Employers are being more choosy about what they offer their expat employees says Debbie Lovewell
The rewards paid to employees in international operations are coming under increasing scrutiny as financial pressures mount on company budgets and working abroad becomes more commonplace.
“Organisations no longer see expats as the goose that laid the golden egg. The market has looked at the rationalisation of expats,” says Simon Ball, principal in global benefits at Aon Hewitt. “Employers are definitely not looking at platinum benefits anymore, but gold and silver.”
International assignments increased by 4 per cent in the two years to 2010, according to Mercer’s International Assignments Survey 2010, published last September. Half of the multi-national companies surveyed reported a rise in the use of short-term assignments, with two-thirds of respondents globally having developed special policies for these.
Nicola Lonergan, manager, corporate and bank development at Friends Provident International, says: “The drive to recruit quality talent is challenging in the competitive expatriate labour market, and providing a compelling benefits strategy has a direct positive impact on recruitment and retention. Traditionally, the foundation of any benefits package has been to align with regional market demands and labour laws surrounding such benefits as private medical cover or life insurance. Although we have seen tighter controls of expat benefits recently, such as housing allowances and school fees, we have seen a growth in solutions that give autonomy and control to the employees, such as workplace savings plans.
“Over the last five years we have seen a focus on cost management. Where roles are deemed to be permanent in a typical region, we are seeing a move towards localisation of employment contracts and a move away from secondment or assignment contracts, which included additional benefits such as school fees, flights home and other sundry expenses. This has spurred interest in more robust benefit planning. Salaries are beginning to increase and the outlook for employees is generally more promising. As a result, employers wish to monitor the liabilities that are building up for the future and are funding for this accordingly.”
According to Mercer’s survey, nearly nine out of 10 organisations worldwide have been revising, or are planning to revise, expatriate policies, which include benefits and allowances, in order to save on expenditure. The elements under review include benefits, such as housing, education and home leave, along with expatriate allowances and premiums, such as cost-of-living allowance and mobility or quality-of-living premiums.
What employers are demanding of benefits providers, therefore, is also changing. Anne Bennett, senior associate in Mercer’s international consulting group, says: “Employers are demanding cost effectiveness in their expatriate benefits programmes. In practice, this means scrutinising product charges and premiums. It may mean leveraging group relationships with providers and global buying power to reduce costs. It also means reviewing internal guidelines on what benefits are offered and which expatriates are eligible, with an increased focus on offering different packages to different categories of expatriate and localising expatriates where appropriate.”
Just what employers require, however, depends on which benefits they wish to offer to expats. Bob Sperl, senior international consultant at Towers Watson, says: “For most companies, provision of benefits to employees assigned to work abroad is typically maintained through home country retention. The UK provisions with respect to life, disability and retirement are maintained. The one exception is healthcare where an international medical policy or an international ’extension’ to the UK PMI is sought.
“In other cases, where an employee is assigned without home plan retention, usually longer-term transfers; and outside the European Union or North America where host country practices are usually adopted, there will be a need not only for healthcare, but also often some sort of retirement plan, or long-term savings, and life or disability provision - both usually lump sums.”
Changing employer demands, therefore, have prompted many benefits providers to develop new innovations around their offerings in order to keep up with requirements. International healthcare is currently one of the biggest areas in which change is occurring. According to the Towers Watson Workforce Health Strategies: A Multinational Perspective research, published in May 2011, three out of four respondents say workforce health and promoting health and wellbeing will be more of a priority this year and next. Just under half also plan to implement a global workforce health strategy over the next two years.
Health benefits, such as international PMI, give both employer and employee peace of mind that staff will be taken care of should they require medical attention while overseas. Tim Slee, sales director at Bupa International, says: “Now, all staff dispatched abroad expect their organisation to have a duty of care towards both them and their families, and international private medical insurance is high on the list of any overseas employment package.”
The regions in which employers operate are also changing, which, in some cases, poses new challenges around the healthcare cover required. Paul Weigall, head of sales and marketing at Interglobal says: “Emerging economies with lower manufacturing costs are attractive to a wide number of international corporates. There is a notable increase in demand for IPMI from areas such as Asia Pacific, Latin America and the African continent.”
Alexander Bender, client relations manager at Allianz Worldwide Care, adds: “Recently, many companies have been expanding into regions like Africa and Eastern Europe, and basing staff there as a result. These geographical regions are not always easily accessible, plus in some cases there can be a scarcity of hospitals and clinics. As a result, we are seeing an increase in demand for evacuation and repatriation cover.”
High medical inflation in recent years, however, has prompted many employers to look for ways of controlling the cost of offering international healthcare benefits. Alan Hewitt, international benefits director at JLT Benefits Solutions, says: “They are always looking for new solutions, because healthcare in itself is an expensive commodity. It is a cost that will continue to increase. What a lot of organisations are looking for are innovative ways of trying to manage those costs more carefully, which involves quite often the use of technology for claims handling and understanding [for example] where are claims coming from? Are there trends in claims, for example, have you got a high number of claims coming from a particular factory and why is that? Ultimately, if claims continue to rise, then the cost will continue to increase.”
In response, some providers have developed customised claims reporting. Weigall, explains: “Over the last five years there has been increasing demand for greater claims reporting and an increasing demand for online services. Employers want to understand their IPMI claims experience far more today than they did five years ago.”
In some regions, providers have also responded to demands for direct billing. Weigall adds: “Direct billing networks simplify the management of IPMI, HR managers know their staff can access care without having to fund the cost upfront, which reduces administration and streamlines cashflow. In particular, we are seeing a marked demand in Africa for direct billing, where staff do not always have ready access to cash to settle medical bills.”
In order to help contain premium costs for IMPI for employers, some providers are also increasingly focusing on local markets. Some, such as Bupa, have built up global hospital networks, which enables them to settle claims directly with the hospital. “This also allows us to negotiate the cost of treatments with hospitals, therefore enabling us to keep premiums as low as possible for our employers,” adds Slee.
Other providers have formed partnerships with local insurers in order to meet employers’ demand for greater flexibility around benefit design. Bender explains: “Many employers are demanding greater plan flexibility and plans that tie in with local social security systems to avoid duplication of cover and the unnecessary costs associated with that. In response to this, we have created top-up plans, whereby benefits are added on top of the local plans or on top of cover provided through a government’s social security system.”
Employers are also demanding specific features to be included within international PMI. Weigall says: “In the IPMI sector, there has been a noticeable growth in demand for wellness benefits, which may have the potential to nip potentially more serious medical complaints in the bud. We are also seeing greater call for alternative therapy benefits with Chinese medicine in particular growing in popularity.”
Where employers base expatriate staff inevitably impacts on what organisations demand from international healthcare benefits.
Bennett says: “Providers are offering policy options that reflect the changing demographic of expatriate groups. For example, there are now more Chinese and Indian expatriates, and options such as acupuncture, or coverage for extended family members, are increasingly offered, reflecting a broader range of cultural expectations.”
Pension and retirement benefits are also a key consideration in expatriate benefits packages. This area has undergone some key developments, says Bennett. “In the case of international pension plans, providers have raised their game, introducing more sophisticated administration facilities and investment options. They now aim to provide web-enabled member access and functions to match the sophistication of defined contribution schemes provided for larger local plans.”
The internationalisation of company car and fleet benefits is also a growing trend among multi-nationals. Once the domain of large organisations, small and medium-sized employers are now also looking at international fleet management.
Richard Schooling, chief executive officer at Alphabet GB, explains: “Multi-national organisations are increasingly choosing to develop and implement consistent, company-wide car policies. International car benefits are complex, because of the wide variations in taxation and cultural expectations, so the key demand on suppliers is to manage each provision in each country appropriately while providing the organisation with clear accounting data and forward-looking reporting.”
One of the primary innovations in this sector has been the move away from the idea of providing a company car for each employee to looking more holistically at corporate travel needs in a particular location - a concept known as mobility management. “Mobility management is all about the concept of car usage, as opposed to ownership as in the one-driver, one-car model,” explains Schooling. “Mobility management covers all aspects of corporate mobility needs, from car pool management to making effective use of public transport, and is especially relevant to international needs in various countries.”
As the world’s economic conditions continue to improve, the international benefits market looks set to undergo further innovation as a result of employers’ changing demands. As Lonergan concludes: “We believe there is enormous potential in the international benefits market. We anticipate this awareness will lead to the development of ever-more sophisticated benefit solutions to cover a range of employer and employee requirements.
Expert view: What the future holds
“The logic of only covering people within their home country no longer makes sense - people are essentially mobile. In the next three to five years, the distinction between international and local health insurance will continue to blur. Another key element affecting health insurance is the shift from public funding towards private sector funding, as governments move towards increasing private sector involvement in healthcare delivery and financing.”
Alexander Bender, client relations manager at Allianz Worldwide Care
“The international private medical insurance industry is demonstrating strong year-on-year growth at a time when many domestic medical insurance markets are seeing some contraction. We anticipate this trend will continue. In particular we anticipate continued strong growth in emerging markets.”
Paul Weigall, head of sales and marketing at Interglobal
“As employers recruit more widely, using not only British recruits or transfers but others, the trend is to group all these employees together, and provide them with an international package. For purposes of HR management, none of these employees is being treated as if they have a home location with the company.”
Bob Sperl, senior international consultant at Towers Watson
“We are going to see multi-nationals being increasingly demanding on their partners, whether it is a broker or insurance company, to work more closely with them in terms of giving management information and real-time costs.”
Alan Hewitt, international benefits director, JLT Benefits Solutions
Expert view: What the future holds
“There is growing demand for supplemental healthcare, especially in emerging economies across much of Asia.”
Benefits for local nationalsThe centralisation of compensation and benefits has been a growing trend among multi-national organisations over the last few years. Nicola Lonergan, manager, corporate and bank development at Friends Provident International, says: “This has driven a more uniform approach to benefits and communication strategies, and enables delivery of consistent messages, as well as clear reporting and monitoring of benefits packages.”
In many cases, these central benefits strategies will include a degree of flexibility so they can be tailored to suit local markets. Alan Hewitt, international benefits director at JLT Benefits Solutions, says: “There is usually a degree of flexibility built into overall international philosophies allowing local organisations to adapt to the local market trends and practice. But as a basis, for example, they would have a minimum life insurance for all employees, but how they would then go about arranging that locally would still be a local decision.”
As with expatriate packages, healthcare and pension benefits are currently two of the main areas of focus for employers when looking at benefits for local nationals. Anne Bennett, senior associate in Mercer’s international consulting group, explains: “There is growing demand for supplemental healthcare, especially in emerging economies across much of Asia.
“Pension plan provision is also increasing in many locations. In part, this is driven by government measures, either mandating employers to contribute to supplementary pension savings, or encouraging them to do so by introducing new tax incentives for pension contributions which, in turn, drive employee demand.”