To pool or not to pool
Multinational pooling allows multinational companies to benefit and profit from favourable insured claims experience on a global basis. It is essentially a second stage accounting of insured employee benefit plans on an international level. International profit sharing allows multinational companies to obtain experience rating over the borders of the countries or territories in which they operate.Multinational pools are made available by networks of insurance companies cooperating together to provide cover for mutual clients. Some networks are wholly owned by global insurers and others are a partnership of top rated companies working together under an agreement of cooperation.
The purpose of a pool is to offer a facility for potential returns on the premiums paid to insurers.
This return of premiums is called the dividend. Premiums paid to the insurers are combined in the pool. A dividend will be payable if the income, in the form of premiums, is greater than the outgo that is composed of claims, expenses and commissions.
Dividend = Income (Premiums) Outgo (Claims, Expenses & Commissions)
Claims experience is the single most influential factor on the result of the pool and the likelihood of a dividend. A dividend is only payable if income is greater than outgo. If income is less than outgo the negative balance can either be carried forward, reduced or waived depending on the pooling contract selected. Other factors such as local profit sharing and taxes can also affect the potential dividend.
Some important remarks to note:
- Nothing changes to the local insurance contracts included in the pool. Local coverage is provided by the local partner.
- The pooling contract is between the parent company and the network (for most networks this is the partner operating in the country of the parent company).
- There is no extra charge for the company (parent or local).
- A pool is an accounting agreement not an insurance contract.
WHICH COMPANIES CAN POOL?
In order to establish a multinational pool, a company must operate in at least 2 countries and have group coverage for a certain minimum of employees worldwide. Pooling networks may have different eligibility conditions. The benefits must be placed with insurers that operate in the same multinational pooling network for a pool to be established.
TO POOL OR NOT TO POOL?
Generally only risk benefits are pooled or the risk elements of pension contracts e.g. spouse’s death in service cover. The most common are group life and long-term disability. Some networks will pool other contracts such as private medical insurance, critical illness, accidental death and disability on a case-by-case basis. It is important to analyze the past claims experience of a contract to determine whether or not it should be included in the pool. Other factors include:
- The pool should be balanced if possible, with similar numbers of employees from the various countries. This gives an even distribution and avoids conflict where one operation is seen to be heavily supplementing the cost of employee benefits elsewhere in the company.
- Local profit sharing may produce a higher dividend for a subsidiary.
- A subsidiary should be excluded if there is poor claims experience in a particular territory as this may only create a negative balance (each territory should be analyzed individually to assess the impact on the pool).
ADVANTAGES FOR MULTINATIONAL COMPANIES
- No extra risk is taken.
- Cost savings on employee benefits and administration.
- One stop shopping for employee benefits.
- Administration of employee benefits is centralized Control.
- Easy transfer of employees from one location to another.
- Higher non medical levels and better underwriting can be obtained.
- International strength gives greater economies of scale.
OTHER SERVICES AVAILABLE FROM NETWORKS
Multinational pooling networks assist multinational companies in the management of their human capital. They also assist brokers and consultants to meet the needs of their clients through a range of services:
- International quotations.
- Standardized reporting on pooled and non pooled contracts.
- Information on
o Social security systems
o Typical benefits
o Network partners and their products
- Employee benefit questionnaires.
- Expatriate cover and offshore funding.
- Any specific assistance.
It should be noted that not all of the networks provide these services. Further details are available on request.
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