Multinational employers have been using pools to manage global employee benefits (EB) risks for more than half a century. Despite pooling being one of the oldest global EB programmes, it’s one that is still very relevant for multinationals today.
To look at how pooling has evolved over the last 50 years, we spoke to Nicola Fordham, Chief Solutions Officer at MAXIS GBN. Nicola explains the basics of pooling, the benefits for companies and offers her expert views on where she thinks it could go in the future.
Pooling has been an important part of the global EB landscape for over 50 years – Can you explain how it works for those that might not know?
Pooling was the very first global EB programme, developing after World War II when many companies expanded globally, employing people in multiple countries, and the main aim was to share profits back to multinationals. Pooling combines the local employee benefits policies of a multinational employer together through reinsurance. Simply put – if the claims on the policies were lower than the premium paid, the multinational could potentially claim a dividend or pool payment, which is effectively a share of the insurance profit.
Over the years, pooling has become more consistent – local underwriting practices have got much more sophisticated and a bigger data set means that policy pricing has become closer to breakeven. This means perhaps there’s less profit to share than there once was in the 1960s, because you’re more certain over local pricing – but there still is profit to share.
While profit sharing is still important, there’s now a greater emphasis on the value of data. Understanding what’s going on with each local policy, the most-costly medical claims and how the local policies support the global EB strategy are all playing a big role in pooling nowadays.
Can you explain a little more on the profit sharing when there’s a positive result at the end of the year and what companies are choosing to do with these dividends?
When the result is positive and they’re eligible, our pool clients can request their dividend within 60 days of receiving their report. From there, it’s up to them what they do with that money, some will keep it centrally and some will pass it on to their local entities. But what we’re seeing increasingly is that companies are reinvesting it back into their EB programmes, both globally and locally. They might use this to pay for wellness initiatives, such as a mental health or financial wellness apps, with the logic that by doing this, they’re investing back into the wellness of their people.
Employee headcount is one of the highest costs within a business, and by helping people to be well, and not worrying about their physical, financial and mental health, this helps with both talent acquisition, retention and overall employee happiness. Medical claims are another large expense for multinationals – with costs rising faster than inflation – so tackling problems proactively can help to reduce future, costlier, claims.
Aside from profit-sharing and data, what are some of the other benefits of pooling vs managing benefits locally?
One of the biggest advantages is the coordination and support that an employee benefits network – like MAXIS – brings. Although pooling is a global programme, the benefits are still provided by local insurers in each market. They provide the culturally relevant, compliant benefits that people need.
We always say our greatest strengths is the quality of the local insurers in our network. We have a great relationship and work closely with them and any consultant, broker or intermediary the multinational might be working with to support the execution of their global EB strategy, resolve any issues, and ensure the pool is performing well. Having a global, regional and local approach to managing the pool programme is something that really helps the programme succeed.
Pooling has adapted over the years, including quite recently for MAXIS with the introduction of multi-employer pool. Can you explain what this is and how it works?
Multi-employer pool – or MEP as we call it – is a different way of managing a pool for multinationals with a smaller portfolio participating in the pool . Rather than the result of the pool being calculated solely on their portfolio, the performance is calculated on a collective basis with the other employers in the pool to help spread the risk and reduce volatility.
MEP is for multinationals who have less than US $750,000 reinsured premium in their programme. The dividend is calculated based on the collective result for all the employers in the MEP and paid to the individual employers that contributed a positive result. Another big plus point with MEP is that if there’s a negative year for an employer, these results are written off. We use an accounting method called annual stop loss (ASL), which mean that if they have those volatile results year-on-year, they’re written back to zero and it means they’re not carrying that loss forward into future years, which they would with a single-employer pool.
Why are smaller pools more volatile, and why does it make sense to use a multi-employer pool instead?
Smaller pools don’t always have the consistent results that you see in larger programmes, where there’s a more diverse mix of products and countries, which means the performance evens itself out year on year.
These smaller programmes typically see a lot of volatility – one year their performance is good, the next it’s bad. If we look back at our portfolio over the last five years, we’ve seen that only one in five smaller clients had a positive pool year result every year, the majority had a mix of positive and negative results each year. With MEP, the aim is to make the experience more predictable for these multinationals by basing the profit share on the larger combined experience.
How do you think pooling could change in the future?
I think that we’ll continue to see profit sharing playing a role in multinationals taking the pooling route. However, help with execution of the multinational’s EB strategy, support for regional and global co-ordination, and access to data will continue to be valued highly.
I’d predict that the trends we are seeing now will continue and only become more important. Multinationals will focus on data, providing support on a local level, and on global wellness strategies.
More and more multinationals are seeing pooling as a journey, starting out their global programme with just a few reinsured policies, and as they grow to better understand their portfolio, adding more countries to the pool and moving towards a SEP. I think we’ll also see multinationals wanting to be more active in the management of their pool, looking to have their pool programme run at an almost breakeven position to support their local affiliates rather than receiving an annual dividend.
I think pooling will still be an important part of the global EB landscape for years to come, but these programmes are definitely going to become more sophisticated than ever before.