June 30, 2023

Creating a Globally Consistent Benefits Strategy

This guide’s goal is to inform employers on a variety of different elements to consider when creating their strategy. It also explores the business case and core tenets to focus on in establishing a thorough approach while providing guidance on how to produce a more equitable ecosystem.

Full Series

• Local Fully Insured Plan: Employer works with a local insurer to provide benefits, with the local insurer owning the risk.
• Regional Plan: Pools a number of smaller markets under one regional vendor who can provide local insurance. Usually, the plan is a single regional policy rather than multiple local policies.
• Multinational Pooling: Combines the insured employee benefit plans of different countries with one or more multinational pooling networks. The overall claims performance is taken into account, and an overall surplus or loss can then be determined. Employers receive a share of any surplus.¹
• Global Underwriting: Combines risk benefits (life insurance, disability, accidental death and dismemberment, travel accident) under one global insurance vendor. Local insurance policies are issued by the vendor.²
• Captive: Employer-owned insurance company that bears the financial risk and works with global fronting carriers to provide insurance benefits around the world.^3-6
• Local Self-Insured Plan: Employer works with a local insurer or a third-party administrator (TPA) to administer benefits, with the employer owning the risk.

Table 4-1 simplifies the key components of financing mechanisms and includes a few caveats to keep in mind. Captives do not give complete autonomy to the employer, and financial efficiencies vary across mechanisms, from no ability to spread costs to improved cash flow.³ It is best to work with a broker and/or captive manager to fully understand specifics of the items highlighted in the chart.

 

Table 4-1: Comparing Financing Mechanisms

Global Financing Mechanisms Landscape

Global financing mechanisms are implemented to find savings and gain more transparency in reporting for governance. These mechanisms can also be used to consolidate risk benefits (i.e., life insurance, disability, accidental death and dismemberment, travel accident) under one vendor. More recently, there has been an uptick in companies using these mechanisms to help deliver a more consistent approach across their global benefits. Several global employers leverage the savings from these mechanisms to help fund new and innovative benefits (e.g., coverage for exclusions, fertility).

While global financing mechanisms allow for greater governance control, transparency and vendor consolidation to make managing global benefits easier, it’s important to understand some potential challenges. One of the key challenges is the effort required to transition numerous local insurance arrangements to one or two global networks and the inability of those networks to provide a viable solution in all markets.^3,5 There can also be delays in the reporting process. For example, there is often a substantial delay in receiving information on claims experience, and the reporting capabilities of most insurers remains a work in progress. With local and regional plans, reporting may not be available at all, depending on the size of a given population or the location. On the positive side, however, many companies use dashboards effectively to display the available data, enabling transparency and proper alignment with the company’s strategy.

The next step is to educate the broker and consultant on the company’s strategic vision. Then they can leverage the approach in support of renewals. During the renewal cycle, your broker or consultant should provide guidance on how to meet the needs of your strategy by including what is possible for a market based on insurer openness, employee population size and the regulatory landscape. Given the prevalence of global financing mechanisms, some of the larger global brokers have specialized teams that will provide support with this task.

Aligning with Global Consistency Strategy

With some creativity and a strategic framework, financing mechanisms can be used to help implement a global consistency strategy. As companies move toward implementation, there is a growing interest in captives. A substantial number of multinationals use captives for property and casualty insurance services. Companies are expanding them to include global risk benefits (life and disability), as well as medical benefits.

Captives can be used to reduce costs as well as serve as an incubator for new insurance coverage currently not available in the market. In 2021, there was an increase in companies starting captives or expanding the reach of their existing captives; Mercer Marsh Benefits estimates that up to 150 employers now use a captive to finance employee benefit risks.⁶

Employers are actively seeking support from captive consultancy firms in the development of their captive programs, which provide the following services:

• Setting up the captive design so that it is in line with the corporate strategy;
• Facilitating discussion with corporate finance and HR functions;
• Facilitating discussion with local business units on corporate captive strategy and implementation;
• Determining the adequate pricing/underwriting methodology for all lines of business reinsured to the captive;
• Managing relationships with the various employee benefit networks;
• Providing claims management services and techniques;
• Maintaining a captive database for claims analytics/performance reports to enable wellness initiatives; and
• Implementing global health care plans for critical medical conditions and ensuring equal coverage for all employees where local solutions are not available.⁴

When it comes to implementation of a global consistency strategy, employers have had greater success using a global captive or locally self-insured plan to implement their core benefits, as they have greater control over benefit design, largely because the company assumes the risk. Locally self-insured plans may not be compliant or tax efficient in some countries and may present a challenge for smaller subsidiaries that are unable to accept volatility from higher-than-expected claims. In these instances, a captive may be a more viable option, as it allows for additional cost savings from bundling policies across the globe. Other financing mechanisms are feasible but will require gaining the insurer’s buy-in and may risk confidence in offering benefits and services outside the market median. A global consistency strategy may also result in extra costs, which will require alignment with the local team and insurer (local, regional or global) to make the transition.

The path to global consistency is a multiyear marathon, and financing mechanisms are just one part of that journey.

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