Managing Your Broker photo.jpg

How to Cut Your International Benefits Costs

PART 2 of 3

For multinational companies, the cost of purchasing benefit plans for their foreign subsidiaries is expensive – more so than buying the same benefit in the United States. These high costs are driven by several factors, and while there is no way to avoid them entirely, there are some ways to mitigate them and make them more manageable.

Managing Your Broker

 

It is common practice today for employers seeking benefits outside the U.S. to use brokers to select the local carriers. Employers, particularly in non-Anglo-Saxon countries, tend to prefer compensating brokers through

commissions included in the premiums rather than paying fees for their services. These commissions vary widely and can reach in excess of 30 percent of the contract size – a figure that is sometimes passed on to the employer through the premiums without much visibility to the multinational.        

 

The brokers do provide services such as benefit advisory and administration services that support their commission rates, but it is important for the company to know the value they are getting for the commissions included in their premiums. More concerning is the fact that the broker relationship is susceptible to conflicts of interest, not only in the placing of the contract, but also in the benefit advice they provide.

The solution is simple. Even a modest amount of due diligence when selecting a broker can help to identify commission arrangements, the services included, and to minimize biases in their advice. This knowledge helps when negotiating contracts, by putting the employer in a position of strength.

Next week the well-known, yet under- appreciated task of management and administration of benefit plans.

 
Pooling of Risks photo.jpg

How to Cut Your International Benefits Costs

PART 1 of 3

For multinational companies, the cost of purchasing benefit plans for their foreign subsidiaries is expensive – more so than buying the same benefit in the United States. These high costs are driven by several factors, and while there is no way to avoid them entirely, there are some ways to mitigate them and make them more manageable.

Pooling of Risks

The basic economics of having a workforce spread across several countries -- each with their own tax and labor law requirements - is a major driver for the cost of any business. Placing benefit coverage separately with locally licensed carriers adds the cost of insurance underwriters’ hedging of risk of large claims for small groups, thereby resulting in potentially steep premium rates. One way to address high rates is to pool your coverages.

By bringing together the insurance coverages of as many foreign subsidiaries as possible and placing them with a single global carrier under one overlaying contract, a company is able to create a substantially larger group. This creates greater economies of scale and reduces the risk to the insurer.

The actual mechanics can be done in different ways. Most commonly this is done by means of a central global or regional (multinational pooling) contract that leverages the larger group size to lower risk premiums and provide participation in underwriting experience. Another common tactic is bulk purchasing, sometimes referred to as global underwriting whereby a group of policies are aggregated for tender. These transactions generate premium discounts up front. A third option is called a captive fronting program whereby the company acquires insurance policies through local affiliates of a global carrier network, which then cedes them to be reinsured by the business’s captive insurance company, thereby generating savings on risk premiums and capturing underwriting experience gains.

These measures can save anywhere from 3-20 percent of baseline premium costs, but there are pros and cons to each. An experienced benefits consultant can help sort through the options to help make the determination about which is most appropriate for your company.