually generates savings for the company, as employers are negotiating for global contracts. However, local partners usually push back on this approach or require accommodations. Providing accommodations and carve-outs creates confusion and a lack of cohesiveness, eventually resulting in the slow disintegration of the global program.
One may wonder why creating such a program is the need of the hour. Most employers are interested in providing market competitive benefits in a cost-effective manner, while being able to leverage the scale of the company across the globe. A good benefits strategy also acknowledges and adjusts to local practices and cultural needs. Finally, employers are looking to ensure that the benefits they provide are valued by their employees, who represent a diverse population across the globe.
As you can see, both of the approaches mentioned have pros and cons, but most importantly, they do not provide a sustainable way to build a long-standing multinational employee benefits program. Luckily, there is a more advantageous option. Leveraging a captive can provide organizations with the ability to create a third kind of program structure, one which brings the positive aspects of the first two approaches and builds on them to create a framework that adds value to all stakeholders—employees, employer, local, and international human resources (HR) teams.
This approach allows for centralized decision-making as it relates to insurer selection. Most of the clients we work with choose to select one or two multinational insurers, creating flexibility for local teams. Due to a stronger employer negotiating position, the centralized insurer selection process ensures lower rates and pricing across benefit lines and geographies. The transaction is structured such that the risk associated with benefits is ceded by the insurers to the employer’s captive, where it is pooled across all lines of coverage and countries. This creates greater stability for the program as a whole and limits the possible rate increases for programs and countries due to one bad claims year. Using the captive also provides employers with the ability to go beyond what local insurers will provide. Since the risk of the plan is with the captive, the insurers operate as third-party administrators and are usually willing to provide better coverage terms than under traditional fully insured plans. In addition, in cases where employers are looking to go above and beyond to provide better-than-market benefits, the captive can help fund these elements at cost. For instance, we helped a major technology employer looking to provide HIV-related coverage for its employees across the globe, and they were able to have the benefit be administered by the insurers on a local basis and pay for it through the captive. Without a captive, funding for this coverage might be difficult as local insurers may not know how to price this coverage or may not want to cover it under their plan design at all. In addition to HIV, mental- and nervous-related benefits along with fertility programs are other popular coverage employers like our client mentioned are providing in this manner, as many countries do not offer these benefits as part of their standard offerings, but they are benefits yielding an increasing employee interest.
From a local HR perspective, such a program provides some flexibility for insurer selection while being able to control local plan offerings. The additional plan offerings that may not be provided on a local level create a huge value proposition, ensuring local HR buy-in for this program.
Captives and multinational benefits programs not only save money while providing better benefits, but they also provide a holistic view of the programs from a risk management perspective and lower the administrative burden. To recap, here are some advantages that make such a program extremely attractive.
- Fill gaps in critical coverage. Cultural norms and market availability play a huge role in what your employees across the globe want and what they can access. A benefit available in the United States may not be available through commercial insurers in Brazil. A captive allows for customized coverage and can help even the playing field for your international employees. For instance, COVID-19 has heightened the need for covered mental health assistance as a component of a health plan. A lot of international plans do not provide this essential benefit. A captive is a cost-effective way of obtaining this coverage for all of your employees.
- Obtain higher limits. Using multinational pooling programs and captives allows employers to increase the coverage limits available to local employees. For instance, most insurers have filed local policies allowing for life insurance benefits of up to $5 million in most countries. However, they offer guaranteed issue limits of around $500,000 in international markets. Using this approach, we have seen insurers increase guaranteed issue limits.
- Improve your reporting. A captive allows the parent organization to be one step closer to claims and plan activity. With fewer intermediaries than a traditional insurance structure, a captive leads to greater transparency and faster access to data. As a result, captive owners have enhanced data management and tracking capabilities they can use to inform decisions in real-time. This way, you can follow your investment closely and understand your return or where changes need to be made. With a global workforce, this becomes critical.
- Gain flexibility. In traditional fully insured programs, there are limitations on the plan designs you can create. A captive creates an opportunity to customize your plans according to your unique workforce, and with a range of international needs, this will become even more valuable. COVID-19 has shed light on the importance of such flexibility, with organizations seeing changes in exposures and gaps they did not know existed.
- Lessen your administrative burden. By eliminating conflicts and engagements with local brokers, employers reduce the time spent on administration as these needs are met by a centralized team of support staff who have all your plan information and do not need to be brought up to speed on the cultural nuances of the programs and geographies. Also, captives eliminate the need for bidding exercises and negotiations on both the central and local levels. Due to the transparency of a captive program, there is almost no need for the bidding of insurers to get lower pricing. The captive is capturing any surplus in pricing and using it to provide improved benefits to the employees.
- Answer to a hardening market. We saw markets starting to harden last renewal season, which is a phenomenon caused by a culmination of regulatory changes and financial markets. These, along with a global pandemic, have caused insurance markets to harden at a faster rate. Today, insurers are dealing with poor investment income. With most being public companies, insurers are facing pressure to keep their share prices buoyant, requiring higher profit margins. This series of challenging circumstances is likely to result in an increase in premiums. Globalization means that no region is isolated from such conditions, and by harmonizing your international benefits, you will have more leverage to negotiate based on economies of scale. A captive is a tactical response to a hardening market with their ability to customize the coverage and fund unique expenses such as those related to COVID-19.
Maintaining an international benefits program that is comparable in value across your diverse workforce is no small feat. With globalization, digitization, and relocation on the rise, your employees are not siloed within their geography, and an integrated benefits program can serve to bring your employees together and improve your corporate culture. We have seen great success with multinational corporations moving toward a more centralized approach, where the same robust set of benefits can be offered to employees across the globe. By pairing this strategy with a captive, you can offer enhanced benefits, additional coverage, and plan designs customized for your population, all while generating savings, improving your data and reporting, and “future-proofing” your benefits program. If you have questions about how to get started on harmonizing your international benefits or are not convinced why you should, please get in touch.