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1 November 2009 Corporate Adviser

The growth of international commerce means even IFAs who do no more than dabble in domestic group risk business need a basic understanding of how to handle international risks. ‘Multi-national’ may have in the past meant blue-chip giant, but these days the number of companies with an overseas exposure is far greater than ever before.

Malcolm Penny, regional director of multi-national pooling network Insurope UK and Ireland, says: “It never ceases to amaze me how when people think of international companies they only think of big blue chips, but there are quite a lot of small companies with only a couple of hundred staff and with a dozen or so of these working overseas.

“These are multi-national companies even though they are small, and they are the sorts of employers who aren’t able to afford a major benefit consultant and probably have a harassed HR manager who badly needs a solution for overseas employees. So there are clear opportunities for smaller non-specialist intermediaries to get involved.”

Indeed as much as 40 per cent of Canada Life’s international business concerns companies with less than 100 scheme members. The insurer says that if an organisation’s title ends in “UK Limited” it tends to be quite a good indication that it has an international exposure and, as a further steer towards where opportunities might lie, it reports that 34 per cent of its international risks come from manufacturing firms, 16 per cent from wholesalers and 11 per cent from financial firms.

If an employer is simply seconding the odd employee overseas for a brief period, there is normally no need to do anything more than contact the insurer, who is likely to cover them at no extra cost.

The terms for income protection cover can, however, vary between one insurer and another.

For example, Bupa and Legal & General will only pay out benefits overseas for up to 26 weeks if the employee resides outside a list of specified countries. Friends Provident, on the other hand, will offer unrestricted cover in any country as long as it receives all the information it requires about the individual, such as what they are earning; where they are going; how long they are likely to be there; and whether they technically constitute a UK secondment or a foreign national paid for by a UK company.

But standard UK covers are far less likely to be suitable for employees who reside abroad for a number of years because the benefits required tend to be governed by local legislation and labour agreements, and could therefore be different to those typical in the UK. For example the tax situation in Germany dictates that a dependant’s pension will be more suitable than a lump sum pay-out; in Italy, partly due to labour laws, disability benefits tend to be in the form of lump sums rather than income; and in France less life cover is likely to be needed than in the UK because a large proportion of any death benefit is provided by the State.

Mark Sullivan, practice leader for global benefits EMEA region at Aon Consulting, says: “Because the suite of benefits you offer will vary from one country to another one would normally look to place business with a local insurer to tailor solutions. In different countries there are different local insurers who are all regulated locally and able to tailor cover to reflect local conditions.”

Whilst an intermediary the size of Aon may in some cases find it appropriate to come up with a series of local solutions in-house, the average non-specialist intermediary can realistically look no further than using the services of a multi-national network offered by the likes of Insurope, IGP, Generali, AIG, Swiss Life, Allianz All Net, ING and Maxis.

These can make all the necessary local insurance arrangements and, if required, spread the claims risk by creating a multi-national pooled structure. If the pooled account shows a surplus at the end of the year the employer will normally receive a dividend payment to reflect this. To qualify for such a pool an employer must have group plans in at least two different countries, even if with the same insurer.

Colin Fitzgerald, director of national accounts at Unum, says “There is virtually no downside if the risk is pooled because there is no increase in price, but the upside is you could get a rebate if you have a low level of claims and, if you are looking to achieve economies of scale through pooling, you can often save 10 to 15 per cent on global premiums before any rebate. The networks can also provide other associated benefits such as information flows, access to a lot of intellectual capital and even enhancements around medical underwriting.”

Whilst there is nothing to stop intermediaries contacting networks directly, it is likely to be a lot easier simply to contact a group risk insurer that offers access to one. This way the insurer will handle the bulk of the work. Generali and Zurich Assurance have their own such networks while Unum has a partnership with the Swiss Life network and Canada Life has a partnership with both the Insurope and IGP networks.

Marion Ware, head of marketing at Canada Life, says: “A general broker would sort out the UK insurance as normal and then, as a pooling partner, we would assess which of our two networks to partner with. The client company may already be part of a network just in the UK and one or two other countries but its UK HR manager or intermediary may not know about this. So we find out if it is in a pool or if it is currently being considered by a pool as a potential client and, if so, we get in touch with the network and get them to quote accordingly.

“If the client is not an existing or potential network member the network will decide whether or not the risk can be pooled. If, for example, a company only has a tiny proportion of its workforce in one country other than the UK then the network may not want the business. But if, on the other hand, the network does offer pooled facilities then our account manager will make contact with the broker and talk them through pooling, estimating what dividend the client might get back.”

Ware continues: “We try and encourage the parent company, who may be based abroad, to share the dividend with the UK subsidiary because it makes the cost so much more affordable. They don’t always do this automatically, so intermediaries should really push for this.”
A generalist intermediary will in many cases therefore have to do little more than pass on relevant contact details and other limited information to a UK group risk insurer which they are already used to dealing with.

Nick Homer, group risk development manager at Zurich Corporate Risk, says: “The key thing when you find you are dealing with a company with an element of international exposure is to understand its legal structure. For example, the insurer will want to know whether the employees are in a subsidiary of a UK parent or if the company is actually based abroad, or whether employees are just being seconded abroad.”
Whilst performing such duties should be well within the power of most intermediaries who have little experience of even domestic group risk, doing so will certainly not provide money for old rope. Intermediaries will not earn commission on international business they refer for pooling but they can agree a fee with their client to reflect their input. They can also earn commission or a fee from their involvement with the UK insurance element.

Cross-border progress from flex

Administration expenses are the major cost for group risk products in international flex schemes, but a new wave of techno-friendly insurers, particularly those from the Continent, should result in these being dramatically slashed.

Michael Whitfield, chief executive of flex provider Thomsons Online Benefits, says: “Admin costs currently account for anything between 20 and 30 per cent of premiums, but we should be able to get this down to 10 per cent in the next two years. The days when international group risk has been divided into different countries are disappearing and the internet is allowing new insurers to drive prices down and provide flex cross-border.

But Mark Carman, marketing and communications director at flex provider Motivano, warns that from a communications perspective it will still be necessary to tackle things country by country.

He says: “I don’t think a one-size-fits-all approach is feasible as it will always be necessary to take into account different cultures. For example, in the UK people are quite happy to have on-line information whereas in Europe most people want it to be paper-based.

“When you are designing and launching a scheme you require good consultancy advice from people on the ground in different countries. You need to get country heads and HR involved under an overall project manager. Sometimes everyone attends the same meeting or, alternatively, a project champion can go to visit all Whitfield: Admin costs down by two-thirds in two yearsthe different countries to co-ordinate proceedings.”

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