Using a captive insurer to improve employee benefits across regions

A multinational company’s captive insurer was managing benefits programmes in 40+ countries but felt some of its policy terms were outdated. The company wanted to enhance coverage for its employees, while also addressing local policy inconsistencies and potentially incorporating additional risks in their benefits program. The team at Marsh McLennan, including the practices of Marsh Captive Solutions and Mercer Marsh Benefits multinational team, created a tailored insurance solution suited to the client’s diverse global workforce.

The challenge

The company was not alone in finding its employee benefit policies varied significantly across regions and led to inconsistencies. Many of its insurers used outdated terms in employee benefits policies, such as exclusions related to mental health issues including suicide and substance use. Local insurance policy conditions and exclusions were often not aligned with the needs of a diverse and international workforce, which resulted in a misalignment between the company’s global benefits strategy and its offerings for employees.

The company owned a mature captive insurer that managed its employee benefits programme across more than 40 countries, with premium volumes exceeding $20 million annually. Historically, the captive focussed on generating savings and minimising insurance costs.

However, company management had recently shifted its strategy and desired to enhance employee benefits coverage. The fronting networks lacked a strategy to standardise policy terms and didn’t have the necessary expertise to price risks outside of its standard terms and conditions.

The solution

Marsh McLennan conducted a comprehensive review of the company’s various insurance policies, identifying all exclusions, including those constrained by legal requirements in various countries. Working with captive specialists, they recommended modernising the benefits coverage by eliminating certain exclusions, which would then be covered by the captive.

Key steps included:

Policy review: A thorough analysis of existing policies to identify problematic exclusions.
Risk assessment: Evaluation of the potential risks that modernising employee benefits would bring to the captive insurer and identifying controls to manage them effectively.
Pricing models: Development of loss models from available benchmarking and industry data to determine an appropriate pricing approach for the captive’s premium for the additional coverage.
Business case development: Creation of a compelling business case for the proposed changes, which was subsequently approved by the board.

The result

Over three months, the company successfully implemented the proposed changes in more than 20 countries. Several exclusions including those related to suicide and self-harm were incorporated into the policies underwritten by the captive.

As a result, the exposure was absorbed by the captive, leading to enhanced coverage for over 25,000 employees. With the additional risk exposure transferred to the captive, there was no increase in premium rates.

Conclusion

Marsh McLennan effectively managed policy exclusions in employee benefits programmes across multiple countries. By leveraging a captive insurance model, the client modernised its benefits offering, ensuring comprehensive coverage that meets the diverse needs of its global workforce. This strategic approach improved employee satisfaction and positioned the organisation as an employer of choice.

Arranging employee benefits programmes across regions presents unique challenges to multinational organisations. A captive insurance model can help multinational organisations address policy inconsistencies, allowing for quicker modifications to policies in regions where insurer attitudes and pricing may be more restrictive, while still adhering to local legal requirements.