More MNCs Setting up Multinational Pooling and Employee Benefit Captive Arrangements

The rising cost of employee benefits around the world is prompting more international companies to set up multinational pooling and employee benefit captive arrangements to improve the performance of their insurable employee benefit plans, according to research from Willis Towers Watson.

The primary objective is usually to lower premium costs or reduce cost increases below local market inflationary levels.

The Multinational Pooling and Benefit Captives research report 2016/2017 reveals average dividend returns for multinational pools of 6%, with top quartile results producing dividends of over 14%.

For employee benefit (EB) captives, the savings can be even greater with median surpluses of 15% and the top quartile producing 25% or more. Some captive arrangements delivered even higher returns because companies actively discounted their premiums up-front, before reinsuring them to their captives.

Roger Beech, director, Global Services and Solutions at Willis Towers Watson said, “The increasing costs of insurable employee benefits are hitting the radar of senior executives more regularly, with the result that there is greater urgency to understand and manage the drivers of these costs and their growth.”

“The annual costs for insurable employee benefits can easily exceed US$25 million for a company with 20,000 employees around the world, so the use of multinational pooling and employee benefit captives can deliver significant cost savings for many companies.

“As multinational companies seek out cost management opportunities, approaches to create a competitive advantage, taking a proactive and considered approach to the management of insurable benefits results in relatively easy savings.”

Geographical variations

In terms of geographical variations in multinational pooling performance, Sweden produced the largest savings as a percentage of total premium pooled at 41%; while contracts in Canada were the worst performers with average returns of –16%.

For EB captives, variations in profitability were even wider with Japan producing the largest returns at 55%, while Ireland was the worst performer with average returns of –24%.

Beech added: “The findings do not mean that companies should automatically include every benefit plan in Sweden or Japan, or exclude every contract in Canada or Ireland. Rather they should conduct due diligence and consider their own objectives, claims experience, premium rates, network retention levels and other factors before adding or continuing to include any contract in their pool or captive.”

In terms of types of employee benefits business, life insurance contracts were the most consistently profitable, with returns of nearly 27% for EB captive business and 19% for multinational pooling.

Stand-alone healthcare contracts produced average returns of 0.7% for EB captives but were consistent deficit producers for multinational pools, with average returns of –6.3%.

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