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Employee benefit plans – why manage globally?


Written by: Robyn Cameron

 

Introduction

Multinational companies often struggle to find the time to effectively manage the plethora of insured employee benefit plans that they provide around the world. For many, this means that significant money is being left on the table, and for others, it results in concerns over whether plans are being effectively governed and managed. This article describes the reasons why many companies are considering taking a more centralized approach to the management of their benefit programs globally, how this can be achieved effectively, and the advantages that can be derived from such an approach.

 

Historically, many multinational companies have left the design and financing decisions related to benefit programs to their local subsidiaries , with minimal oversight or control from headquarters. This includes the selection of brokers and other consultants that provide advice on these programs locally. This decentralized approach has a number of implications:

 

1.  In the absence of strategic direction from headquarters, benefit designs may or may not be consistent with the overall global benefits strategy.
2.   Depending on the level of local negotiating power (and the role of intermediaries), total premiums paid in local markets may not be as competitive as they could be.
3.   Savings from multinational pooling may be suboptimal due to a lack of proactive management and coordination of the pooling strategy.  
4.  There is little potential for leverage on broker and consulting fees globally.
5.  There may be situations in which duplicate or overlapping benefits exist. 
6.  It is difficult to apply consistent governance practices and processes. 
7.  Basic information on the risk benefit programs around the world (such as plan designs, insurers and premiums) may not flow up to headquarters effectively. 

 

As multinational companies strive to address these issues and find better ways to manage benefits, an alternative approach that better leverages the broker/consulting community globally is becoming more popular. Global benefits management (GBM) involves outsourcing the management of the company’s insured employee benefit plans around the world to a single firm that has local brokerage and consulting capabilities in all major countries in which the company operates. To be effective, the selected firm must also have the ability to provide expert advice to the company’s headquarters on global design, financing and a wide spectrum of risk management approaches (for example fully insured, multinational pooling, self-insurance/captives); have established tools and processes to support coordination of the global network of brokers and consultants; and provide additional services such as access to benefits benchmarking data. GBM aims to achieve the optimal balance between the company’s headquarters, which provides strategic guidance and oversight, and the outsourcing partner , which offers delivery of both local and global service, and execution of the agreed-upon strategy.

 

GBM can also be easier for the corporate benefits function of multinational companies to implement relative to other global mandates that may be more difficult to put in place. It is also consistent with the direction that many multinational firms are now taking through global procurement initiatives.

Cost savings

Cost savings from GBM can come from four main sources:

 

1.   Global leverage with insurers, resulting in up-front premium reductions: By partnering globally with a firm that has significant buying power in each local market, the company will receive the best possible premium rates, terms and conditions for benefit coverages in each country. 
 
2. Increased savings from global economies of scale: The outsourcing partner will educate its network of brokers and consultants around the world on the company’s risk-management strategy (including any multinational pooling arrangements and/or captive approaches) and will ensure that both the appropriate pooling and other partners are included in the bidding process at renewal time, in accordance with the strategy agreed upon with the company. The outsourcing partner will also monitor the pooling arrangements on an ongoing basis and provide advice on contracts being considered for inclusion in a pool. Effective management and expansion of the pooling arrangements in this way also facilitates effective reinsurance to a captive, if desired. 
 
3. Better value from commissions/fees paid to consultants and brokers: Most multinational companies find that they use a range of brokerage and consulting firms around the world. In other countries, there may not be a broker involved, but premiums paid are still loaded for commissions. By consolidating relationships with one global firm, savings can be achieved from global leverage through either a reduction in commissions/fee levels to better match the local service levels or the provision of enhanced services locally and/or to headquarters in the form of coordination and governance support. Moreover, soft savings are available through freeing up a company’s resources, since the outsourcing partner will take over many of the day-to-day tasks associated with the managing the program.
 
4. Alignment of plan designs: Cost savings may be achieved by harmonizing benefit plan designs in countries where multiple programs exist, or by trimming benefit levels if they are currently considered too rich relative to the local market, or if there are situations in which duplicate or overlapping benefits exist. For some companies, there are also opportunities for savings from the introduction of health management programs (such as wellness, preventative care and disability management). A more coordinated approach to the management of benefits can identify and allow the company to take advantage of such opportunities more readily. 

Improved governance

As a multinational company embarks on a more globally coordinated approach to the management of benefits, it is most important to have a clearly articulated governance framework. This framework should document the overall benefit philosophy, the approach to insurance placement, policy guidelines, information flows and decision-making authorities with respect to the design and financing of insured risk benefits globally. One of the most important elements of these guidelines is the balance between local and global considerations.

 

Using the GBM approach described above, the outsourcing partner works with the company headquarters to define these guidelines, document them via “the rules of the road” and ensure that they are communicated to the global network (of brokers, consultants, network partners and the company’s local contacts responsible for benefits). Timely information on upcoming renewals and benefit changes is automatically provided to the company’s headquarters to facilitate appropriate decision making. Additionally, this approach provides a complete picture of insured versus uninsured benefits and permits an analysis of the level of risk assumed with respect to employee benefits within the overall enterprise risk framework.

Success story

Challenge: A large multinational employer with more than 20,000 employees outside the US had two very small (unmanaged) multinational pools in place that were generating minimal dividends.


Action: Mercer reviewed the benefit plans in each of the countries, identified potential savings in premiums and expenses, and assisted in the development of a multinational pooling strategy. Mercer was designated as the company’s strategic partner and global broker for insured benefits in order to implement the recommendations.


Results: A substantial volume of premium in 17 additional countries was moved into the pools within the first two years of the arrangement. The company realized savings of $600,000 per year through up-front premium reduction, reduced pool retention and enhanced pool dividends. A comprehensive database of benefits information was also built to facilitate ongoing management of the programs.

Closing remarks

Taking a more centralized approach to the management of insured employee benefits and better leveraging the network of brokers and consultants through consolidation of providers can reap significant rewards.  

 

 

 

 

For multinational companies striving for additional cost efficiencies and struggling with governance issues and concerns, taking a more centralized approach to the management of insured employee benefits and better leveraging the network of brokers and consultants through consolidation of providers can reap significant rewards.

 

We are seeing more and more multinational companies taking this approach. Mercer alone has more than 40 multinational clients that manage their employee risk benefits in this way through Mercer's global network,  12 of them implementing this approach in the past six months.