Published on February 18, 2014
Innovative Solutions for health and benefits programmes The latest thinking on compliant solutions for crossborder businesses Workshop belonging to the “Inspire” section •1
Agenda 1. 2. 3. 4. 5. 6. Introductions Why care about Employee Benefits Available solutions Who else is involved Case studies Questions 7/10/2013 2
Introductions 7/10/2013 3
What are trying to inspire? International health and benefits solutions can be critical to financial efficiency, employee retention and cross-border mobility. Solutions are maturing and this session explores developments which are increasingly in the domain of the risk manager. 7/10/2013 4
What do we mean by Employee Benefits? Health and benefits programmes are all solutions, whether implying risk transfer or not, implemented by employers, in addition to mandatory public provisions, to protect their staff from the consequences of the following risks: • Longevity: or outliving your accumulated retirement assets • Death: in the form of lump sum or annuities • Loss of income: temporary, permanent / total, partial / physical, economic • Medical expenses: in-patient / outpatient 7/10/2013 5
Why care about Employee Benefits? 7/10/2013 6
Managing risk in employee benefits Why Now? FINANCIAL CRISIS 7/10/2013 INCREASING REGULATION NEED FOR GREATER CONTROL AND UNDERSTANDING 7
What are the issues? Regulation • Employee Benefits are regulated in many markets • Can be mandatory Financial Impact • Cost of EB programmes are high – Euros 500–1,000 per employee (ex US) • Potential cost of liabilities can be higher than P&C risk Reputational Risk • A good EB programme can act as an attraction/retention tool for employees • Can impact on reputation of organisation if things go wrong Risk Strategy • Programmes are often structured and placed without reference to organisational risk strategy or approach 7/10/2013 8
Why Risk Management should get involved Apply knowledge of risk management solutions, including global structures Risk Management can ….. Apply solutions in accordance with Enterprise Risk Management programme Leverage relationships with global insurers to deliver improved terms Link employee benefit provision to corporate activities 7/10/2013 9
Human capital risks must be managed jointly REGULATION INFLATION DISABILITY REPUTATION ACCIDENT 7/10/2013 DESIGN FINANCIAL CRISIS LONGEVITY CATASTROPHE CURRENCY COUNTER PARTY DEATH 10
Division of Labor HUMAN RESOURCES RISK • Align insurance coverages with local employment market • Ensure consistency in compensation & benefits • Align with stakeholders • Communicate to employees • Ensure compliance with legal & tax regulations • Organization of global insurance programs • Advise on risk reduction opportunities • Consolidate global reporting and forecasting 11
Opportunity for HR and RM to work together JOINT SOLUTION Financial risk Strategic risk People risk Compliance risk 7/10/2013 HR to design benefits Retain Attract Motivate RM to evaluate risks Cost Effectiveness Efficiency Market risk Operational risk 12
Available solutions 7/10/2013 13
Hierarchy of solutions Captives Consolidated programmes Coordinated programmes (including pooling) Local / regional policies (transfer of risk) Self insurance (usually with SL/Cat Cover) 7/10/2013 14
Multinational pooling Plan B Plan A Pooled Claims Pooled Profit Plan E Plan C Claims Plan F Multinational Pooling: Potential of international dividends Increased premiums from local country polices into single network Less extreme underwriting results across pooled portfolio – reduction in volatility and risk charges Better portfolio consistency – reduced admin expenses May use more than one network Plan D Premiums 7/10/2013 15
Multinational pooling Financial benefits through multi-country ‘profit sharing’ on some employee benefit plans Possibility of less onerous medical underwriting procedures •Drives: Management Information Potential access to group arrangements for small populations. 7/10/2013 16
Types of Multinational Pools Stop Loss (100% / 125% / 150%) Risk Charge Loss Carry Forward 3 or 5 Year Deficit write off Loss Carry Forward Indefinite Loss Free (Annual / Terminal) Single Pooling Partner Reinsurer Pool Risk (Multinational Company) 7/10/2013 17
Consolidated programmes Traditionally, there have been few options to achieve this in a truly coordinated way: o Utilise multinational pooling networks o Utilise pan-European risk policies (limited to risk benefits only and EU countries) o Seek to implement local solutions with a single insurance provider in each country, without coordination Recently, we have seen a shift in insurer-thinking towards a more globally coordinated approach, building on existing insurance solutions in country The innovative elements are around: o Single insurer o Centralised account management across all countries o Combination of EU and non-EU countries via local country plans and international plans (small headcounts) o Programme-level discounts / Free Cover Limits o Risk-based fee structure based on tariff rates and experiential rates 7/10/2013 18
Consolidation solutions Multinational Pooling •Traditional pooling approach •Local policies placed with local insurers •Slight impact on local costs and terms •Dividend potentially payable 12 – 18 months after pooling Partnership ‘Plus’ •As per Partnership •Centralised pricing mechanism, reflecting both local tariff rates and client risk profile •Centralised account management team •Central programme terms (such as FCL) offered •Offered via Global insurer and local affiliates Partnership •Exclusive pooling arrangement •In return for volume and fixed duration contract, upfront discounts provided, in place of dividends •Pooling network utilised •Local pricing still applies 7/10/2013 Captives •Utilisation of inhouse reinsurer Global Partnership •Utilisation of ‘international policies’ to provide cover •May not be fully ‘admitted’ in all countries •Allows low headcount countries to be included in global programme •Central risk pricing and account management provided 19
Partnership ‘Plus’ Programme Level Coordination Central Account Management, pricing and terms Country 1 Country 3 Country 4 Country 5 Locally agreed terms and conditions Country 2 Locally agreed terms and conditions Locally agreed terms and conditions Locally agreed terms and conditions Locally agreed terms and conditions Work with multinational insurer and local cover delivered via local affiliates Centrally coordinated, with programme level pricing structure and terms Upfront discounts rather than international dividends Discounts may change over contract period to reflect risk profile of client All local policies are fully admitted/compliant Some benefits may remain outside programme due to capabilities of local affiliates 7/10/2013 20
Global partnership Programme Level Coordination Central Account Management, pricing and terms United Kingdom Countries - UK - Belgium - Germany France - Netherlands EMEA Region Countries - UAE - Oman - Saudi Arabia - Czech Republic - Georgia - Hungary - Romania - Slovakia - Turkey - Ukraine - Russia - Poland Asia Region Countries - Hong Kong - Singapore - China - Japan - Thailand Country 1 Country 2 Locally agreed terms and conditions Locally agreed terms and conditions Country 3 Country 4 Locally agreed terms and conditions Locally agreed terms and conditions Provides greater scope of cover in terms of geography Centrally coordinated, with programme level terms and pricing Policies not fully admitted but provide compliant cover Some benefits may remain outside programme due to capabilities of local affiliates 7/10/2013 21
Captive Insurance – Employee Benefits Executive Benefits Employee Benefits Life AD+D Disability Medical+Dental Voluntary Benefits Retirement Benefits 7/10/2013 22
Captive Insurance – Employee Benefits Key Statistics • 50% of the top 500 global companies have captives • Of the 5,000 registered captives, we estimate approximately 50 cover employee benefits (e.g. Unilever, Heinz, Coca-Cola, Kraft) • Captive Solution: - Annual Savings Estimate 15%25% v’s commercial premium for similar arrangements. 7/10/2013 23
What are the characteristics of employee benefit risk? Exposure: well quantified as a result of sums insured Possible Maximum Loss (PML): very large with limitations on reinsurance for catastropic (CAT) events beyond 1 in 100 years, e.g. World Trade Centre in 2001 Frequency: high / stable for groups > 1,000 employees Severity: low (except for CAT scenerios) Aggregate claims: very predictable with growth trend > inflation, e.g. medical Duration of Liabilities: short- to medium-tail (except disability plans) 0.12 0.1 0.08 0.06 0.04 0.02 0 7/10/2013 24
Captive Reinsurance Spectrum None Captive Signs Pooling Agreement • No risk transfer. Dividends flow directly to captive. Potential cash flow and tax advantages 7/10/2013 Some Captive Loss-Free Guarantee Most Captive Reinsurance Captive assumes 100% of risk if Advance premium cessions on a full pool cancelled while in deficit or partial basis. Premiums flow to position. Network risk charge captive. Claims are typically settled eliminated quarterly in arrears with exception of cash call limits. The captive earns incremental investment returns on cash flow Where 100% of the risk is reinsured, insurance pooling networks provide administration, premium collection, claims and fronting services 25
Drivers for Captive Financing Financial Risk Management/Governance • Reduce Total Cost of Risk Benefit Financing • Provide captive ultimate control over local premium rates • Eliminate risk charges and insurance commissions • Link global service provider network costs to agreed service KPIs • Enhance cash flow by accelerated timing of cashflows • Improve investment returns via transfer of existing claims reserves to captive • Realize potential tax advantages • Enhanced ability to quantify Total Cost of Risk Benefit Financing • Enhanced management information on key drivers to Total Cost of Risk Benefit Financing. • Drive service enhancements across local/global service providers • Identify/unlock excessive network (re)insurance charges • Directly access global reinsurance markets, if needed • Improve quality of claim management and cost information, via negotiation and/ or unbundling • Reduce claims volatility and allow greater risk diversification for a property and casualty captive 7/10/2013 26
Additional Issues for Consideration Underwriting Terms Collateral Requirements R/I Protection Reporting Requirements Actuarial Requirements Insurer SLA Solvency Requirements Operational Requirements Legal Restrictions 7/10/2013 27
De-risking pension liabilities Current allocation Current Extend Bond Duration Increase Bond Allocation Hedged Portfolio De-risk Current Plan Freeze / close plans Cash-out Deferreds Insurance Buyin/out Settle Active Obligation 28
Who else is involved? 7/10/2013 29
Other stakeholders HR Finance Legal Procurement Benefit Advisors 7/10/2013 • Benefit Design • Link with Workforce strategies • Benchmarking against market • Overall cost of EB provision • Compliance with accounting policies • Compliance with contracting requirements • Application of standard terms and conditions • Selection of suppliers and ensuring best deal • Management of placement and marketing activities • Advice on programme structure • Advocacy services 30
Competing interests Benefit design Financial efficiency Programme Design Vendor selection 7/10/2013 Contractual terms 31
Role of the advisor Alignment with Procurement Vehicle Design Programme Design Leveraged relationships Financially efficient 7/10/2013 Compliant Benefits Market Competitive Benefit Design Alignment with strategies 32
Case Studies 7/10/2013 33
Client situation Case Study 1 • Existing multinational pooling arrangements • General strategy to consolidate vendors where possible but the pooling arrangements had not achieved this as local providers still remain • Not achieving economies of scale across their EB programme • Headcount in a number of countries are small and aggregation was not occurring • Needed a solution to consolidate vendors and, leveraging regional footprint Approach • Approached the multinational pooling providers with an initial RFI to establish if they were interested in a ‘consolidated approach’ • Four selected to move forward into a full RFP • Established a scoring structure and scored each response across criteria agreed with client • Key to the scoring was the network’s ability to demonstrate a coordinated programme – NOT traditional pooling Result • Preferred provider selected • Undertook detailed financial analysis of the offers, the impact on local premiums and the potential savings. • Key aspects were centralised coordination across all policies, programme level terms and conditions and programme level pricing, taking into account group experience 7/10/2013 34
Client Situation Case Study 2 • DLA Piper - Largest law firm in the world. 750 partners outside USA • Members Agreement required partners to put Life assurance in place but never fully complied with. • Wished to ensure cover and satisfy moral obligations to survivors • Wished to consolidate provision and implement a global Life programme for all partners (mandatory cover) to ensure that terms of Member Agreement complied with • Given relationships elsewhere, DLA wanted to work with Zurich Approach • Engaged with Zurich to investigate their ability and appetite for the programme • Utilising an EB audit report, reviewed Partner provision across the countries in scope • Given the diverse countries and the scattered populations, a fully compliant programme was not possible and DLA accepted this. • Designed a simple banding structure in terms of benefit levels, pinned to Partner Earnings Result • In conjunction with Zurich, we designed a global programme which met all of DLA’s requirements, utilising both local and Zurich International plans • The global benefit structure agreed is: • Earnings up to GBP250k – cover of GBP500k • Earnings between GBP250k and GBP1m – cover of GBP1m • Earnings between GBP1m to GBP1.5m – cover of GBP1.5m • Also allows for ‘grandfathering’ of benefit levels in certain countries • Global rate per mille and premium level agreed, combining local premiums and rates 7/10/2013 35
Conditions for success Commitment Willingness to manage the “pool” Close cooperation between ALL parties Communication to subsidiaries Patience and longterm perspective Buy-in of local responsibles Clarity of targets 37
Thank you for listening 7/10/2013 38
HCAA Executive Forum ... Health Solutions Plus (HSP) is an innovative provider of enterprise ... Suite supports Member and Benefit Management, ...
19th European Health Forum ... - New Solutions for Health . ... With its wide-ranging three-day programme, the Forum offers an unparalleled platform ...
... access to health care and programs ... Thinking about employee benefits within a total rewards framework and ... first quarter 2013 benefits ...
Mobile devices and apps provide many benefits ... Center for Health Solutions 2013 Survey of U.S ... health care programs are ...
Workplace Wellness Programs Study ... 1 World Economic Forum. ... we also interviewed benefits consultants, health plan staff and program ...
Health Forum is a strategic business enterprise of the AHA, creatively partnering to develop and deliver essential information and innovative services to ...
Wellness Program 'Best Practices ... When spouses were included in key components of the health management program, ... SHRM Online Benefits, January 2013.
We need to embrace and develop innovative solutions and truly ... local patients benefit from better health ... Programmes at Public Health ...
Benefit Management ASi will ... for employers of all sizes and is innovative in providing solutions to ... HRA plans which provide health benefits to ...
Optum is a special collection of people ... perspectives and partners sharing the same simple goal: making the health care system work better for ...