International benefits
Managing global benefits packages in a tough economic climate is all about helping employers to strike a balance between containing costs and continuing to meet the unique and, at times, complex needs of internationally mobile staff.
Finding ways to offer more for less is becoming increasingly important as employers look to get the most out of their benefit packages.
Of the 607 international organisations that responded to the Towers Watson Global Pulse Survey 2013, 49 per cent said they were interested in optimising their spend on benefits while addressing the trade-off between cost and employee experience, compared with 42 per cent in 2012.
Employers need to think laterally when it comes to reducing benefits spend if they are to avoid damaging the morale of overseas-based employees, many of whom will be highly skilled and working in challenging environments. This means more pressure on consultants, advisers and insurers to collect detailed management information on services and benefits to identify where packages can be tweaked, rather than cut, to deliver savings.
At the beginning of a review of international benefits, employers need to establish what benefits are offered to different groups of employees and how much they cost to provide, says Alan Hewitt, international benefits director at JLT Benefit Solutions.
This, however, is easier said than done when an employer has a number of staff based across several countries and regions of the world. Advisers have responded to the challenge by developing systems and databases that can store existing data, collect new data, allow employees to select benefits online and provide them with access to information.
JLT is one of a growing number of providers developing its UK platform for the international market. Its Benpal product has now been rolled out in 12 countries across Asia, North America and Latin America. Such systems are designed to take automatic uploads and downloads from HR and payroll systems, and are also linked to the organisation’s key insurers.
Hewitt says: “What the insurer is downloading or uploading from the site is real-time employee data, actual head count and actual salary data. From the insurer’s perspective, that helps to cut down on administration costs, which can have a knock-on effect on what they charge the client.
“From the consultant’s perspective, that gives us direct access again to real-time information on the benefit programmes and also facilitates all the administration functions that we can carry out.”
Collecting management information on claims expenditure is particularly important for big-ticket items, such as medical insurance, which continues to be affected by medical inflation.
Paul Kelly, director of international benefits consulting at Towers Watson, says: “Healthcare continues to increase at real rates across the world with 10 per cent-plus inflation. This is still a big issue in terms of healthcare costs.”
Instead of making drastic cuts to emotive benefits such as private medical insurance, providers including Axa PPP International are helping employers to identify what represents most of the claims expenditure.
Kevin Melton, sales and marketing director at Axa PPP International, says: “When you review the data, especially with expat business, you sometimes find that the claims are predominantly for dependents. Would the employer therefore be looking to design something in the benefits structure that differentiates employees from children and spouses? If a large number of employees are having routine checkups and dental appointments, then intermediaries or providers might suggest introducing a small excess or some form of co-payment.
“Would the pattern of the claims change if every time they had to go to the dentist, they had to contribute 10 per cent of the cost?” asks Melton.
Another key focus for employers is to improve employee wellbeing, which generates savings not only by reducing claims but also by improving productivity and minimising sickness absence.
According to Towers Watson’s 2011 survey, Multinational Workforce Health: Building a Sustainable Global Strategy, the desire to demonstrate a commitment to employee wellbeing, resilience and stress management was cited as key by 54 per cent of all respondents.
The findings also showed that this was the case for 69 per cent of respondents headquartered in the Europe, Middle East and Africa (EMEA) region as they focus on improving workforce productivity, reducing absenteeism and ensuring they are perceived as an employer of choice.
The increased focus on wellbeing, says Kelly, has resulted in some employers working with their providers and advisers to tackle smoking and obesity, create a pleasant working environment and set up international employee assistance programmes.
But implementing a global wellness programme is far from easy because the appetite for different benefits and services will vary from country to country. For example, if an online health assessment identified that an employee was working a six-day week, it might be flagged up as a potential trigger for stress in Europe but could be considered normal in a country such as China.
Linda Torr, a senior consultant at Aon Hewitt, says: “Employers need to make sure they tailor health assessment results to the culture of each country. It is much more complicated than saying ‘here is an online health assessment that we can give to all our employees’. This doesn’t really work.
“There needs to be a focus on the culture and population, the attitudes of employees, the ways in which they learn and how they can be educated on issues such as exercise and nutrition.”
Another way in which insurers and healthcare specialists can prevent the onset of chronic illness or stress, and reduce the likelihood of expensive private medical insurance claims, is to carefully screen employees before they go abroad.
“Are you getting the right person to go to the right area? If you’ve got somebody who is asthmatic, for example, would you want to send them to Beijing, which in the summer is covered in a haze of smog?” asks Melton.
Another way in which employers are seeking to make savings on insurance-related benefits is through the use of multinational pooling arrangements. Half of the respondents to the Towers Watson Global Pulse Survey 2013 said they were interested in best practice, trends and developments relating to multinational pooling and insurance. Such arrangements are most commonly used for group risk benefits, such as life insurance, because of the simplicity and infrequency of the claims.
The claims experience for each of the different insurances in the pool is consolidated into a single profit-loss account and if the premiums exceed the claims, the surplus is returned to the employer as a multinational dividend. This, says Torr, can result in savings of between 5 and 10 per cent.
Torr adds: “Quite often, people don’t put medical insurance in because the profit margins are much lower and the potential for loss is much higher. Employers will want to put insurances into a multinational pooling arrangement, where it is likely that they will get some sort of dividend out.”
Kelly says more employers are using captive arrangements, which are often considered the next step on from a multinational pooling arrangement because they reinsure both the risk and the premium of global employee benefits plans. According to figures from Towers Watson, arrangements like this can result in additional savings of between 10 and 15 per cent.
Traditionally, such arrangements have been used to insure death and disability benefits, but in 2011 Coca-Cola broke new ground by using its Dublinbased captive arrangement to reinsure a proportion of its pension liabilities in several countries.
This kind of arrangement sees the pension scheme trustees pay a premium to the fronting insurer for each country. The premium is then redirected back into the captive and the trustees have the security of a buyout or a buy-in arrangement which, if organised in the traditional way, would have likely required more finance.
Kelly says: “It is a good deal from the trustees’ perspective because they are securing their liabilities with a well-regarded insurer and may well have put more money into the fund to do that. From the companies’ perspective, it is good because they have essentially taken more direct control over the liabilities and the assets.”
But this kind of arrangement is only really suitable for large, financially secure organisations because of the high cost of running the insurance plans and captive organisation, not to mention the premiums.
When it comes to international pension plans, there has been more emphasis on managing funds in ways that reduce charges and increase investment returns.
Zurich says mutual funds, which have been historically used on international pension plans, often had high annual management charges, which could reach as much as 1.5 per cent. An environment of slow economic growth and low inflation has driven the popularity of funds with low charges, such tracker funds, which can have charges as low as 20 or 30 basis points.
Dale Fleet, a senior customer relationship manager at Zurich Employee Benefits Network, says: “If you go back 15 or 20 years, when there was quite high inflation and interest rates, having an asset management charge of 1.5 per cent when people were getting investment returns of 10 or 12 per cent wasn’t really an issue.
“The problem is when inflation is 2 per cent and people are getting investment returns of 3 or 4 per cent – having a 1.5 per cent asset management fee would destroy the return.”
While big ticket items such as pensions, group risk benefits and private medical insurance will always be part of the international reward package, Kelly says the love affair with company cars is starting to fade in Europe. This is for several reasons, he explains, including the fact that the perk represents a fixed cost, the possibility of employers being held culpable for accidents, and a change of attitude towards
company cars in some sectors. “The perk has a whole bunch of implications in terms of status that don’t play so well with employees in certain sectors, such as high-tech, where staff tend to be more egalitarian,” says Kelly. While many of the key benefits in international reward packages will remain unchanged, the innovation and creativity will come in how they are offered as employers to demand more for less.