Multinational corporations (MNCs) have existed since the early 17th century, ever since the British East India Company and Dutch East India Company started trading across Asia.
In 1969 the number of MNCs was estimated to be about 7,000 worldwide. By 2009 this had grown to over 80,000 with more than 800,000 subsidiary companies.
The UK is seen as an attractive location for multinational corporations to base operations. In 2012 there were over 24,000 companies operating in the UK that were owned by non-UK parent companies. Whilst this is just 1.1 per cent of all UK companies, they employ just under 4 million employees, 14.4 per cent of the workforce.
Due to their size, foreign-owned companies are more likely to be considering the provision of employee benefits.
MNCs based in the UK are also a target market for pooling networks, and it may be possible to use the relationship with the network to win business from the parent company, although a multinational is typically very large in their home country and often employee benefits are self-insured.
Business opportunities for UK advisers normally come from the UK subsidiaries of a multinational corporation based overseas. A local subsidiary will be smaller and more likely to be looking for insured benefits. Even if the UK company is free to make its own decisions on benefit provision, it may be important for the adviser to understand the pooling options and status of any pool operated by its parent.
There is also another opportunity that overlaps these two situations. The UK is a popular location for European, Middle Eastern and African Headquarters. These hubs act as both a parent company and a subsidiary.
Multinational pooling in its current form has been around since the 1960s. Early pooling solutions were aimed at enabling clients to benefit from their own good experience in markets operating ‘rate tariffs’ – a constraint that has largely disappeared.
Multinational pooling is a concept which links insured employee benefit plans worldwide for multinational corporations. It is used as a financial vehicle by employee benefits managers and risk managers worldwide to reduce the escalating costs of insurance, and to coordinate employee benefit plans within their organisations.
In a multinational pooling arrangement, the local scheme will run as normal during the year, with premiums and claims being paid locally. The local results for each of an MNC’s global operations included in the pool will then be collated into a client’s pooling report to give an overall result, a process often known as “second stage accounting”.
The second stage accounting calculates the surplus of premiums, less claims paid and administrative and risk charges. This amount is passed from the local insurer to the pooling network. If a local insurer has incurred losses due to poor claims experience, they can be compensated from the pool where surpluses have been made in other countries that form part of the pool.
Any remaining surplus is passed back to the parent company by way of an “international dividend”.
So why do employers do this? Cost savings and efficiencies from economies of scale gained by combining their operations worldwide, and possible international dividends.
These benefits will be greatest for policies where a good experience may not affect the premium charged, such as smaller groups. The savings may not come in the form of a dividend. Some pools are actively managed to be “break-even”, with savings being generated by obtaining good local prices combined with managing the design of local policies.
Other benefits may be improved local contract terms such as free cover levels, easier transfer of employees between countries, access to information on benefits and claims of subsidiaries, enabling the MNC to analyse and compare benefits spend, improved management and control over global employee benefits and influence with networks, and hence local insurers, leading to improved service.
Over recent years the gradual phasing out of tariff rates, opening up many markets to competition, has reduced the size of international dividends. As a result the other benefits of pooling are taking a greater profile. The flow of data is now considered almost as important as the financial advantages, particularly information on health and wellbeing where patterns of claims can be analysed and appropriate action taken.
So now is the perfect time to consider pooling as a business development initiative – after all there are many local employers that could take this approach but do not and the benefits of pooling in the competitive UK market could be tremendous for the client organisations do.
