How to use captives to manage employee benefits risks

According to recent counts, there are more than 7,000 captive insurance companies worldwide, which are mainly used by multinational companies to take control of various risks. And yet fewer than 200 of them are used to write risks for employee benefits (EB).

This means that less than 3% of captives write EB risks such as life, accident, disability (both short and long term) and medical risks.

Although risk managers may be familiar with the benefits of a captive program for traditional and emerging P&C risks, the benefits of writing EB deals into a captive present an intriguing opportunity for multinational companies – particularly those with an existing captive program for P&C business.

When you look at it from a captive perspective, the presence of additional lines of risk unrelated to P&C can be a great opportunity for diversification, which is particularly beneficial in the tougher commercial insurance market we currently find ourselves in.

However, the benefits of captives go beyond risk diversification. In the past, using a captive was considered the best way for a multinational to retain underwriting profits and get the best value from its EB. As the ultimate risk bearer, the captive sets prices and retains all underwriting profits.

Recently, however, there has been a rethink. Employers are now realizing that their captives aren’t just a way to save money and diversify risk. You can also help them offer more and better perks to team members.

Rather than withholding profits, employers invest the savings in their workers by offering wellness programs, eliminating exclusions (e.g., related to pandemics), and covering things that may not be possible through local insurance — like sex reassignment or same-sex coverage Partner.

The timing is good as employees increasingly expect more from their benefits packages and employers are aggressively competing for talent.

Recent research by the Conference Board of Canada and Telus Health on Canadian workers found an 83% gap between what workers say they need and what they actually get from their benefits packages. Additionally, between 33% and 59% say they are willing to quit their job if they feel their benefits aren’t good enough.

An example of this is the growing demand for advanced medical services.

“Employers are undoubtedly interested in the additional services and coverage they can offer their employees,” notes Bill Papadimitriou, Desjardins’ regional vice president of business development.

“From dental care, critical illnesses and disabilities to wellness services like employee assistance programs, there’s no doubt employers want to offer more than ever.”

A captive can also help businesses control their costs and then use the savings to offer more.

There are of course some challenges in adding EB to a captive program. Multinational companies looking to take the captive route often have another global capability in place, such as: B. Pool or global underwriting programs, as centralization and an understanding of the risks involved are required to enable effective pricing.

Ultimately, AE should be viewed as a collaboration between HR/Compensation and Benefits and Finance/Risk Management. In organizations where these groups operate in silos, building an effective global program can be difficult.

This article is an excerpt of that which appeared in the August-September issue of Canadian insurer. Mauricio Suarez is Business Development Manager – LATAM for MAXIS Global Benefits Network. Featured image from iStock.com/Andrei Popov