Pandemic, employee benefits and the appeal of a global underwriting approach

The Covid-19 pandemic has had a significant impact on insurable employee benefits in terms of raising its profile within companies, and has highlighted the advantages of taking a global underwriting approach to employee benefits.

Employers and employees are much more focused on insurable employee benefits, which have become an important part of the relationship between employees and the employer.

Normally, employees tend to focus on benefits and perks that are more tangible, such as paid time off, the company car or all kinds of vouchers, rather than thinking about insurance-related benefits – but this is changing as a result of the pandemic. Employees are increasingly interested in knowing what they are covered for, and employers are keen to create that transparency and to communicate it with employees.

The pandemic has highlighted the importance of protecting employees, which has always been essential, but in this special situation it has become one of the key responsibilities and priorities of employers. Group CEOs are now becoming more interested in knowing how they, as the employer, are protecting their employees. Insurable employee benefits are no longer under the radar.

There is a much greater connection between employee and employer when it comes to insurable employee benefits such as life, disability and especially medical, while wellbeing has become an integral part of the relationship between employee and employer.

Multinational requirements
Multinationals are now looking for three things from insurers. Firstly, they want to have transparency about in which countries and with which insurance solutions their employees are covered. Secondly, if they are not covered due to local market dynamics (such as pandemic exclusions in the standard terms and conditions), then employers want to ensure that these gaps are closed. And thirdly, they want to know about the evolution of the claims, and to receive regular updated claims information.

Insurers are addressing the issue of transparency and providing full data to multinationals on employee benefits and the levels of coverage around the world. On the issue of exclusions and gaps, in some countries insurers were asked by governments to provide solutions and ensure that people were fully covered, while in others the insurance market acted to either waive or pause pandemic exclusions. Thus, in general, multinationals should not see gaps in cover at the moment.

As for the impact on claims, it is still not fully clear and it depends on the country, but there are some clear trends. Accident insurance claims have dropped significantly, while the lack of business travel means that travel claims are low. For medical insurance, claims are also down because treatments are being postponed. But this is just in the short term and there will likely be a rebound – treatments are being postponed not cancelled and will be carried out later. And of course, delays may cause bigger medical problems in the future.

For life insurance, claims have increased but it can be difficult in some countries to track whether life claims are Covid-19-related or not. And for disability cover, it is not Covid-19 itself but the lockdown that could have an impact. This cover is driven a lot by the economy and the employment situation, so it remains to be seen to what extent disability will be affected.

Global underwriting solution
Pooling is the traditional solution for the financing of employee benefits globally, but it is in many cases operating on an opportunistic basis when it comes to the inclusion of countries and, as a result, only a fraction of the countries may be included in the global solution. With the global underwriting approach, it is about looking at a pre-defined global portfolio with one provider, allowing much greater central management and influence of employee benefits.

The pandemic has made this global underwriting/international programme solution much more attractive and we know that the main global EB consultants (such as Aon, Mercer and Willis Towers Watson) are busy with preparing requests for proposals at the moment. The factors behind this are the ability to take a centrally managed, global, top-down approach, together with the generation of upfront cost savings.

Multinationals are under severe cost pressures as a result of the pandemic, and employee benefits is often a large portion of a group’s spending. Depending on how the global underwriting solution is structured, a group can save about 10% (depending on premium volume and diversification of risk) of annual premium for the life, disability and accident insurance covers, and often this is guaranteed for three years, which makes it an even more compelling business case in the medium term. If the multinational’s objective is not focused on cost savings, then there is also the option that money saved in some countries can be used to enhance cover in other countries and thus improve the level of cover on group level.

Considering recent experience, an additional objective for multinationals can be to establish a minimum level of insurance protection for employees worldwide, which could be facilitated with a global underwriting solution.

Challenges
There are some challenges to this approach, compared with pooling. Internal politics can be a stumbling block, as going global can be a major change of philosophy and behaviour for the subsidiaries and units of the multinational, and also for the local brokers. Hence, it is a new dynamic for employee benefits and sometimes implementation can be a challenge. The key is good communication from the top of HR, to be clear that there is a bigger picture, and to stress that from a group point of view, this is the best deal they can get.

The second challenge is around the data requirements before implementation. If a multinational wants to have an offer for a global underwriting programme, they normally have to provide a certain set of underwriting data. Insurers will commit to a global price for two to three years guaranteed, and this requires a proper underwriting process. While a lot of companies want to take the global underwriting approach, they may struggle with the data requirements. Insurers need, for example, insurance premiums and the loss ratio, by cover and country during the last three years. But HR departments often do not have this centralised data, so it can be a challenge and take time to collect the information.

On the agenda
In the long term, the pandemic is likely to result in a sea change in employee benefits provision because, with the global underwriting approach, employee benefits can be centrally managed and there is the transparency that multinationals require. Actions can therefore be taken centrally and quickly, and there is just one provider.

Insurable employee benefits are high on the agenda of senior management at the moment, so now is good time for risk managers and HR to discuss with them the global underwriting approach. Together with the growing connection between the employee and the employer, the issue of wellbeing, and the desire of employers to fully protect their people, there has never been a better time to discuss employee benefits with senior management.

Contributed by Moritz Loeschner, lead customer relationship manager, Zurich Global Employee Benefits Solutions, Zurich Insurance Group