If you read nothing else, read this…
– Multinational pooling is a profit-sharing arrangement for global employers that offer insured risk benefits, such as life insurance, in different countries
– It is an accountancy mechanism that, in good years, means large employers can earn a rebate, called a dividend, of up to 85% of the insurance premiums
– Smaller companies can join multiple-employer pools
Multinational pooling can slash healthcare insurance costs, says Sally Hamilton
Insuring employees against risks such as death in service, long-term disability, critical illness and medical costs adds up to big bills for employers. But organisations operating globally can use a multinational pooling arrangement to recoup a large chunk of the annual cost of insurance, sometimes as much as 70-85% of the premiums.
Multinational pooling is like a profit-share arrangement between employers and networks of insurers and is used by firms with staff in two or more countries. At the end of each year, a tally is made of all the premiums paid for each local insurance contract in the pool and then the administration costs, expenses and claims are deducted. Any cash surplus is returned to the employer’s headquarters as a dividend to spend as it wishes.
Damian Ross, area manager at insurer Generali, says: “It is a win-win situation for the employer. If it is a good year, it can get a dividend back, which on average is 14% a year. But I have seen 70%.”
Potential dividends vary depending on the type of pooling network an organisation joins. Typically, employers can choose to have their losses carried forward or operate a so-called stop-loss arrangement. In the former set-up, any losses are carried forward to the next reporting period, when they are subtracted from any surplus. Paul Avis, sales and marketing director of Canada Life, says dividends on losses carried forward in pools can be as high as 85% in claim-free years.
With stop-loss pools, which suit more risk-averse employers, any losses are absorbed by the network partners at the end of reporting periods. In claim-free years, the dividend can be 70%, reflecting the higher charges.
Bigger organisations tend to have the strongest buying power with most pooling networks. Multinational pooling works best for those with a minimum of 1,000 eligible staff and five or more subsidiaries overseas, says Canada Life. Smaller employers can join a multiple-employer pool. Typical dividends in a claim-free year will be more modest, but can still be up to 25%. Any surplus or loss depends on claims for all the employers in the pool, with protection on a stop-loss basis.
Overall, employers can reap average dividends of 15-20% of premiums in the long term, while also trimming costs associated with economies of scale and the ability to negotiate keener premiums.
“Pooling helps multinationals to standardise and merge their benefits provision,” says Avis. “It can ease the provision of suitable benefits in countries with traditionally low levels of employee benefits provision.”
No dividend is worst outcome
If the overall claims experience is poor, the worst that can happen is there will be no dividend, perhaps for several years. Jamie Barnes, client services director at consultancy Enrich Reward, says: “There are other potential savings to be made, such as centralising administration and accounting, and [adopting] a more streamlined approach.”
Other costs to consider include an adviser’s fee for a feasibility study on multinational pooling and the extra accounting needed at head office level. “The [extra accountancy] costs would be small compared to the potential dividends,” says Avis.
Savings may also depend on the type of benefit in the pool. As claims on medical contracts tend to be more predictable, premiums are closer to the actual claims. Ross explains: “This means there is little room for manoeuvre on margins, so less chance of a dividend. Life insurance is much less predictable. An employer may have 100 lives covered and have 10 years or more with no claims, but then could have a bad year.”
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