A holistic approach to global employee benefits

There is a growing need for a holistic approach to global employee insurance risks for multinational customers, to ensure that the current challenges are met and future opportunities are taken.

Employee insurance risk products straddle both the life and non-life insurance worlds and those two worlds have traditionally spoken different languages. On the non-life side, you have workers compensation and business travel accident; and on the life side, the more benefits-related products including medical, life, income protection and so on. Conventionally those two have not met, even at a domestic level and certainly not at a global one, but as the world becomes an ever smaller place, the drivers for a siloed approach are being eroded and the purchasers of the non-life department and the life department within the same company are beginning to talk with one another to explore synergies.

Customers are demanding simplification and convenience, but because of different local regulations and social security systems in each territory, the insurance industry is lagging behind in this respect. But there are glimmers of hope, with one simple example being early triage of absence for employees where both workers compensation and income protection policies are placed with a common insurer, in order to efficiently determine where the claim should be channelled.

For employee benefit-related insurances, there are three main challenges that large global customers face at the moment. The first, as always, is cost. Medical benefits particularly are continuing to escalate at compound double-digit levels in many countries. For example, in the latest annual Medical Trends studies that Aon, MMC and Willis Towers Watson produce, gross medical inflation in India in 2017 is about 20%.

To combat these increases, we have seen a sharp increase in interest from customers in utilising their captives to manage the cost of employee benefits. There is a significant number of active captive feasibility studies either underway right now or expected to commence in the near future. This makes sense of course, particularly where a customer utilises a captive for its non-life benefits, as there are potential synergies including collateral/credit risk premium and also HR (the traditional local buyer of HR products) tapping into the skills and techniques of risk management colleagues. This holistic approach requires risk managers and HR to work together, and we have certainly noticed the historical barriers breaking down between the two areas, as evidenced by the joint approach towards employers liability/workers compensation and income protection.

Data challenges
The second challenge is around data. There have been a number of recent, well-documented examples of data breaches, and insurers are not immune to these threats. Many employee benefits insurance products involve Personally Identifiable Information, including name, date of birth, salary, social security number and highly sensitive medical information such as medical history, doctors reports and more. Given the highly sensitive nature of this data, customers are increasingly concerned about ensuring that it is handled correctly.

In response to this, locally there are more insurers that are adopting simplified administration techniques for certain low touch products such as group life or group income protection, where only a basic amount of data is required in order to calculate premium and assess claims. In other cases, we may take data for global arrangements at a central level either directly from the employer, from their global intermediary or in an automated fashion from payroll providers. We have been asked to do this with a view of then, where possible, depersonalising and disseminating the data to a local level if it is required.

The final challenge is data availability. Customers are increasingly demanding more frequent and more detailed data. Historically, we as insurers were under pressure to provide a reasonably basic amount of data on an annual basis. For some solutions, we now provide a very comprehensive level of data quarterly and as the insurance industry continues to innovate and digitalise, it is not inconceivable that claims and membership data will be provided ever more frequently at a global level. The obvious response to a demand for data is to invest in automation, both in terms of back-end systems and front-end online portals for customers. Certainly, there are already holistic solutions that allow both non-life, P&C and specialty lines alongside employee benefits / life insurance lines to be viewed in a consistent format, and over time, these solutions will improve in both quality and frequency.

The benefits of a global approach to employee risks benefits
Clearly, moving from local purchasing and control to a central control model is not for everyone and requires top-level management support to change purchasing behaviours. Where customers do have the ability and inclination to take advantage of multiple market/global purchasing, there are a couple of key benefits.

For employee benefits insurance, depending on the product types, customers that purchase life, accident and disability in a single purchase can experience immediate and sustainable cost efficiencies through economies of scale. At the same time, they can take advantage of other enhancements such as providing efficient solutions for those difficult markets where they may only have a handful of employees, or significantly higher limits than would be available locally or on a limited number of grouped markets.

Medical products, however, are priced so accurately – with little to no margin and well documented costs that are compound year on year – that there simply are not any credible technical cost benefits in including them in global arrangements. Compounding this is how ‘sticky’ these products are due to the emotive attachment employees have to medical providers, which makes moving from insurer to insurer impossible for all but the most globally centralised of organisations.

There are also benefits in terms of data availability in including all products, including medical, in global programmes, particularly where this data can be viewed online in a consistent format on a quarterly basis and benchmark against different factors.

Future opportunities
From a broader employee risk insurance perspective, clearly a ‘global holistic utopia’ would be where a customer is looking for a solution to cater for all employee insurance-related risks with a single insurer globally. For the time being, however, there are a number of more bitesized opportunities. Customers are becoming ever more demanding, which is an excellent catalyst for the market to increase the pace of innovation and remain relevant. Certainly, the appetite for medical data insights to help customers identify and manage statistically significant trends is increasing and all insurers need to focus more on this.

The natural progression is to find efficient ‘wellbeing’ solutions to address these trends. At the moment, it would be fair to say there is a trend of marketing aggregation of lots of local ‘nice to have’ wellbeing solutions, which may or may not have an ROI, and no one has yet developed anything compelling on a global scale. One service that is promising and implementable at a global level is a basic Employee Assistance Programme. This could provide the entire corporate value chain of employers, intermediaries, insurers and captives with management information in order to gain a view into and address, at the most basic level, emerging physiological risk issues within an employee population firm before they become claims trends. This is an exciting challenge and one that few are properly positioned to address.

Contributed by Rob Brown, head, customer and distribution management for UK and APAC, Zurich Global Employee Benefits Solutions