By combining the experience of the local plans under a single umbrella, the global program generally qualifies for a higher level of experience rating than each of the local plans on their own. Consequently, the margins that would have been retained by the local insurers flow back to the parent company, which help to reduce global benefit costs. Of course, a portion is retained by the pooling facility to cover its costs and to a contribute to profits.
Even if a significant amount of the global insurance premiums already qualify for experience rating(where customers share in the mortality/ morbidity rates that accrue under the plan) at the local level, consolidating global results and financial information can still help provide a more strategic approach to cost management. Other benefits of multinational pooling include:
• possible rate stabilization for small local plans;
• access to higher local benefit limits;
• easier cross-border employee transfers; and
• access for the parent to local benefits expertise.
To maximize these benefits, it is very important to get the support of local employers. Communication is paramount—it is important to include them in the review process and in possibly predefining an equitable formula for the distribution and use of global surplus refunds. Because each network usually has one participating insurer in each country, the organization establishes its local employee benefits contract with that insurer.
In theory, an organization could consolidate any local contracts issued by any local insurers under a multinational pool. In practice, it is very difficult and costly to set up. A cheaper and simpler route is to use an established network of insurers throughout the world that have agreed to participate in a multinational pooling program.
There are three key characteristics or qualities for an organization to consider in choosing a multinational pooling network.
First, source a network with a strong presence in the countries where the organization currently operates and where it expects to operate in the near future. Second, look for a network with strong, industry-leading local insurers. Third, find a network where the consolidation of the local programs is handled through a true reinsurance arrangement. This means that each of the network’s local insurers cedes the local group plan to the network reinsurer that creates the multinational pooling contract with the organization’s parent company.
The reinsurer has a vested legal and financial interest in ensuring that pooling transactions are handled in accordance with sound financial and business practices. Because there is a real risk transfer from the local insurers to the reinsurer, the reinsurer often has considerable influence over the local terms
and conditions in each of the countries included in the pool.
For most, multinational pooling will produce some long-term global cost savings. At the very least, it should be cost neutral. Looking beyond the cost factors, a multinational pooling arrangement can provide a very effective global benefits management tool while respecting the important local market delivery systems that can have a significant impact on employee morale and loyalty to the employer.
Brian Kassner is assistant vice-president, Group Benefits, Strategic Initiatives and International Benefits with Sun Life Financial in Toronto. Marc Reinhardt is senior regional director, Generali Employee Benefits Network in Parsippany, N.J. brian.kassner@sunlife.com; mreinhardt@GEBUSA.com
