Employee benefits and people risks – captives adding value

Adding employee benefits to a captive makes perfect sense, but it is important to get HR onboard, with communication and transparency key. That was the conclusion of a workshop at the Commercial Risk virtual conference ‘Employee Benefits Risk Management 2020 – the importance of collaboration’, with Andrew Bradley, former head of group risk services at Nestlé, and Christian Keller, head of marketing and customer experience at Generali Employee Benefits Network.

The workshop, entitled ‘Employee benefits and people risks are two sides of one coin’, looked at taking a practical approach to employee benefits and examined how risk and HR managers can grow their roles through employee benefits. This practical approach involves writing employee benefits through an existing property and casualty captive, something that Mr Bradley had experience of at Nestlé.

He explained that the first step is get the global information from the network providers on premium volume, claims, loss runs and so on. Then ensuring that a provider is chosen that has a global spread, matches the countries where the company operates, and provides the service that it needs.

“I don’t think employee benefits should be treated any differently to any other line of business on the property/casualty side,” said Mr Bradley. “It can quite easily be included into your captive. It is typically very stable business, it is not particularly volatile and network providers will provide you with stop-loss cover so you can limit any volatility. I believe employee benefits in a captive makes perfect sense from a Solvency II/diversification point of view but it does require a longer-term strategy, perhaps three years, as you do not want to be changing provider, particularly in the case of medical, every year.”

HR onboard
Mr Keller said it was vital to ensure that HR and/or procurement don’t feel threatened. “HR decide the benefits, risk management does the risk financing. Employee benefits and people risk are two sides of the same coin and they are very much connected. The different roles bring added value,” he said.

Mr Bradley agreed: “HR are clearly responsible for the benefits, while risk management/insurance have a role a play in financing the risk. You need to define objectives and roles to find the common ground, ensuring dialogue and a good business case.”

He said partnership is key, but noted that there may be internal pressures within companies, and it will be more difficult if you are a decentralised organisation where, for example, head office may be reluctant to impose a specific insurance company. “Set clear objectives and communicate regularly with stakeholders, be transparent, open to criticism, build trust and have a strategy over three years – it is not a quick fix,” he said.

Mr Bradley said there is a mystique about employee benefits from the insurance side but it is not really any different to other line of business. “If it was a motor programme, the risk manager would talk to the fleet department; or for property loss prevention, then you talk to the engineers about sprinklers and investment. It is the same with employee benefits. Once you have the information, what can you then do to improve the risk? It is about working together with HR, the same as you would work together with engineers,” he explained.

There are many benefits to using a captive for employee benefits, not least help with stabilising the premium, removing exclusions, and in general reducing the total cost of insured risk and improving loss prevention. “We funded projects that helped countries to reduce their exposure, vaccinations, wellness programmes,” said Mr Bradley. “The captive can also obtain data and help with benchmarking; HR at head office do not always have a full overview, so this can be of great benefit to them.”

Mr Keller pointed out that when the pandemic started and a lot of companies were facing the challenges of remote working, taking care of people become a very important topic. “In our experience, captives were very helpful in providing some telemedicine facilities on a global scale, in terms of arranging and financing. It was a direct help that was really appreciated and was a good example of how captives can work closely with HR to generate some added value,” he said.

The workshop tackled the issue of what to do with the profits from the programme – should they be returned to the local businesses, or to a central fund and be redistributed in another form, or kept and spent on loss prevention?

“My personal view is that it should be retained centrally and distributed to fund loss prevention, such as wellness programmes, telemedicine, vaccinations, checkups and so on. Go for the low-hanging fruit where a country really needs assistance and try to obtain buy-in. Reinvesting in loss prevention creates a virtuous circle,” said Mr Bradley.