09 March 2017
Reporter: Becky Butcher

Increase in captive use to limit EB cost

Multinational pooling and captives are being increasingly used to limit the cost of insurable employee benefits globally, according to research by Willis Towers Watson.

The research showed that the rising cost of employee benefits around the world is prompting more international companies to set up multinational pooling and employee benefit captive arrangements in order to improve the performance of their insurable employee benefit plans.

It suggested that the primary objective for setting up such arrangements is usually to lower premium costs or to reduce cost increases to below market inflationary levels.

Pro-actively managed multinational pools and employee benefit captives can generate savings of over 14 percent and 25 percent, respectively, on insured benefit costs, according to the research.

It also found that some captive arrangements delivered even higher returns, because companies actively discounted their premiums up-front before reinsuring them to their captives.

Roger Beech, director of 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.”

He added: “The annual costs for insurable employee benefits can easily exceed $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.”

In 2016, in terms of location for multinational pooling performance, Sweden produced the largest savings as a percentage of total premium pooled, 41 percent, while contracts in Canada were the worst performances with average returns of 16 percent.

For employee benefits captives, variations in profitability were even wider, with Japan producing the largest returns at 55 percent, while Ireland only gaining returns of 24 percent.

Beech commented: “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.”

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