What is multinational pooling?
It is a system that enables multinational organisations to benefit from favourable claims experience on insurance-based benefits through economies of scale achieved in purchasing and the payment of dividends.
Who are the main providers in the market?
All Net, Generali Employee Benefits Network, ING Global Employee Benefits Network, In2Matrix, Insurope, International Group Program, Legal and General, Maxis Global Benefit Network, Swiss Life Network, Zurich Employee Benefi ts Network.
76% of employers with overseas operations do not use multinational pooling
Source: EmployeeBenefits/Cigna UK Healthcare research 2012
92% of employers offer private medical insurance to employees outside of the UK
Source: Employee Benefi ts/Alexander Forbes Benefits research 2012
One way of maximising value from employee benefits spend is to use multinational pooling for insurance-based perks, such as group life and income protection.
Pooling allows employers with overseas operations to benefit from favourable insured claims experience on an international basis. It brings together insured plans, including retirement, death, disability, medical and accident cover, which have been set up locally for two or more countries.
It is unsuitable for standalone accident contracts where potential savings on premiums may be low but the impact of a claim relatively high, and for pension plans that are administered on an investment or capitalisation-only basis, with no element of insured risk.
Premiums are paid by employers’ subsidiaries locally, with claims settled by the pooling network provider’s local insurers. Tariff premiums, rates and levels of cover set in each country by a group of insurance companies or a government, do not necessarily represent the cost of a given plan. In many cases, the real or net cost can be considerably less, depending on the level of insured claims experience.
Employers can also gain from favourable claims experience worldwide by receiving a regular international dividend. In the long term, advisers estimate a dividend of 5% to 10% of pooled premium costs per annum. In single years of good experience, dividends can be substantial, potentially 80% to 90% of risk premiums paid.
The variety of pooling systems available reflects different levels of risk and protection. Those that operate on a loss carry forward basis are a higher-risk, higher reward option, with any losses carried forward to the next reporting period to be deducted from any potential surplus, while surpluses accrued during claim-free years can be as high as 85% of the premiums paid.
Stop-loss pools offer the protection of any losses being absorbed by the network partners at the end of each reporting period, while multiple employer pools may be more suitable for multinational organisations with a few hundred staff and more potential for volatility in claims.
The minimum requirement for multi-employer pooling is usually the existence of a group insurance contract in at least two countries. Single-employer pooling systems become viable at around 1,000 lives, again with at least two countries involved.
Costs incurred by opting for multinational pooling include the protection provided to the chosen system, plus local administration charges, but these are included in the local premiums paid. Any extra costs relate to the fees paid to consultants for advice and/or pool management. If everything is handled internally, the cost is just time and resource.
Only a minority of employers that could use multinational pooling arrangements currently do so, but there have been signs of growing interest as organisations look to reduce longer-term costs because of the economic climate.