By Philip C. Curran
Multinational companies often struggle to find the time to effectively manage the array of insured employee benefit plans that they sponsor around the world. For many, this means that significant money is being left on the table, and it results in concerns over whether plans are being effectively governed. In this Update we look at the reasons why many companies are considering taking a more centralized approach to the management of their benefit programs globally, how this can be achieved effectively, and the advantages that can be derived from such an approach.
Historically, many U.S. multinational companies have left the design and financing decisions related to benefit programs to their local subsidiaries, with minimal corporate oversight or control. This decentralized approach has a number of implications:
- In the absence of strategic direction from headquarters, benefit designs may or may not be consistent with the overall global benefits strategy.
- Depending on the level of local negotiating power (and the role of intermediaries), total premiums paid in local markets may not be as competitive as they could be.
- Savings from multinational pooling may be suboptimal due to a lack of proactive management and coordination of the pooling strategy.
- There is little potential for leverage on broker and consulting fees globally.
- There may be situations in which duplicate or overlapping benefits exist.
- It is difficult to apply consistent governance practices and processes.
- Basic information on the risk benefit programs around the world (such as plan designs, insurers and premiums) may not flow up to headquarters effectively.
As multinational companies strive to address these issues and find better ways to manage benefits, an alternative approach that better leverages the consulting community globally is becoming more popular. Successful global benefit management often involves the appointment of a global broker to manage the company's insured employee benefit plans around the world. The arrangement requires a single firm that has access to local brokerage and consulting capabilities in all major countries in which the company operates. To be effective, the selected firm must also have the ability to provide expert advice to the company's headquarters on global design, financing and a wide spectrum of risk management, have tools and processes to support coordination of the global network of brokers and consultants, and provide additional services such as access to benefits benchmarking data.
Global brokerage arrangements seek to achieve a balance between the headquarters (strategy and oversight) and the broker (delivery of service and strategy execution on local and global levels) that results in enhanced efficiency and effectiveness - while not "carving out" local country operations
Efficiencies from global brokerage arrangements can come from five main sources:
- Global leverage with insurers, resulting in up-front premium reductions: By partnering globally with a firm that has significant buying power in each local market, the company will receive the best possible premium rates, terms and conditions for benefit coverages in each country.
- Increased savings from global economies of scale: The global broker will educate its network of brokers and consultants around the world on the company's risk-management strategy and will ensure that appropriate pooling and other partners are included in the bidding process at renewal time, in accordance with the client company's strategies and procurement guidelines
- Better management of multinational pooling experience: The global broker will also monitor the pooling arrangements on an ongoing basis and provide advice on contracts being considered for inclusion in a pool. Effective management and expansion of the pooling arrangements in this way also facilitates effective reinsurance to a captive, if desired.
- Better value from commissions/fees paid to consultants and brokers: Most multinational companies find that they use a range of brokerage and consulting firms around the world. In other countries, there may not be a broker involved, but premiums paid are still loaded for commissions. By consolidating relationships with one global firm, savings can be achieved from global leverage through either a reduction in commissions/fee levels to better match the local service levels or the provision of enhanced services locally and/or to headquarters in the form of coordination and governance support. Moreover, soft savings are available through freeing up a company's resources, since the outsourcing partner will take over many of the day-to-day tasks associated with the managing the program.
- Alignment of plan designs: Cost savings may be achieved by harmonizing benefit plan designs in countries where multiple programs exist, or by trimming benefit levels if they are currently considered too rich relative to the local market, or if there are situations in which duplicate or overlapping benefits exist. For some companies, there are also opportunities for savings from the introduction of health management programs (such as wellness, preventative care and disability management). A more coordinated approach to the management of benefits can identify and allow the company to take advantage of such opportunities more readily.
As a multinational company embarks on a more globally coordinated approach to the management of benefits, it is critical to have a clearly articulated governance framework. This framework should document the overall benefit philosophy, the approach to insurance placement, policy guidelines, information flows and decision-making authorities with respect to the design and financing of insured risk benefits globally. One of the most important elements of these guidelines is the balance between local and global considerations.
Under a global brokerage arrangement, as described above, the global broker works with the client's corporate headquarters to define and document these guidelines, and then disseminate them to the global network (of brokers, consultants, network partners and the company's local contacts responsible for benefits).
Timely information on upcoming renewals and benefit changes is automatically provided to the company's headquarters to facilitate appropriate decision making. Additionally, this approach provides a complete picture of insured versus uninsured benefits and permits an analysis of the level of risk assumed with respect to employee benefits within the overall enterprise risk framework.
For multinational companies striving for additional cost efficiencies and struggling with governance issues and concerns, taking a more centralized approach to the management of employee benefits can reap significant rewards.
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