An increasing amount of international companies are setting up multinational pooling and captive arrangements to tackle the rising costs of employee benefits, according to Willis Towers Watson.
The primary reason is usually to lower premium costs or reduce costs increases below local market inflationary levels.
Willis suggests savings of 14 and 25 percent can be generated on insured benefit costs for pro-actively managed multinational pools and employee benefit captives, respectively.
Research reveals average dividend returns for multinational pools of 6 percent, with top quartile results producing dividends of over 14 percent.
For employee benefit (EB) captives, the savings can be even greater with median surpluses of 15 percent and the top quartile producing 25 percent or more.
In some cases, captive arrangement arrangements delivered even higher returns because companies actively discounted their premiums up-front, before reinsuring them to their captives.
“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,” said Roger Beech, director of global services and solutions at Willis Towers Watson.
“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.
When looking at the performance of multinational pooling broken down by geography, Sweden produced the largest savings as a percentage of total premium pooled at 41 percent, while contracts in Canada were the worst performers with average returns of –16 percent.
Beech continued: “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.”
Variations in profitability for employee benefit captives were even wider with Japan producing the largest returns at 55 percent, while Ireland was the worst performer with average returns of –24 percent.
“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,” Beech added.
Breaking down the types of employee benefits business, life insurance contracts were the most consistently profitable, with returns of nearly 27 percent for employee benefit captive business and 19 percent for multinational pooling.
Stand-alone healthcare contracts produced average returns of 0.7 percent for EB captives but were consistent deficit producers for multinational pools, with average returns of –6.3 percent.
Willis Towers Watson, Employee Benefits, Captives, UK, Global