Inflation – what’s the impact on EB? Can benefits help your people navigate a cost-of-living crisis?

MAXIS GBN Viewpoint, January 2023

Inflation. Energy price rises. Cost-of-living crisis.

We’d be quite surprised if you haven’t heard these words and phrases mentioned very regularly in the news over the course of 2022 and into this year. The rising costs of fuel, energy, food and more have dominated headlines for months now.

After years of little to no inflation, global inflation reached 8.8% in 2022, according to one report. However, some countries have had much greater rises. Of G20 countries, Turkey and Argentina have seen the largest rises, with inflation reaching above 80%.¹

And these rising interest rates come at a challenging time for multinational employers and employee benefits (EB) professionals. We are coming off the back of a global health crisis that changed the world of work and saw an ever-greater reliance on benefits. And now, with inflation at the highest it has been in decades, employees are, understandably, worried about rising costs and many are turning to their employers for help.

We’re not going to pretend we are economists who can predict the future and tell you what inflation rates will be over the coming years, or the best ways for governments to manage a tricky economic situation. Yet, what we can do is talk about the impact that inflation is having on the world of global EB, the link between rising salaries and rising costs, the role of global programmes (captives and pools) and the importance of benefits as part of a wider remuneration package.

Rising salaries and increased costs of benefits

Let's start by looking at the impact of salary increases on benefits costs. As costs rise, workers might expect that salaries will increase too. While employers need to consider how to manage salary increases and the impact that will have on their bottom line, there’s also EB to consider.

In Aon’s 2022 report into the impact of inflation on EB, the consultancy said: “As salaries increase any benefits provided as a percentage or multiple of salary will increase which in turn will raise the costs of providing those benefits. In addition, many organizations have also expanded or increased coverage for these core programs as a result of the pandemic which will lead to higher benefit costs.

“Rising interest rates help to reduce the cost of risk benefits as insurance companies are able to earn higher levels of return on the reserves that they hold for these programs. Offsetting this, insurance companies (and intermediaries managing the plans) will be affected by the overall inflationary rises on their own core business (salaries, energy prices, etc) and so administration and other premium loadings are likely to increase."³

With life, accident and disability insurance, and pensions, all linked to an employee’s salary, employers need to be aware of the cost implications on these benefits as salaries increase. Employers are in the unenviable position of looking to retain their top talent at a time where many will be requesting inflation-matching salary increases, without drastically increasing their headcount and benefits budget. While offering inflation-beating salary increases might not be possible for some employers, many have turned to one-off bonus payments as a way to help their employees through the difficult time without incurring long-term expense.⁴

"With life, accident and disability insurance, and pensions, all linked to an employee’s salary, employers need to be aware of the cost implications on these benefits as salaries increase."

Medical inflation

While general inflation is something that has been somewhat flat for years, medical inflation (medical trend) has not! It's a subject EB professionals are used to hearing about. For years, medical trend has outpaced general inflation and you’ve likely been making changes to your benefits plan design to help tackle excess medical costs while keeping your employees happy and healthy.

Employers have used data from their global programmes to understand which conditions are most costly, in terms of both the health of their people and medical claims, and have implemented proactive wellness solutions to try and tackle the trend.

Yet now we are in potentially unfamiliar territory: high general inflation alongside rising medical costs.

With medical costs looking likely to continue outpacing general inflation, there will be an increased focus from employers throughout the year as they try to understand their medical claims data and implement proactive wellness programmes that can help to tackle their biggest cost drivers.

Inflation and global programmes

What does all this mean for multinational employers with a global programme? Many multinationals writing EB with a captive or reinsuring into a pool may be concerned that rising inflation could be detrimental to the performance of their programme.

But Nicola Fordham, Chief Underwriting Officer at MAXIS GBN, thinks that global employee benefits programmes have never been more important for multinationals to manage costs in the face of inflation and more uncertainty. “It’s been a difficult few years for multinational employers trying to manage their EB costs. It’s been hard to price risks because of the claims suppression caused by COVID-19 and now we’re in a position where inflation is increasing costs everywhere.

“Employers with a global programme are actually best placed to manage the volatility of these kinds of situations – ones that are out of their control. Writing EB risks through a captive gives employers the most control and as the ultimate risk bearer, they’re able to define the benefits which are offered and the pricing strategy for these. They could make the decision to increase or decrease benefits and/or smooth out pricing fluctuations by taking a longer-term view. Employers with a pool programme have less control than those with a captive, but they still have the opportunity to manage the benefits offered and the costs centrally, while collaborating with their pooling partner on the global strategy of the programme.”

And the control that Nicola references could be key. With multinationals unable to have a say regarding inflation, being able to impact the pricing of EB policies and the benefits offered as part of their strategy, means employers do still have some areas within their control.

How can employers use EB to help their people during the cost-of-living crisis?

We’ve looked at inflation from a cost perspective and the impact it could have on rising EB prices for multinationals. But, arguably, the biggest discussion to be had at this point in time is the importance of having a strong benefits offering for your people in the middle of a cost-of-living crisis.

Many elements of a holistic benefits package, which you could already be offering or could offer without huge cost increases, might help your employees to cope during this time. Here’s a few ideas:

Offer financial wellness services

Understandably employees are likely to be worried about their costs and personal finances. As well as detrimental effects on mental health, money worries often lead to poor performance at work too. According to a study from Reward Gateway, 61% of employees globally say stress from the cost-of-living increases negatively impacts their work.⁷

Financial wellness services can help workers to better understand and manage their financial situation, helping to reduce the stress and burden during difficult times. Often financial wellness services are offered via an employee assistance programme (EAP), which also includes mental health support, too. Many insurers offer an EAP as part of their local service capabilities and there are also suppliers that can be rolled out globally.

Skip the gym discounts and offer digital wellness

Often employers have offered discounted gym memberships or money off classes as part of their physical wellbeing packages. But with rising costs elsewhere, workers might be likely to give up a “nice-to-have” like a gym membership. A study by MetLife UK in 2022 found that 17% of Brits would give up their gym memberships if they had to save money to pay for other necessities.⁸

However, employees not looking after their physical health can be costly for multinationals, leading to increased absenteeism and, eventually, rising medical claims.

So, a digital wellness solution that encourages at-home fitness programmes can be a more cost-effective way of helping to keep employees healthy and can return real value on investment. Many of these apps offer incentives or games to keep people engaged in their own health too.⁹Good for the employer and the employee.

Screening, education and telemedicine

Rising costs should not mean a reduction in the medical benefits you provide - but maybe a slight shift in focus can help. Actively promoting screening and other early interventions could be crucial. Detecting conditions before they become critical, will benefit not only your peoples’ health, but also your future medical claims.

Clear communication is key

Whatever your approach to helping your people see their way through the cost-of-living crisis and rising inflation, clear communication is key. According to MetLife, only 65% of employees say their benefits are easy to understand based on the information provided by their employer.¹⁰ Looking at this the other way, this suggests that over one-third of workers surveyed were unclear on their benefits programme.

Making benefits clear and easy to understand is vital. As an employer, you invest vast sums of money in these programmes, so ensuring people are aware of them and understand their value is crucial. And if you are offering new benefits to help your people cope with the cost-of-living crisis, then a solid, clear communications plan to tell them about it will be a very good place to start.

While we don’t know what the future holds in terms of inflation and rising costs, we truly believe that benefits have never been more necessary. Nicola Fordham sums it up nicely, “offering holistic benefits packages, and clearly communicating about them, has never been more important. Benefits can help change the remuneration conversation with your people from being just about salary, to being about a total rewards package that helps protect them during difficult times. And that kind of comfort is really needed right now.”

^{This document has been prepared by MAXIS GBN and is for informational purposes only – it does not constitute advice. MAXIS GBN has made every effort to ensure that the information contained in this document has been obtained from reliable sources but cannot guarantee accuracy or completeness. The information contained in this document may be subject to change at any time without notice. Any reliance you place on this information is therefore strictly at your own risk.}

^{The MAXIS Global Benefits Network (“Network”) is a network of locally licensed MAXIS member insurance companies (“Members”) founded by AXA France Vie, Paris, France (“AXA”) and Metropolitan Life Insurance Company, New York, NY (“MLIC”). MAXIS GBN, a Private Limited Company with a share capital of €4,650,000, registered with ORIAS under number 16000513, and with its registered office at 313, Terrasses de l’Arche – 92727 Nanterre Cedex, France, is an insurance and reinsurance intermediary that promotes the Network. MAXIS GBN is jointly owned by affiliates of AXA and MLIC and does not issue policies or provide insurance; such activities are carried out by the Members. MAXIS GBN operates in the UK through its UK establishment with its registered address at 1st Floor, The Monument Building, 11 Monument Street, London EC3R 8AF, Establishment Number BR018216 and in other European countries on a services basis. MAXIS GBN operates in the U.S. through MAXIS Insurance Brokerage Services, Inc., with its registered office located at c/o Katten Muchin Rosenman LLP, 50 Rockefeller Plaza, New York, NY, 10020-1605, a NY licensed insurance broker. MLIC is the only Member licensed to transact insurance business in NY. The other Members are not licensed or authorised to do business in NY and the policies and contracts they issue have not been approved by the NY Superintendent of Financial Services, are not protected by the NY state guaranty fund, and are not subject to all of the laws of NY. MAR01174/0123}

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Inflation – what’s the impact on EB?

Inflation – what’s the impact on EB? Can benefits help your people navigate a cost-of-living crisis?

Rising salaries and increased costs of benefits

Medical inflation

Inflation and global programmes

How can employers use EB to help their people during the cost-of-living crisis?

Reshaping the future of EB

Mental health in times of crisis

Financial wellness

Inflation – what’s the impact on EB?

Rising salaries and increased costs of benefits

Medical inflation

Inflation and global programmes

How can employers use EB to help their people during the cost-of-living crisis?

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