The global nature of the Covid-19 crisis is pushing global underwriting solutions further up the corporate agenda.
There are a limited number of networks in the UK that offer global underwriting in the employee benefits sector. Their supporters argue the benefits that global underwriting offers, when compared to traditional multi- national pooling arrangements, make it an increasingly attractive approach in a post-Covid environment.
Zurich Global Employee Benefits Solutions director of customer and distribution management Rob Brown says global underwriting programmes can offer multi-nationals upfront savings on premiums, which can reduce pressure on cashflows. In a post-Covid environment.
Zurich Global Employee Benefits Solutions director of customer and distribution management Rob Brown says global underwriting programmes can offer multi-nationals upfront savings on premiums, which can reduce pressure on cashflows.
In addition they also offer short-term certainty over benefit spend, with most global underwriting programmes offering fixed premiums for between two and five years, depending on the contract. He says: “In many ways it is like comparing the benefits of a fixed-rate mortgage, over a variable rate contract.
“Given the financial pressures on many firms at the moment, you can see why this might be looking increasingly attractive. Chief finance officers are looking for ways for firms to save money. Global underwriting offers an accessible solution without cutting back on existing employee benefits.”
As a result Brown says he expects current economic conditions to accelerate the recent trend, which has seen companies increasingly switch from multi- national pooling to global underwriting options
“Two or three years ago, global underwriting was still a relatively new concept, at least when it comes to employee benefits.”
Maxis GBN director of underwriting Nicola Fordham agrees that the ongoing health crisis will increase demand for global underwriting.
She says: “The impact of Covid- 19 will be felt for years to come all over the world. There is of course the very sad mortality impact but there is also the impact on an employee’s physical, mental and financial wellbeing.
“As a result it’s never been more important for employers to look after their employees, their most valuable and expensive asset. Having a good global EB strategy is the cornerstone of this. Not only do employers need to ensure they are giving their people the right benefits to suit complex needs, but they need to communicate these well, so employees are aware of their value. And, of course, employers need to find a financing method for their EB programmes that works for them.”
She says the global pandemic has strengthened the argument for global underwriting – or global risk solutions – as a financing method. However she points out this trend started pre-Covid. “At Maxis GBN over the last three years our global risk solution programmes have doubled in numbers. For clients the main factor for this growth is the desire to achieve a long-term sustainable solution leveraging their centralisation and the global position of their portfolio.”
However Fordham points out that despite this growth global, underwriting remains a relatively small subset when compared to multi-pooling arrangements, which have been used by larger corporates for decades.
Global underwriting is becoming better understood though, says Brown. Previously it had been more widely used in the property and casualty markets, but there has been increased demand for a similar service to help multi- nationals manage their human capital risk more effectively.
Brown adds: “Clients, advisers and consultants have more understanding of this option and the benefits it can offer.
“Many client risk managers recommend such options and are looking at more creative ways to manage these risks.”
Global underwriting programmes typically cover a range of employee benefits, including life, disability and accident insurance.
Generali Employee Benefits Network regional manager (UK, Ireland & Nordics) Damian Ross says global underwriting doesn’t
typically include medical benefits, such as PMI cover. However, he points out that these tend to be bespoke programmes, rather than off the peg solutions, and including them is not completely out of the question.
Much will depend on the size of the global client, the risks and regions covered.
However Ross says that for those looking for a global solution covering different regions, a captive is best suited to include medical business.
These are the most sophisticated options, where the client effectively sets up their own insurance company to manage the risks.
Global underwriting solutions are often seen as a halfway house between the full captive option and multi-national pooling. There are advantages for clients in each of these strategies – much will depend on their own business model and appetite for risk.
Not all options are suitable for all companies, as the table on P38 makes clear. Options like global underwriting and captives are only suitable for businesses with a minimum annual risk premium spend. In addition they have to operate in a number of different global jurisdictions.
Brown adds that the way a company is structured may also influence which type of arrangement is selected. For example a global company may operate across a number of different regions and countries. But if it doesn’t have a centralised control or strong influence, then this may make global underwriting a less suitable option.
“In order to be able to offer global underwriting as a network option the client needs to operate in a number of countries, and have credible data experience across these regions for a number of years, typically five or six.
“There needs to be some centralised control, so that these regional head offices will cease local broking activity during the rate guarantee period. In some cases there are strong vendor relationships between customers and their local insurers, which means the client is less suited to global underwriting.”
Zurich says that when setting up global networks it will sometimes write contracts on the assumption that around 80 per cent of the countries will join the programme. “If more join at a later stage then they can be added, but this can be more cost efficient that assuming 100 per cent, and then having to rewrite because some regions persist with their current arrangements.”
The larger employee benefits consultants operating in this sector, such as Aon, Mercer and Gallagher will be aware of this issue and ensure proper due diligence is carried out at the initial stage, to ensure global underwriting is a suitable option.
In many cases the decision to opt for multi-national pooling, GUPs or captives might be driven by cost consideration, but insurers point out that there are other benefits for clients.
Ross says: “All of these options are designed with one ultimate goal in mind: namely helping clients take control of their employee benefits risk.
“In additional to bringing the clients the potential for savings, they also provide access to essential data, to varying degrees, through a consolidated profit & loss account, information on local performance experience, and healthcare trends.
“This gives clients the opportunity to manage their claims experience in a much more hands on way, identifying hot spots and putting in place interventions where appropriate to actively steer their global programs.”
As Ross points out, where these various programmes primarily differ is in their entry requirement, level of reporting and control and potential savings afforded (see below).
While there are obvious benefits for clients, this approach can also benefit insurers too. As Brown points out, with pooling clients take a profit share if the claims experience is lower than expected.
However, due to the competitive nature of this business, insurers have to compete on price to win contracts, leaving very little in the way of profit margins, particularly if claims experience is poor.
With global underwriting the insurer is essentially taking on all the risk, but this means increased profits if risks are priced correctly.