Captives and employee benefits: a perfect match?

Many observers have long called for a greater involvement of captives in employee benefits, pointing to greater control over rates, terms and conditions, more flexibility of plan design and wording, and diversification benefits for the captive.

But despite the many advantages, the number of employee benefits captives remains relatively small. Mattieu Rouot, chief executive officer, MAXIS GBN, explains that it has seen a 20% increase in captive clients since the end of 2020, but when compared with the number of captives that exist, the proportion using them to write EB risks is still very small, at about 2%.

“At MAXIS, we believe that a captive is the most efficient and effective way to manage and finance employee benefits. Writing employee benefits risks in a captive gives multinationals greater control, the ability to closely manage global programmes, offers benefits that might be unaffordable through local underwriting, retain any underwriting profit and, if there’s already an existing captive in place, diversifying risk. There’s a great opportunity out there for multinationals to use their existing captive to offer more and better benefits for their people.”

Part of the issue might be resistance from the HR side, as Gilles Finkestein, global head of customer and distribution management, Zurich Global Employee Benefits Solutions, points out: “We do see some resistance from the HR side with regards to a captive because it is not a tool they are familiar with, and the advantages that the HR network could get from being part of the captive strategy are very often not known to the HR people.”

He adds: “They may not know that using the captive could help them implement certain measures, help them to be much more efficient, and even waive some exclusions in policies, especially when it comes to diversity, equity and inclusion, for example with same-sex marriage exclusions in certain countries.”

And his colleague, Paolo Marini, global head – customer and distribution management, Zurich Integrated Benefits at Zurich Insurance Group, says it might also be concern from risk managers about the risks that employee benefits might bring into the captives.

“In my view, this is misplaced in the sense that no matter how well paid people might be in any given country, a death or disability of even the highest ranking individuals in the company will never compare to the burning down of a plant or a flood. So, all of those risks that risk managers are facing on an almost daily basis are huge in comparison to the liabilities coming from employee benefits, which are far more predictable and are composed of many smaller sets of claims.”

He adds: “So in terms of diversification of risk, bringing the two together in a captive actually makes a lot of sense. In my view, it’s hard to understand why there are not more employee benefits captives in place today.”

Finkestein says that ultimately it very much depends on the experience and the risk appetite of the captive. “So what we see, for instance, is that some of our customers start a first phase of an employee benefits captive only with the life and disability and accident covers because they don’t feel at ease immediately with the medical side. And then they will extend to medical with the ultimate objective to involve the full package of benefits.”