Insurope - Pool Expansion

Pool Expansion

This section features different topics ranging from free cover to dividend distribution philosophy which might be used to help constructively expand Insurope multinational pooling arrangements.

Boost Financial Gains with Ongoing Active Management

Imagine the following scenario – your financial director walks in with half a million US dollars and asks you to throw them away. Would you do this? No, of course not. But when a company is not taking advantage of multinational pooling, this could be happening.

Historically, many multinational companies established pooling arrangements purely on the basis of existing group insurance contracts. These are contracts that have been insured by two or more associate insurance companies belonging to one or, in many cases, several pooling networks.

In more recent times, the era of mergers and acquisitions has resulted in companies inheriting pooling arrangements, giving rise to multiple (four or more) pools. While these phenomena are not negative, and are generally preferable to having no pooling arrangements, they represent a default position that could be improved by active participation and management.

Based on our experience, pools that are not managed offer fewer potential dividend returns than those that are. For example, we have seen dividends as low as 2-3% of global premiums and as much as 8-12% for more actively managed pooling arrangements. The networks are eager for more active management of pooling arrangements, as ultimately they carry the potential losses and the threat of the pool being cancelled should it run at a deficit.

Establishing an Active Pooling Strategy

Designing an appropriate pooling strategy that fits in with corporate and people objectives means undertaking a comprehensive study comparing the current pooling position with the ideal scenario. To do this, you must take the following steps:

· Conduct a review of the existing pools.

· Implement resulting changes

· Select the most appropriate pooling system (e.g., loss carry forward, full or partial stop loss, loss free), with the choice largely depending on your attitude towards risk.

· Select a maximum of two or three preferred networks, depending on the geographical spread. Be realistic in what relationships can be changed.

· Establish clear-cut communications with subsidiary companies and/or regional headquarters, reinforcing that the primary concern continues to be achievement of the best local terms and conditions.

Applying the Strategy

To quantify your strategy, we recommend that, as part of a pooling study, a multinational and it subsidiaries review local group insurance rates. This helps to determine if current rates are competitive and whether an offer from another insurer/network is sufficiently attractive to make a local provider switch. A careful selection of what coverage and countries to include in a pool will subsequently lead to improved dividends.

A vital part of this study is selecting the networks. While the networks in many respects are similar, consider not only their tangible, but also their non-tangible strengths and weaknesses prior to making this decision.

Adopting a clear approach to pooling is conducive to finding the best deal and facilitates negotiation of a tailor-made solution. A number of parties within the multinational must be involved in establishing the strategy in order to secure the appropriate buy-in both from the corporate side as well as from the subsidiary companies.

For companies with central authority this is less of an issue, as the parent company is clearly in a position to advise the subsidiaries. For those multinationals with autonomous subsidiaries, obtaining complete support can be a considerable challenge.

Developing a pooling strategy and conducting a pooling study require careful coordination. Of equal importance is ongoing management in order to implement the desired outcome. The true measure of success is in the results, and we have found that, for those companies that have conducted such studies, the outcomes have been good.

Reaping the Benefits of Active Pooling

In the past, companies often thought that once the pools were in place the job was essentially done. In fact, the job is only really beginning at that point. Pools, like any other international program, require maintenance by a number of parties: the network, the multinational, and often the consultant.

Annual pooling reports generally provide an excellent overview of the participating group insurance contracts and, when carefully reviewed each year, are a valuable management tool.

While the concept of multinational pooling is not rocket science, it still needs to be nurtured in order to reap it full benefits. With proper diligence, pooling can help build the foundation for an efficient and cost-effective global employee benefits program.

Reprinted with the permission of Aon Consulting, Global Forum.

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