For decades, multinational companies have utilized pooling to finance and manage their global benefits. However, pooling is not perfect and we think it’s time to explore new approaches. In particular, global underwriting is an alternative approach to funding employee benefits that offers a number of advantages to multinational corporations.
The standard: Multinational pooling
In multinational pooling, a company reviews each country’s benefit insured programs and bundles them under one global network of insurers. Each year, after the insurance network has assessed the local country claims experience, it then examines the entire pool to determine whether it was in surplus or in deficit. In recent years, some companies have enhanced the pooling approach by using their captive for even greater savings.
But multinational pooling has its drawbacks:
- The payoff is often small — or nil. According to a recent Willis Towers Watson study, the average multinational pooling dividend equals only about 6% of premiums, and about a third of all pools are in deficit.
- Companies have to wait (and wait) for dividends. Even if premiums do exceed claims and expenses, most companies won’t receive a refund until six to nine months into the following year.
- Pools often include inconsistent terms and conditions on insurance coverage — an inequity that contrasts with a company’s desire to offer a consistent global benefits strategy.
- Pools are often paired with global brokering arrangements. Hiring a major brokerage firm to manage the process, data, and renewals saves lots of time — but can cost an exorbitant amount of money; which is particularly unnecessary after implementation, when there’s little change year to year.
An emerging option: Global underwriting
Some companies are considering a different approach: They use global underwriting to address the risk, benefit design, and terms from the worldwide perspective first. This allows them to:
- Negotiate globally consistent financial terms for buying insured employee benefits with terms and conditions that work for them.
- Save time for local and regional HR colleagues by managing the renewal process centrally and often with a less frequent cadence (Once every three years, instead of annually).
- Save money by eliminating local risk charges, commissions, and brokerage fees.
- Manage reserves more effectively by taking a customized approach to setting reserves, rather than relying on conservative local insurance company-led methodologies.
- Avoid surprises by determining an appropriate premium at the beginning of the year — instead of waiting months to learn whether they have earned a dividend.
Global underwriting isn’t perfect:
- Insurance companies provide much of the administrative support through their affiliates — which is fine for life and lump sum benefits, but poses challenges for medical, which calls for a significant human touch.
- It can be difficult to transition from pooling to global underwriting, particularly when carrying forward a loss, or where local HR want to retain full control.
- It’s not for smaller companies. To get a real financial advantage, a company needs at least $1 million in annual premiums.
- Insurance company underwriters can require a lot amount of data in setting premium rates that is not often easy to obtain. This may make year one set up difficult.
Examining a new approach: mix and match
I like exploring an alternative that saves companies time and money where it makes sense, while focusing investments in the benefits that employees rely on the most. Companies would use:
- A global underwriting platform for life and disability insurance, and for low-touch or globally consistent benefits, such as expatriate medical and employee assistance programs. This would closely align premiums and claims — capturing the positive impact of pooling, but in less time. It could also reduce overall premiums 7% to 10%, thanks to reduced commissions and risk charges. And, HR professionals would get back the time they would have spent negotiating contracts in every country.
- Best-in-class local country insurance and consulting providers for medical benefits, and for all benefits in countries with smaller, more difficult populations to insure. This provides employees with high-touch assistance and local advice where it matters most to them.
Multinational pooling will continue to be an important tool for many global companies. However, now is a great time to explore new approaches to delivering and financing benefits globally, which can save companies significant time, effort and money.
What do you think is the best way forward for large multinational companies? We’d love to hear your thoughts — in the comments below, or send us an email at email@example.com.
About the author:
Gerry Murphy is a co-founder at Nua Group, a San Francisco-based Human Resources consulting firm specializing in total rewards. Gerry is inspired by organizations that encourage people to do extraordinary things and reach their human potential. He dedicates his time to helping clients solve problems.