As many nations, particularly in the developed world, continue to battle with difficult economic conditions, a new wave of fast-growing economies is emerging. We have all heard of the Brics – Brazil, Russia, India and China – but the global business community is rapidly expanding into newer locations such as Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (known collectively as the Civets), as the internationalisation of commerce continues apace. For those advising on international benefits, that means expertise relating to an ever-growing number of jurisdictions is required.
Kevin Melton, sales and marketing director at Axa PPP International, says: “There are fewer companies moving into China now, which explains the importance of some of the surrounding countries, such as Vietnam, Indonesia and Malaysia. If companies want a base now in Asia Pacific, they’re not naturally thinking it has to be China. Hong Kong and Singapore for that matter are quite saturated anyway.”
Some multi-national organisations that have established a presence in this region, or are planning to do so, have begun to look for benefits products that can be provided across borders. Simon Bell, principal in global benefits Europe, Middle East and Africa (EMEA) at Aon Hewitt, explains: “Companies are looking for insurers that can deliver seamless solutions across the region but cross subsidise those with the rest of the risks they can place across the rest of the world. They are looking for a more globalised insurance proposition and far less of a domestic or regionalised one. The insurance market is fairly slow to react to some of that, apart from at the very top end. It’s fair to say some insurers respond better in some markets than others. One thing insurers are weak about is talking outside of pooling networks to multi-national companies on a regional or global basis as a single insurer.”
As a result, employers’ demands for a single supplier or insurer are driving development among international providers and insurers in this region. “Specifically around China and the rest of Asia, a lot of insurers now are investing fairly heavily in terms of the partnerships and their establishment in that region,” says Bell. “They’re becoming licensed in multiple rather than single countries and not working offshore to quite the same degree as they were previously. They’re beginning to get there but we’re not quite at the point where we have a full suite of products to meet each of the requirements locally.”
However, as wages go up in economies such as China, growth is slowing, while low cost manufacturing is going to new territories such as Thailand and Vietnam. While many global businesses having established a presence in China, including a number of benefits advisers and providers, some have begun to question whether the current slowdown there will impact the benefits market. But the issue should not be overstated. While the growth rate in China has slowed, this has not occurred to the same degree as in more developed markets, such as Europe. Bell says: “It is still going through periods of growth in terms of employee numbers and opportunity. We haven’t seen any significant decline in the spend or approach to benefits in the region.”
As multi-national organisations move into emerging markets, they may experience a tipping of the balance from old to new world benefits packages. But this has not yet happened to a large extent, says Tim Johnson, managing director of Gallagher Employee Benefits. “What we’re seeing is traditional old-world-style benefits still prevailing,” he explains. “Even though someone might be working in South Africa, they’re still expecting to have PMI, first and foremost, possibly with evacuation and repatriation cover. Secondary, they’ll have globalised benefits so if they die, their employer pays for their loved ones to get a lump sum of money, and if they are too sick to work it provides them with an income. But I don’t see a whole raft of new benefits coming in. It seems to be pretty static. In my experience, there’s not a lot of innovative thinking at the employer end going on.”
Going forward, however, this could change. Marcus Underhill, global reward director at Thomsons Online Benefits, explains: “Through technology, in this century mature economies can quickly be leapfrogged by the developing world. A number of the old world countries will struggle with social costs and ageing populations, and the balance of revenues and people employed will shift. When I talk to people in global benefits roles, they want a basic consistent overall philosophy for benefits globally, and consistent look and feel then designed within local legislation and local employee needs.”
But to enable them to meet business objectives and continue to attract and retain talent, employers should not necessarily look to reduce the benefits they offer. “Employers want someone to go on secondment because of their expertise and skill set to build a business or enhance the business to support its global infrastructure growth,” says Melton. “Those people are used to a certain level of benefit expectation and will not go on secondments if their employer downgrades their benefits package.
“Once employers have given a benefit to somebody, it is very difficult to take it away, especially when they are talking about high-profile people. If they have got a top-performing person in Asia Pacific who is doing a good job, they are not going to want to upset that person by taking away some of the benefits because of the market now or because the company has changed its strategy or policy.”
With new markets continually emerging, it is perhaps unsurprising that current economic conditions, both on a global and local scale, have had a significant influence on developments in the international benefits market. Jeremy Hill, senior international consultant at Towers Watson says: “The international benefits market is linked to what is happening in local social security provision and local economies. In many economies, governments are looking at curtailing social security benefits and the bill then passes on to some extent to the employer. From a multi-national perspective, it does require they are quite tuned in to the changes. We have more multi-nationals looking to capture information and put in a structure and strategy in order to react quickly to changes.”
One such strategy is a move towards a centralised approach to HR and benefits, particularly as organisations establish a presence in a greater number of markets, but have relatively small employee numbers in each. Chris Rofe, senior consultant at Buck Consultants says: “That’s really stretching things and organisations have to be more acutely aware of local regulations and local taxes. A lot of our work now is not necessarily dealing with huge volumes of employees, but companies are saying ’I need help. I’ve only got 100 people around the globe but they are in 25 different regions’. Companies are looking to develop a central strategy with some minimum requirements so they know wherever their people are in the world, they will get no lesser benefits than a set criteria. They are looking to generate a strategy with central oversight and central management information, but then allowing local entities to flex [this] to meet local regulatory needs. Quite simply, they’ve got employees in too many countries to handle this locally.”
However, this shift in the composition of multi-nationals’ workforces poses additional challenges when it comes to sourcing international benefits, particularly for employee groups with high expectations, says Bell. “What they bring to market is something we haven’t seen for longer than 18 months, which is global groups going to market with very small employee numbers per country. These are becoming increasingly difficult to place.
“As the economy develops to be smaller in employee numbers but with high-hitting and very important employee bases, there’s going to be more need to have coordinated benefits across multiple regions where we don’t have to turn to individual products that may have restricted underwriting requirements and may have a much higher margin in terms of the insurer’s return – and are hence more expensive. It doesn’t deliver the value that all multi-nationals are looking for.”
Alongside the centralisation of strategy, there has also been a trend for HR professionals to take on a broader geographic remit. This has prompted many multi-nationals to seek a better understanding of overseas markets in terms of benchmarking their benefits provision and identifying what benefits are provided by a country’s social security system, as well as by other employers. Many then look to source management information, such as what benefits they currently offer to staff in a specific location and the cost of providing these.
To meet these demands, some international benefits providers and advisers, such as Bluefin Corporate Consulting ( recently acquired by Capita), have developed global database technology which can give employers a comparison of what they provide in each country and how this compares to local benchmarks. But Peter Taylor, head of international benefits practice at Bluefin, says: “The thing that’s really holding it back is the weakening global economy, which means employers don’t have the money to spend what they would like to.”
With employers continuing to experience budgetary pressures, their main focus is inevitably on obtaining the best possible value for their international benefits spend, without necessarily reducing what they offer. Johnson says: “What we’re seeing is a drive towards common sense value. Even though that might make plans more complicated because you have got to take into account local suppliers and local rules, the cost saving is worth it.”
Perhaps the most significant savings are up for grabs in the international healthcare market, particularly if employers review how their benefits are structured. Johnson explains: “If you follow the US model, you have a US-based contract that has US limits and liabilities, and can end up spending a huge amount of money on medical because generally with expatriates it extends to the family. If you put their whole family onto a US-style contract in a country that maybe has a pretty good first pillar of healthcare, you’re just burning money.”
Melton adds: “There is more pressure on insurers now to demonstrate how they work with hospitals, how they get the best value for money, how they negotiate discounts with hospitals and so on.”
Providers appear to be responding to employers’ demands. The increase in the number of providers in the international private medical insurance (IPMI) market, in particular, means employers and advisers now have a much greater range of choice in who they work with.
Johnson says: “In the UK and EMEA we’re pretty well served with practical forward-thinking local offices of international providers or just local offices. There is definitely lots of opportunity out there with providers but they get frustrated that they don’t get a fair say in what the benefit programmes should be. So it’s really educating the international broking community that there are alternatives out there. They don’t have to go with one of the firms they’ve heard of. They can look a little bit outside of the box. They might be pleasantly surprised.”
In the IPMI market, employers’ focus on value is driving insurers to look at what additional services they provide. In April last year, for example, Bupa International introduced free access to an expert medical opinion service, provided by Advance Medical, for expatriates. Meanwhile, Axa PPP International formed a partnership with independent company Medics, which provides support for expatriates receiving treatment overseas. Many of these added-value services have a focus on employee wellness, which support a more proactive approach to staff health and wellbeing. This can help employers to identify and tackle potential health issues at an early stage before they result in a costly medical insurance claim. Such benefits include health screening, preventative GP consultations and emotional support such as employee assistance programmes, stress helplines and bereavement counselling.
A future area for growth is likely to be international flexible benefits arrangements as employers look to provide greater choice to staff. Johnson says: “We’re starting to get enquiries about whether we can give people choice on an international basis, for example can we roll them into flexible benefits, can we do salary sacrifice on a global basis? That’s quite a challenge when an employer has got lots of jurisdictions because it works tax wise in some, but it doesn’t in others. There is definitely a desire there for employers but the delivery is missing at the moment. I’m not aware of any multi-national, multi-jurisdiction product or service supplier that can actually deliver.”
Several consultancies and intermediaries, however, are currently investing in this area internationally, in terms of their technology capability and partnership representation.
While new emerging markets are undoubtedly influencing international benefits provision, therefore, the impact of the global economy and employers’ desire for value look set to be the key drivers in this area for some time to come.
Qualifying recognised overseas pension schemes
In this year’s Budget, the government announced plans to introduce changes in primary legislation in the Finance Bill 2013 to strengthen reporting requirements and powers of exclusion relating to qualifying overseas recognised pension schemes (Qrops).
In addition, the government also announced that where a territory or country in which a Qrops is established makes legislation, or creates and uses a pension scheme to provide tax advantages that are not intended to be available under Qrops rules, it will act to ensure that the pension schemes in question will be excluded from Qrops.
These announcements followed proposed legislative changes that were published for consultation in December 2011.
Should the changes go ahead, these may impact the marketability of Qrops and reduce the number of schemes on offer.
Benefits trends in Asia Pacific
Wage pressures will continue to be a major factor in attracting and retaining top talent in Asia in the year ahead, according to Randstad’s World of Work Report 2012.
Around a quarter of managers surveyed in the report would consider another job for the opportunity to earn more money or benefits, or to have better work-life balance.
Pay rises in Asia Pacific are in 2012 are expected to average 5 per cent, compared with 2.5 per cent in the Americas and 2 per cent in Europe, according to Mercer’s Global Financial Services Incentive Plan Snapshot Survey.
