Dip in the pool?
International pooling should pay dividends to companies with overseas operations. Edmund Tirbutt asks why more advisers aren’t dipping their toe in the water
While major international blue chips already participate in multinational pooled network for international group risk, or a captive insurer (see box below), experts believe there is potential for further coverage.
Many companies with only a few hundred or a few thousand employees are launching ventures abroad and staffing these with their own experts rather than relying on local talent. According to Mercer’s 2008/9 Benefits Survey for Expatriates and Globally Mobile Employees, the continuing trend towards globalisation saw the numbers of employees on international assignments double between 2005 and 2008. Bearing in mind the opportunities for refurbishment work in former war zones, it would be no surprise if such momentum has been sustained during the last three years.
Using a multinational pooled network for international group risk spreads the insured risk and allows employers to benefit from favourable insured claims experience on a worldwide basis. The owner of the pool, which is usually the parent company, receives an international dividend if the year-end balance is positive.
Additionally, the approach can leverage an employer’s international presence via economies of scale and enable it get discounts on premiums, can give companies access to valuable employee benefit plan information around the world and can facilitate the alignment of benefits at a group level, making a consistent strategy easier to implement company-wide. It can also enable the employer to benefit from a more flexible underwriting framework, which can result in benefit enhancements and a more generous free-cover limit.
Employers can be eligible if they have staff covered by group risk schemes in at least two different countries. Even those who don’t have enough business insured to currently sustain their own company-specific pool could still enjoy many of the advantages of pooling by participating in a multi-client pool.
There are no official industry-wide figures available with regard to the proportion of eligible employers who actually participate in multinational pooled group risk arrangements, but experts are confident that it’s only a minority. Most estimates go no higher than 25 per cent to 30 per cent and no-one is in any doubt that there remains significant scope for growth, particularly amongst medium-sized organisations.
Dale Fleet, senior corporate relations manager for the Zurich Employee Benefits Network, says: “It can be possible to have a multi-client pool with only 20 or 30 lives, although they are mainly for over 100, but to have your own company-specific pool you need at least 1,000 employees globally, with 200 or 300 in the pool. But you don’t get the full benefits of pooling until you get around 1,000 employees in the pool as you don’t have sufficient spread of risk. So you don’t get the underwriting advantages and you may only get a percentage of the dividend as the network may retain the rest to safeguard against future adverse claims experience.
“It’s quite a recession proof product as you don’t have to pay a higher premium but a good pool can easily produce a 15 per cent dividend, so there should be more interest during times like these when companies need to save money. But we haven’t yet noticed a huge influx of new business, although brokers and consultants are talking about it a bit more and we are noticing more enquiries.”
The fact that most experts volunteer that pooling has no real downside makes it somewhat perplexing that it’s advantages are not currently being appreciated to the extent one would logically expect. Some feel the main problem is simply that employers are suspicious of something that seems too good to be true (See box above) or are concerned that it could be complex to implement.
Linda Torr, head of international at Bluefin Corporate Consulting - which is part of international broker organisation The International Benefits Network – says: “I come across clients all the time who feel it’s too much like hard work, but it’s not. We can take the administration away from them and liaise with local subsidiaries and with pooling companies to make sure they get the most competitive terms. However, once we’ve explained it to them they tend to be very interested and the majority I’ve spoken to end up doing it.”
Lee Thurston, director of JLT Benefit Solutions, feels that progress has been hampered by the fact that it isn’t always clear who the decision maker should be at the client. Depending on the company concerned, it could be the insurance manager or someone from the finance department, HR or compensation and benefits. Sometimes there are internal battles and no-one wants to actually take responsibility, so intermediaries should make it a high priority to identify the right individual.
A further barrier that commentators are only willing to refer to off-the-record is, however, probably even more significant. Some intermediaries may be reluctant to mention the benefits of taking a global view because they are worried that it could tempt clients to switch their UK business to a large global intermediary like Mercer, Aon, or Willis.
I come across clients all the time who feel pooling is too much like hard work, but it’s not
Colin Fitzgerald, director of national accounts at Unum, also feels that the benefits of pooling have been diluted by the soft market, which has seen group life and income protection prices drop by around 20 per cent over the last three or four years. He does, however, believe there are early signs of UK rates hardening, which could increase interest, and stresses that leveraging the contacts and connections you can build around the world can be an even more important benefit of joining a network than pooling the premiums.
UK intermediaries wishing to get clients involved with multinational pooling can either join an international broker network - like Bluefin has done - and share their capabilities with intermediaries based overseas, or they can contact a multinational pooling network directly.
Malcolm Penny, regional director, UK and Ireland, for multinational pooling network Insurope, says: “If a small intermediary wants to introduce a client all they need to do is pick up the phone to us. You are not necessarily better off going through an international broker network although doing so can enable you to work with different pooling networks whereas we and other pooling networks would just put forward our local partners. Using a broker network probably gives you a head start because there is more choice but, if it’s just a one-off, you may just want to go to a pooling network. It’s very much down to personal preferences and relationships. “
Alternatively, intermediaries can just approach group risk insurers directly, as most of the major ones are affiliated with a multinational pooled network. Zurich and Generali actually own their own networks and Unum is a member of the Swiss Life Network. Canada Life is unusual in being a member of two networks - IGP and Insurope - and will look very closely at both to decide which is most suitable for the client.
One noticeable trend during the last five years has been for employers to switch from multinational pooled group risk arrangements to captive insurers - which have traditionally been the preserve of non-life business. This has been especially the case with companies that are members of networks like Generali and Zurich whose reinsurance structures make it easier to work with captives.
Nick Homer, proposition development manager at Zurich Corporate Risk, says: “Pooling can achieve the payment of a dividend but it is purely an accounting function and the risk always stays on the insurer’s book. With a captive, on the other hand, you can still get a dividend but the captive insurer owned by the multi-national employer takes a degree of risk.
“Such a switch can also increase premium volume flow to the captive, improve cash flow and allow for diversification of the captive portfolio, which can reduce volatility and eventually also have advantages for solvency capital requirements. A captive can provide greater control over risks, pricing, reserving and administrative costs, but it is important to have a close cooperation between the benefits manager and risk manager.”
The Fear Factor
At i2 Healthcare, which acts as an intermediary primarily for medium sized companies, around 30 per cent of clients operate in more than one country. Nevertheless, only a handful have a multinational pooled group risk scheme. Director Simon Derby feels that the “fear factor” is primarily responsible for preventing them from converting.
He says “Joining is really a no brainer but the problem is that people talk a lot of nonsense about pooling, and other consultants undoubtedly make it out to be more complex than it is to boost their fee income. You can sit down with highly intelligent people and show them how it
works but they can’t get it into their heads that it’s as simple as we are making out because everyone is suspicious of an offer to get something for nothing.
“However hard we try with some clients we just don’t seem to make any progress. Another flipside is that there is actually some work involved for the employer as it needs to enable the country where benefits are based to provide a letter of appointment so that we and the network can find out what the existing benefits are. Getting this information from the other side of the world isn’t necessarily that straightforward even when you are part of the same parent company.”