forum 2013 innovative solutions for health benefit programmes
DESCRIPTION
TRANSCRIPT
The latest thinking on compliant solutions for cross-border businesses
Workshop belonging to the “Inspire” section
•1
Innovative Solutions for health
and benefits programmes
Agenda
1. Introductions
2. Why care about Employee Benefits
3. Available solutions
4. Who else is involved
5. Case studies
6. Questions
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Introductions
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What are trying to inspire?
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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.
What do we mean by
Employee Benefits?
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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
Why care about Employee Benefits?
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Managing risk in employee benefits
FINANCIAL CRISIS INCREASING REGULATION NEED FOR GREATER CONTROL AND UNDERSTANDING
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Why Now?
What are the issues?
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•Employee Benefits are regulated in many markets
•Can be mandatory
Regulation
•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
Financial Impact
•A good EB programme can act as an attraction/retention tool for employees
•Can impact on reputation of organisation if things go wrong
Reputational Risk
•Programmes are often structured and placed without reference to organisational risk strategy or approach
Risk Strategy
Why Risk Management should get involved
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Link employee benefit provision to corporate activities
Apply solutions in accordance with Enterprise Risk Management programme
Apply knowledge of risk management solutions, including global structures
Leverage relationships with global insurers to deliver improved terms
Risk Management
can …..
Human capital risks must be managed
jointly
INFLATION
CURRENCY
FINANCIAL CRISIS LONGEVITY
CATASTROPHE REPUTATION
REGULATION
ACCIDENT
DISABILITY
DESIGN COUNTER PARTY DEATH
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Division of Labor
11
HUMAN RESOURCES
• Align insurance coverages with local employment market
• Ensure consistency in compensation & benefits
• Align with stakeholders
• Communicate to employees
RISK
• Ensure compliance with legal & tax regulations
• Organization of global insurance programs
• Advise on risk reduction opportunities
• Consolidate global reporting and forecasting
Opportunity for HR and RM to work together
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Strategic risk
People risk
Compliance risk
Financial risk
Market risk
Operational
risk
JOINT SOLUTION
HR to design benefits Retain Attract Motivate
RM to evaluate risks Cost Effectiveness Efficiency
Available solutions
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Hierarchy of solutions
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Captives
Coordinated programmes (including pooling)
Local / regional policies
(transfer of risk)
Self insurance (usually with SL/Cat Cover)
Consolidated programmes
Multinational pooling
Claims
Premiums
Plan A
Plan E
Plan D Plan C
Plan B
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
Poo
led
Pro
fit
Poo
led
Cla
ims
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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.
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Types of Multinational Pools
Pool Risk (Multinational Company)
Ris
k C
har
ge
Stop Loss (100% / 125% / 150%)
Loss Carry Forward Indefinite
Reinsurer
Loss Free (Annual / Terminal)
Loss Carry Forward 3 or 5 Year Deficit write off
Single Pooling Partner
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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
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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
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
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
Consolidation solutions
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
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Captives
•Utilisation of in-house reinsurer
Partnership ‘Plus’
Country 4
Locally agreed terms
and conditions
Country 3
Locally agreed terms
and conditions
Country 2
Locally agreed terms
and conditions
Country 1
Locally agreed terms
and conditions
Country 5
Locally agreed terms
and conditions
Programme Level Coordination Central Account Management, pricing and terms
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
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Global partnership
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 4
Locally agreed terms
and conditions
Country 3
Locally agreed terms
and conditions
Country 2
Locally agreed terms
and conditions
Country 1
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
Programme Level Coordination Central Account Management, pricing and terms
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Captive Insurance – Employee Benefits
Executive Benefits
Employee Benefits
Voluntary Benefits
Retirement Benefits
Life
AD+D
Disability
Medical+Dental
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Captive Insurance – Employee Benefits
• 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.
Key Statistics
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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
0.02
0.04
0.06
0.08
0.1
0.12
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Captive Reinsurance Spectrum
Captive Signs Pooling Agreement
• No risk transfer. Dividends flow directly to captive. Potential cash flow and tax advantages
Captive Loss-Free Guarantee
Captive assumes 100% of risk if pool cancelled while in deficit position. Network risk charge eliminated
Captive Reinsurance
Advance premium cessions on a full or partial basis. Premiums flow to captive. Claims are typically settled 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
None Some Most
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Drivers for Captive Financing Financial
• 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
Risk Management/Governance
• 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
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Additional Issues for Consideration
Underwriting Terms
Collateral Requirements
R/I Protection
Reporting Requirements
Actuarial Requirements
Insurer SLA
Solvency Requirements
Operational Requirements
Legal Restrictions
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De-risking pension liabilities
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Current Plan
Settle Active Obligation
Current allocation
Extend Bond Duration
Hedged Portfolio
Current
De-risk
Cash-out Deferreds
Freeze / close plans
Increase Bond Allocation
Insurance Buy-in/out
Who else is involved?
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Other stakeholders
• Benefit Design
• Link with Workforce strategies
• Benchmarking against market HR
• Overall cost of EB provision
• Compliance with accounting policies Finance
• Compliance with contracting requirements
• Application of standard terms and conditions Legal
• Selection of suppliers and ensuring best deal
• Management of placement and marketing activities Procurement
• Advice on programme structure
• Advocacy services Benefit Advisors
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Competing interests
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Programme Design
Benefit design
Financial efficiency
Contractual terms
Vendor selection
Role of the advisor
Programme Design
Compliant Benefits
Market Competitive
Alignment with
strategies
Financially efficient
Leveraged relationships
Alignment with
Procurement
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Vehicle Design
Benefit Design
Case Studies
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• 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
Client situation
• 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
Approach
• 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
Result
Case S
tudy 1
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Case S
tudy 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
Client Situation
• 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
Approach
• 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
Result
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Conditions for success
Commitment
Willingness to manage the “pool” Close cooperation
between ALL parties
Clarity of targets
Communication to subsidiaries
Patience and long- term perspective Buy-in of local
responsibles
Thank you for listening
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