Pooling. It’s not new. It’s not sexy. But it does have the potential to bring to international clients – even the smaller ones – cost efficiencies, control and essential local and global employee health and wellbeing insights. All of that with zero risk attached. So why aren’t more advisers doing it?
There are an estimated 100,000 multinational companies in the world but only around 3,000 company pools, says Canada Life Group Insurance marketing director Paul Avis.
Zoom in on those headquartered in the UK and Ireland and only a quarter – 26 per cent – have a pooling arrangement in place, according to research last year by Generali UK and HR Grapevine. Of those that don’t, the majority said it was because they felt insufficiently familiar with pooling.
A missed opportunity?
“Pooling is the undiscovered gem in the group risk and healthcare industry,” says Avis. “It presents massive opportunities considering the small number of pools in existence. Plus, Brexit represents a perfect opportunity to begin these discussions. Companies looking at the impact of Brexit will probably have already established footholds in the EU and will be employing locals.”
Lack of adviser knowledge leads many to feel that the idea of pretty much guaranteed savings and no risk is perhaps too good to be true. “Pooling represents a way of minimising costs and maximising control. And there’s no downside. It’s human nature to think you don’t get a free lunch in this life,” says Damian Ross, regional manager – UK, Ireland & Nordics, Generali Employee Benefits (GEB) Network. “But there’s really no catch here.”
Pooling in a nutshell
In its simplest form, pooling helps companies operating in multiple countries to offer a competitive, locally-compliant benefits package. Pools help companies keep a lid on finances by paying cost savings in the form of an annual dividend when the experience of the pool is positive. They also offer a stop-loss facility, allowing for any negative balance to be absorbed by the pool.
In a well-balanced global pool programme, multinationals typically receive a dividend of between 5 and 10 per cent, says MAXIS GBN director of underwriting Nicola Fordham.
“Although this can vary and can sometimes be upward of 10 per cent, global employee benefits consultants report an approximate average of 6 per cent dividend returns,” she adds.
Pools are, ultimately, a global profit and loss account, which combines the performance of the insurance-based products from local territories into one account. This helps ensure economies of scale and influence on local terms and conditions.
This profit and loss account is then managed by the pooling network.
But the advantage of pooling isn’t purely financial. Pools also provide a picture of all of a company’s local benefit programmes and a clear idea of what’s working for them and what’s not.
Not just for the big boys
There’s a misconception that pooling is just for the biggest organisations. This isn’t borne out in reality. Eligibility criteria differ based on the organisation offering the pool, the type of pool and the approach to risk.
Canada Life for example works with two networks – Insurope and IGP. These networks aim to choose the best, third-party, in-country insurer based on the client’s need. This affords opportunities for
smaller companies to have pooling as part of their small employer pool or Multipool: where policies are combined from several employers for one product.
Networks such as GEB, MAXIS GBN and Zurich work on a reinsurance basis, offering access to their own networks of partner insurers around the world.
Some offer multi-employer pools for companies with smaller premium volumes. Others offer standalone pools (as well as, or instead of multi-employer pools)
for companies with larger premium volumes operating in a greater number of countries. Standalone pools contain only the policies of one multinational company and its subsidiaries.
How low can they go?
With no upper limit on the size of scheme that may be eligible for a pool, the question remains, how low can you go?
Canada Life states there are opportunities to join a pool for smaller organisations with representation out of the UK and a minimum of 500 – 1,000 employees in total.
GEB’s LifeCycle pool is available to clients with total premium volume of €20,000 (£17,943) per annum or more and subsidiaries in at least two countries.
MAXIS GBN requires their clients to have a minimum of US$300,000 (£236,253) annual premium and two policies in two countries with at least 100 lives and US$10,000 (£7,875) premium in each to offer a global pool.
Support for advisers
Whether to pool or not to pool, however, shouldn’t be just based on premium volume. It should be more a question of whether it makes sense for the company and the pool, says Ross.
“The networks offer advisers some great tools and a high degree of local country information and assistance,” he adds. “For example, we can help advisers produce simulations for clients in multiple languages showing what a benefit programme would look like in a multinational pooling arrangement. This includes benefit premiums for each country in which a client operates and potential dividend payout – overall and per country.”
The support from pooling providers seems to be there for the taking for those advisers keen to develop new markets and revenue streams, from technical support in terms of training to case by case support.
For example, Avis explains that IGP hold annual network conferences where they bring together representatives from their clients’ parent companies and insurer partners from the UK and around the world to provide a “deep dive” of benefit trends, opportunities and challenges in their localities. “Brokers can accompany their clients to these events. Pooling also of course brings to clients detailed management information and global risk oversight. For an adviser to offer this kind of facility is pretty amazing.”
New kid in town
Captives have always been considered the next step up from multinational pooling, some achieving savings of 25 per cent or more. All the risk resides with the captive, unlike pooling, where it resides with the local insurers or network (depending on the type of pool) – giving it an unparalleled level of control in terms of managing risks and removing costs.
But putting in place a captive is a big step, requiring considerable commitment in terms of time and costs in the set-up stages.
Enter global underwriting – a relatively new phenomenon, in the employee benefits world at least, and a kind of half-way house between pooling and captives. This is offered by GEB, Zurich and MAXIS GBN.
Rob Brown, director, customer and distribution management – UK & APAC, Zurich Global Employee Benefits Solutions, comments: “Global underwriting is the way forward. It works well for global SMEs spending more than US$500,000 [£397,000) a year on insurable employee benefits, but the premium features really kick in at $1m [£793,500] risk premium. Financial savings are calculated upfront and guaranteed for a period of time. Three-year rate guarantees are common with financial savings in excess of 10 per cent for life, accident and disability insurances.”
“What’s more, it affords quarterly reporting, allowing companies to start addressing trends immediately. With pooling, the reporting – along with the dividend – comes 18 months down the line. The ability to see where claims are coming from on a quarterly basis has also encouraged risk managers to get much more involved, helping HR put together wellbeing strategy to get to the root cause of claims.”
But global underwriting isn’t easy. To get it right requires commitment and concentrated time and investment upfront.
Fordham adds: “Global underwriting is relevant for very centralised, large multinationals. The client needs to have at least three years’ of data so that the portfolio becomes predictable. They need to understand the premiums and claims experience by each line of product in each country. Most companies don’t have that level of control or, indeed, want to.
“For many, pooling still makes sense. It’s been around for a long time, so it’s perhaps not given the attention it deserves. But it’s been very successful for years. Why wouldn’t you use it to help your clients gain control of their employee benefits risk?”