Optimizing a Captive Approach for International Employee Benefits

Increasingly, employers see captives as an effective way to optimize their global benefits strategy, though implementing one involves careful planning.

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July 11, 2024

Utilizing a captive for employee benefits outside the United States (U.S.) is gaining increased interest, and some multinational employers are using this approach to optimize their global benefits strategy. An employee benefits captive usually includes insured risks such as medical and life insurance, dental/vision and medical stop-loss. Setting up the proper captive arrangement requires thoughtfulness and proactive engagement with key stakeholders to ensure successful implementation and organizational alignment. If the foundation for this approach is well-established and properly tailored to meet an employer’s workforce needs and strategic goals, involves the right internal teams, external partners (e.g., fronting networks, local insurers, risk managers, global brokers) and governance processes, the opportunities are plentiful.

This article seeks to inform employers considering this approach by breaking down the process and offering employer examples to demonstrate what this approach looks like in the real world.

Building the Business Case

Step 1: Understand how business strategies and needs can be met by leveraging a captive strategy

There are many strategic opportunities when leveraging a captive for employee benefits across multiple countries. It is crucial for HR/Benefits teams considering such efforts to be acutely aware of these strategic areas (as well as the associated challenges) to effectively build a business case.

Listed below are some of the strategic reasonings employers cite to gain organizational and leadership support:

  • Global consistency: Utilizing a captive aligns well to a global consistency strategy as it allows for more centralized control over benefit design while remaining locally compliant and relevant.
  • Health equity: Captives play an important role in furthering health equity initiatives outside the U.S. A captive facilitates innovation in benefits design and delivery, enabling flexibility in addressing health equity issues such as exclusions and preexisting conditions.
  • Financing mechanism: Captives are leveraged as a financing mechanism to reduce costs and act as a test case for expanding insurance coverage to new markets where previously unavailable.
  • Data analytics: Many employers are considering a captive to provide greater insight regarding claims data for top chronic conditions and to enable data-driven decision-making.

An important component of establishing the business case requires an adequate understanding of existing challenges. While the challenges faced by each employer will vary depending on many factors, generally employers can start by asking themselves the following questions when considering a captive:

  • 1 | What is the primary goal for establishing a captive?
  • 2 | What types of risks can fall into the captive?
  • 3 | What are the legal and regulatory requirements to be aware of in each location?
  • 4 | What sort of ongoing investments, governance structure and expertise are needed to manage the captive?
  • 5 | How does a captive strategy align with other strategies (e.g., risk management, global consistency, environmental, social, governance [ESG], etc.)?
  • 6 | What is the return on investment (ROI)?

For more insight into commonly asked questions and answers for employers in this space, check out Utilizing a Captive for Employee Benefits: FAQs.


Step 2: Identify stakeholders and create a process to develop buy-in

Figure 1: How Captive Arrangements Work


To learn more about what a global broker relationship can do for your organization, check out this article, Strategic and Effective Global Broker Partnership.

 

It is important for an employer to check to see if there is a preexisting captive arrangement. In many cases employers already have captives in place for property and casualty insurance. Where captives already exist, employers can use this as a jumping-off point to leverage and utilize for employee benefits as well.

In instances where captive arrangements aren’t already being used, it’s crucial for employers to determine the internal and external resources required to ensure that the captive will be managed proficiently and will meet all regulatory standards. Figure 1 illustrates the various internal teams (e.g., Finance/Risk Management, Procurement, HR/Benefits, etc.) and external partners (e.g., fronting network, consulting firm, etc.) that may be involved in multinational employer efforts to establish a captive arrangement for employee benefits. In addition, it’s important to ensure that each stakeholder group and/or internal teams that are involved adequately understand each other’s goals and objectives to create better alignment for buy-in.


Another inherent component of establishing a captive strategy requires employers to thoughtfully consider which insured risks to incorporate into the captive, as these may include:

  • Medical insurance;
  • Life/Accidental Death & Dismemberment (AD&D) insurance;
  • Short and/or long-term disability;
  • Voluntary benefits;
  • Dental/vision; and
  • Medical stop-loss.

Employer Spotlight: Ensuring Effective Governance

Meta organized the governance process for its employee benefits captive according to four components: 1). Objectives, 2). Stakeholder Engagement, 3). Implementation Plan and 4). Reporting.1

  • Objectives: The governance process identified objectives to guide its decision-making efforts: solvent, helpful and efficient. This determined what benefits did or did not go into the captive.
  • Stakeholder Engagement: Regular communications with internal teams (HR, Tax, Accounting) and external vendor partners (i.e., global and local consultants, fronting network) helped drive global benefits strategy within the captive.
  • Implementation Plan: Leveraging its existing renewal process, Meta focused on priority markets and started by moving low-touch policies into the captive. Meta soon realized the increased impact adding medical would have and recognized that doing so required additional change management.
  • Reporting: Ongoing trend reporting helps showcase a captive’s impact and value, especially with diversity, equity, inclusion and belonging (DEIB) efforts (e.g., same-sex partner coverage, gender affirming care services). Reporting can also support expansion of the captive over time.

Step 3: Outline the return on investment

Listed below are several analytical approaches used to form a comprehensive business case:

  • Inventory/gap analysis: Helps employers evaluate their current employee benefits programs by identifying coverage gaps, cost inefficiencies and compliance issues. By comparing these findings with a captive arrangement, employers can highlight potential cost savings, improved risk management and strategic alignment with company goals. This analysis forms a data-driven business case, demonstrating the value and feasibility of transitioning to a captive arrangement for international employee benefits.
  • Cost/benefit analysis: Evaluates the current expenses of employee benefits and quantifies potential savings and efficiencies of a captive arrangement. Through an evaluation of current costs and projected benefits, this analysis highlights the opportunity for cost savings, streamlined administration and improved risk management. As such, this analysis can provide a clear financial and strategic rationale, supporting the decision to transition international employee benefits to a captive arrangement.
  • Feasibility study: Examines the legal, financial and operational aspects of establishing a captive, ensuring regulatory compliance and adequate resources. It identifies potential challenges and proposes mitigation strategies. By providing detailed cost and benefit projections, the study demonstrates how a captive arrangement can meet organizational goals and deliver value, supporting informed decision-making.
  • Implementation plan: Outlines the specific steps, timelines and resources needed to establish a captive arrangement, ensuring clarity and organization. It addresses logistical aspects like regulatory approvals and stakeholder engagement for a smooth transition. This plan demonstrates the captive’s practical feasibility and can help reinforce consensus among decision-makers.

Implementation and Beyond: Future Opportunities with a Benefits Captive

As employers embark on implementing a captive, they begin a long-term journey that spans planning, formation and operational rollout. Success hinges on diligent measurement through feedback loops from implementation teams, complemented by rigorous analysis of claims patterns to then refine strategies. Looking forward, captives offer expansive potential, evolving from initial risk management tools to pivotal platforms for establishing global benefit standards and expanding risk coverage.

Employer Spotlight: Mitigating Medical Trend Increases

GlaxoSmithKline (GSK) gains improved access to claims data that they use to tailor their well-being strategy to address health issues driving health care claims and reduce health care costs. By working with internal global and local benefit, health and well-being leaders, captive advisors, brokers and fronting networks, GSK collects data to understand their biggest cost driver and determine the best approach to address those issues and where the company can make the biggest impact and then develop a tailored plan for each market.


By integrating captives into broader risk management frameworks and continually adapting strategies, employers have an opportunity to leverage captives not only for cost savings and risk mitigation but also as catalysts for enhancing employee well-being and global consistency in benefits. Therefore, a captive approach not only safeguards against risks but also paves the way for strategic growth and resilience in an ever-evolving global business landscape.

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