Giving power to the EB captive

Two years on from his appointment as CEO of Generali Employee Benefits (GEB) Network – and from his last interview in Commercial Risk Europe – Paolo Ribotta says the numbers around people risk, as a balance sheet item, might be lower than P&C risk, but the implications are arguably much bigger.

The general argument is that including employee benefits (EB) such as life, disability, accident and health in a captive arrangement helps diversify the risk and reduce volatility. Is this message working?

The traditional arguments that networks have used to steer interest in including EBs in the captive are: to govern funding or expenditure on a global level; to diversify the captive portfolio; and to have proper governance of the schemes at a local level.

But one argument is always missing in my opinion; protecting their people. When we are talking about EB, we are talking about the most important capital of a corporation, namely human capital. And it’s fundamental to steer the terms and conditions of schemes that are protecting human capital.

As a matter of fact, human capital is the thing that is generating the intellectual property rights of many features on which businesses are based.

Can you draw any parallels between the P&C and EB worlds, in a way that helps to better speak to captive manager imperatives, when it comes to the protection of human capital?

Property and casualty (P&C) protects assets and operations from external shocks. The other key element of value to a corporation that needs protection, as mentioned, is people and their intellectual contribution. This should be core for any business out there.

Looking at EB through the lens of traditional risk management approaches and tools, it’s clear that there are tools to help manage people risk, on the health side, including mental health, and also on the disability side.

This is about EB having the control, having the ability to steer people strategy and the way in which it is executed. This includes diversity and inclusion – for example, ensuring there is no element of sexual discrimination in health policies when it comes to surgical operations.

Employee benefits cuts directly to the heart of the overall ESG approach of any corporation; it forms part of the foundation for the ‘social’ in ESG, encompassing people, purpose and culture.

A captive manager might well counter this with: That’s all well and good, but when we’re facing a whole load of business interruptions and big exposures in comparison to healthcare or disability, why should we take care of EB? What would your response be? 

I would respond that there are a lot of advantages that aren’t being realised while EB sits outside the captive.

Consider this. When buying office equipment via procurement, corporations have centralised guidelines to not only save costs but to also assure quality and value.

However, when it comes to the heterogenous landscape in which EB sits, the added value that an aligned approach across the world can bring to a corporation’s population is still not clear. It’s not just about a cost saving, it’s the added value of having harmonised spend, harmonised terms and conditions such as waiting periods, and a way to address questions such as: Why is it that employees in some countries have life coverage, in others not?

There’s a common understanding that you take care of property or liabilities in a very structured and professional way. That same understanding doesn’t exist where taking care of people is concerned.

People liabilities should be viewed in the same light. These days, EB affords the same level of structure and professionalism when it comes to tools and data. It’s no longer a second-division risk. And, for that reason, it deserves to get full attention from captive managers in today’s world.

So, how can you help captive managers ensure a more structured and professional approach to people liabilities? While P&C protects the captive’s bottom line by way of protecting from volatility and magnitude, EB – and consistency of EB in a captive – probably needs additional metrics that are geared towards the contribution to the net profit of the corporation in order to elevate it into structured and professional territory. For example: absenteeism rate; disability rate; likelihood of accident.

These are all metrics that already exist in a corporation. But they are not usually metrics that a captive is measured against. Yet they have a direct impact on productivity. And an industrial company knows exactly how much 0.1% of productivity gain or loss means in terms of numbers.

We need to help captives elaborate on the metrics that will resonate more. It’s here that, as part of our lifetime partner commitment, GEB Network is supporting our clients, adding value beyond the policy by providing the kind of structured and professional data they need to support their people strategy, via a combination of expert consulting, reporting, webinars and, also now, mental health support.

We’re all now at a fantastic junction, one where we can now capture in hard data things we never thought possible a few years ago. In turn, this enables our clients to steer people strategy and implement solutions with speed, accuracy and relevance.

Ultimately, the challenge facing all captive managers is this: what value is the captive bringing to your corporation? Of course, there are the well-established rationales, such as those mentioned earlier – financial flows, stability, diversification etc – but if people management is an instrument that’s enabled by the captive (via the inclusion of EB), and there are tangible impacts on the balance sheet, the captive manager should be able to identify those metrics.

With support from their network, captive managers are better enabled to do just that, putting them in a position to not only protect their most valuable asset, affording ESG impacts, but also driving productivity improvements in the process.