Multinational pooling links insure employee benefit plans around the world for multinational corporations and their subsidiaries, and can mainly be used in two ways: to control the costs of an organisation’s employee benefits insurance and to merge or coordinate multiple employee benefits plans within their organisations. It was originally developed to combat ‘tariff pricing’ adopted by European insurers but has grown into a worldwide accountancy and risk management business over the past 50 years. Group Life Assurance, Death in Service Pensions, Group Income Protection, Group Critical Illness and Group Private Medical Insurance can be pooled in the UK.
Multinational pooling networks consist of multiple insurance companies located in different countries and can either be independent or insurer-owned. Independent networks tend to have a wider geographical coverage and the ability to select the leading insurers in each country as local partners, which offers them greater flexibility.
Understanding how pooling works
Multinational pooling opens the possibility for companies to create what amounts to a global profit share arrangement. Leveraging economies of scale, it can reduce the cost of employee benefit provision through multinational dividends. It also offers businesses access to information about the benefits provided by its individual pooled policies, something that has grown more important for many companies. Multinational pooling networks usually have a network partner (an insurer that forms part of the network) who specialises in insuring third country nationals and expatriates, which simplifies the process of obtaining such insurances.
Since an organisation needs to have insured employee benefits in two or more countries, it is important to note that the policies remain insured with local insurers in each country, which allows companies to benefit from local terms and conditions, administration and claims settlement. This is one of the key benefits of multinational pooling.In addition, premium rates are set locally by insurers competing on a price and service-driven basis in each country, setting competitive terms for multinationals in each market.
The claims and expenses for each country in the pool are assessed and offset against the premium at the end of each reporting period. A centralised account is then used to calculate the overall surplus or loss to the pool, which all claims and expenses feed into.
The most obvious benefit from multinational pooling is the potential to receive money back in the form of a profit share, usually referred to as an international dividend. If there is a positive result for the pool of claims experiences overall, a surplus can be returned to the multinational. With a negative result, it can be passed through to future years with an opportunity to balance costs in better-performing years in future, or it can be forgiven, though this level of protection comes with a cost.
On average, pools have produced dividends of approximately 10% of premiums over the long term for multinationals, showing potential boosts to organisations. How this is managed is completely up to the organisation. Dividends can be made available and spread across the different international subsidiaries if the company experiences a positive pooling result, or consolidated at a headquarters level.
Multinational pooling presents a multitude of other benefits to organisations, including better management information and spreading out the risks companies hold across multiple global sites. Multinational companies using a pool also benefit from local competitive pricing and expertise. Very competitive local conditions can be accessed through pooling as each local insurer in each country will provide the best available terms.
Other benefits include:
> easier transfer of employees between countries
> easier provision of suitable employee benefits in countries with traditionally low levels of provision
> access to benefits and claim information across all subsidiaries (helping multinationals to analyse and compare benefit spend)
> improved management and control over global employee benefits
influence with networks, and hence local insurers, leading to improved service
There are no up-front costs or additional charges to multinational organisations to participate in pooling.
Some extra accounting at headquarter level may be required, but this is a small cost compared to the potential dividends each subsidiary can receive. Similarly, if a company is growing, the accounting can be justified with the networks providing a lot of information on how the local plans are performing and on typical benefits in a wide range of markets, which could be useful at a strategic level.
Consolidation is one of the great challenges of operating at scale in multiple countries and jurisdictions. With multinational pooling, the protection industry around the world has come together and put the infrastructure in place to help international organisations do exactly that. As workforces and businesses become increasingly global and mobile, minimising the friction in moving benefits packages around the world is a great message for this pillar of any company’s attraction and retention strategy.
Paul Avis, Marketing Director, Canada Life Group Insurance