Multinational Pooling: Saving Money on Global Benefits, Part 1

George Bashaw

Author:
George Bashaw – Atlas Global Benefits

With pressure from the C-Suite, HR is walking a tightrope to reduce cost and provide equal or better benefits.  Multinational pooling is one option to consider for a company that has multiple international locations.  This blog is Part 1 in a series of suggestions to reduce cost without sacrificing the quality of benefits.

Multinational Pooling
Multinational pooling is a contract in which a corporation with two or more locations can spread insurance risk by joining a larger pool of insureds.  This contract is facilitated by a pooling network which has a network of providers in various countries. Pooling can be used to spread risk for a number of employee benefits including medical, life, and disability insurance.

Many pooling networks require a minimum of ten employees per country.  Therefore, pooling can be a great way for smaller companies to provide consistent benefits, reduce administration, and save money.

How Can Multinational Pooling Reduce Cost?
Since the pool consists of a large group, the risk is experience-rated instead of fully insured.  The nature of an experience-rated contract eliminates some of the administrative costs and margins of a fully insured plan.

Providing the experience is good (determined during due diligence), the premium may be less.  If the corporation decides to participate in a pool and the experience is favorable, a dividend payment is received at the end of the year.  If the experience is poor, it may be mitigated by stop loss insurance, or the balance will be carried forward and can be recovered by future dividends.

Additional Benefits of Multinational Pooling
Underwriting small groups is always challenging.  By pooling with a larger group, there are better guarantees, limits, and benefit offerings.  This allows smaller groups to meet a common objective: consistency in benefits. Additionally, the pooling arraignment will likely provide enhanced financial reporting, consistency in communications, lower acquisition costs, and reduce the burden on HR.

What Else?
Multinational pooling is not for everyone.  Due diligence with a few pooling networks can determine the pros and cons.  As this is a complex, technical area, it’s always best to work with a benefits professional with experience in this area.

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14 responses to “Multinational Pooling: Saving Money on Global Benefits, Part 1

  1. George,

    Very good article. I would just briefly emphasize two points.

    First, multinational pooling does not add any additional costs to a company’s benefit spend everything is included in the local pricing.

    Second, the services provided by a multinational pooling vendor, such as annual claims report and expertise in non-US benefits are as important if not more important than the potential back-end savings generated by multinational pooling itself to many companies.

    If anyone has any comments/questions, just drop me a line.

    Will

  2. Excellent points Will. Expertise and reporting typically end up being the main drivers. It is fair to say pooling simplifies international benefits for HR.

  3. To Will and George ‘s comment, I would add a question: who’s the beneficiary of the dividend? The Head Office of course. But the local companies pay the premium and are responsible for their P&L. My experience is that negociating the local pricing is a benefit for the local company.

    • Michael you are correct. Headquarters can take the dividend. However, hq has the ability to pass on a per rata share to local offices. I hope you got a good laugh out of that. Seriously, it is common for pooling relationships to have a local dividend (when the surplus is great enough to merit) and an international dividend that goes to hq.

      One thing to consider…each local office does not have to participate in pooling. If the pooling contact does not benefit a local office, I would recommend that local office not participate. This is very common and typically identified upfront during due diligence.

  4. Interesting concept – so this type of pooling crosses borders? How does that effect pricing where one country might have very different claims experience than another (i.e., US vs. Europe) due to the impact of socialized/universal healthcare?

    • Hi Diane: Each local office (country) will have separate accounting. If there is a large surplus in one country, the local office will get a “local dividend” and the balance “international dividend” will go to the parent company. This “international dividend” can offset a loss in another country or add to another gain. I hope this helps.

  5. All very good points.

    The rebate or international dividend is generated on the back-end, so the benefit plans themselves are underwritten on a local basis with or without multinational pooling. That said, if a company has a multinational pooling ‘partnership’ in place, the company can use the pooling relationship as leverage to address local rate issues.

    I can remember one instance where a company’s local HR kept ‘saving’ the company money by pushing down the rates over several years. Unknown the corporate HR, the plan was generating 110% to 130% claims ratios during the same period, which led to the vendor requiring a 50% rate hike in one year. After coordinating with the pooling partner, corporate HR learned of the claims issue and was able to take steps to address the reason for the claims experience. At the same time, the company was able to negotiate with the pooling network to place an annual 15% rate increase over a 3 period instead of 50% in 1 year to stabilize the plan’s underwriting.

    As for which plans should or should be pooled and who should receive the dividend, there is no one size fits all strategy. Some countries make it hard to pool, such as Brazil and India, due to local regulations. Other countries limit the ability of an international dividend to be sent back to corporate, such as Norwegian pension plans. Other plans, especially very large group plans of over 1,000 employees in Mexico and the UK for example, local dividends and the risk portfolio involved reduce the attractiveness of pooling. Thus, I would suggest talking to your pooling partner and/or HR consultant, and developing a global benefits strategy that fits your needs.

    • Thank you for sharing your personal experience. Well said Will.

      Another excellent point…multinational pooling can stabilize your cost. I am sure our readers will enjoy your insight. Did you spend some time at IGP?

  6. Interesting discussion.

    George, from my experience, the other reason why companies engage in MN Pooling solutions is related to their ability to “manage” their employee benefits plans around the globe. Corporate governance is mentioned by our most sophisticated clients as a driver of their global programs, which also allows them to direct their subsidiaries to add their policies.

    Sharing the financial rewards with local subsidiaries definitively provides an incentive for them to participate, but a global relationship also increases the negotiation power of the client and usually means better overall service levels and a more stable premium base for the program in the long run.

    • Thanks Maximo. Corporate governance and compliance are beneficial. I agree leverage is always nice when negotiating.

  7. In regards to paying local dividends say when claims are below a certain % of premium and the surplus going to HQ. In this scenario isn’t the country getting the benefits of “better guarantees, limits, and benefit offerings” etc. without sharing the risk? If they have an extremely good year they receive a dividend, if they have an extremely bad year the “loss” is simply absorbed by the pool likely avoiding a premium increase.

  8. Brian:

    Thank you for sharing.

    You are correct. A common pooling agreement will allow a country location that has a very good claims year to receive a dividend. If the country location has a poor claim year (claims actually exceed premium), the loss is carried over and a premium increase is not assessed. The other benefits of “better guarantees, limits, benefit offerings, and reporting” are just added benefits for the country location.

    George

  9. Brian,

    Great point. Just to clarify the scenarios for everyone if I may as there are 2 layers here.

    1) Pooling Experience is Positive and Local Experience is Positive
    • International – International dividend generated that the company can share with the local operation
    • Local – No rate change, unless demographic changes, medical inflation, etc. necessitate it

    2) Pooling Experience is Positive and Local Experience is Negative
    • International – Local operation does not receive an international dividend, but its negative is experience is absorbed by the other units, who may still be eligible for a dividend
    • Local – Rate change may be required depending on what caused the poor experience, for example a single death claim may not require a rate change, but a medical claims ratio of 120% will

    3) Pooling Experience is Negative and Local Experience is Positive
    • International – Local operation does not receive a dividend, but the overall account experience does not effect local rates as the overall deficit is recovered by future international dividends
    • Local – Same as #1

    4) Pooling Experience is Negative and Local Experience is Negative
    • International – Same as #3
    • Local – Same as #2

    That help?

  10. This is exactly what the International HR Forum is about “sharing perspectives”. I believe Will worked for IGP (an excellent pooling network) so his perspective is very valuable. Thank you Will.

    George