Multinational pooling allows multinational companies to benefit from favourable insured claims experience on a worldwide basis
Employee benefits are an essential tool for companies that want to attract and retain talent in order to achieve sustainable growth and competitiveness.
They are also expensive to run, and for multinational organisations with benefits plans for their international companies, difficult to control.
Management of these complex and constantly evolving benefit schemes requires the input of external benefits specialists, and it is this, plus the need to minimise the financial impact, which has encouraged growing numbers of companies to join employee benefits networks that offer multinational pooling of benefits.
Multinational pooling works by combining the various employee benefit contracts of a multinational’s local subsidiaries into an international portfolio or pool, from which insurance actuaries can release risk margins, which are then returned to multinational headquarters in the form of cash.
Essentially it is a form of risk spreading, and an effective way for companies to enjoy potential financial savings while managing employee benefits' risks worldwide.
The concept first appeared in the early 60s, and today an estimated 1,500 multinational organisations are pooling benefits, such as group life insurance, group disability insurance, and medical insurance, through a dozen or so international networks with local insurance partners.
Leading the way
Established in 1962 the Swiss Life Network is a pioneer in the pooling business.
Head of Swiss Life Network Margrit Schmid says: ‘Employee benefits plans are of key importance for companies that want to maintain sustainable growth and competitiveness in their respective field, and in this respect they have become a top management topic.
‘On the other hand, social and demographic evolution in industrial countries tends to increase pressure on social security systems. As a result this has led to a shift of responsibility from the state to employers and employees to ensure the levels of income and lifestyle, including after retirement.’
Pooling is not restricted to large multinationals, and in fact is available to any company that is international in character.
At Swiss Life Network the minimum requirements for establishing a self experience-rated pool include at least two poolable local contracts insured with the Swiss Life Network in a minimum of two countries.
At least one of the contracts must be new and there must be a minimum of 100 active employees in total. A periodic minimum pooled premium CHF 250’000 is also required.
However, companies can also participate in a multi-client pool, where conditions are less restrictive, and require one new local contract and a minimum of 10 active employees insured.
‘By entering a pooling agreement there are also other advantages for the client’s headquarters, such as information and transparency about plans ensured worldwide, regular updates on changes to employee benefits, market trends, and any legislative issues,’ says Ms Schmid.
At the end of the pooling year networks receive from their network partners the income, which includes premiums paid, reserves brought forward and interest, and the expenditure, including claims, reserves and other expenses, for the local plans of all the multinationals’ subsidiaries. These are consolidated into one multinational account and presented to the pool manager at corporate head office.
Any surplus in the account is available as multinational dividends, which can be retained centrally or shared with participating companies. The current trend is to retain some dividend to cover central costs in running the pool and share the remainder with participating subsidiaries.
Deficits that arise from the pool are generally treated in one of two ways; either as a stop loss, i.e. written off by the insurers, or as loss carry forward, to be offset against any future surpluses. A stop loss basis is seen as the safest option with full protection for the pool result, whilst loss carry forward will leave some of the risk of losses with the pool.
Important considerations
In choosing an international pooling network, multinational companies need to consider several factors, not least the level of assistance and support available from the network operator in establishing, developing and managing the pool, both globally and locally.
Ms Schmid explains: ‘The local subsidiary of an international client communicates with its local insurer, our network partner, which administers local benefits. The network partners then report to Swiss Life Network in Zurich on a yearly basis.’
Although it is the multinational client headquarters that establish the relationship with the central network provider, they also have access to expert information about local conditions via a single source. And local knowledge is vital as there are still significant differences in employee benefit programmes between countries.
Clearly there are advantages to the pooling of benefits for companies, but what about the drawbacks? Ms Schmid insists that there are none.
She says: ‘Even in case of a negative international profit and loss account, the multinational client would obtain information on local benefits and would take advantage of a clear administration process. On a local basis, a local company that is part of a parent company pool can really benefit from the wider business influence of both the network and the parent when it comes to negotiations relating to the local contract.
‘The business relationships within the network between local partners extend far beyond any particular scheme, and enable the network to exercise an additional degree of influence in the decision-making process that would not be possible with a contract established purely on a local basis.’
