Multinational pooling is a mechanism that allows multinational companies to combine the insured employee benefit plans of their subsidiaries in different countries with a multinational pooling network. These insured benefits can then be ‘experience rated’ to take overall claims performance into account and an overall surplus or loss can then be determined.
Where a surplus arises, rather than being retained by insurers on a plan-by-plan basis, it is returned (less expenses) to the multinational
as a dividend. If claims performance is such that a deficit arises, this can be carried forward or covered by stop loss insurance. Over the medium- to-long term, 8% to 15% of premiums can typically be returned as dividends. Importantly, plans remain insured in each country with local insurers benefiting from normal terms, conditions, administration and local claims settlement. Premium rates are set locally by insurers who compete on price and service quality in each country. Pooling can also offer improved visibility of local plans, and in certain circumstances can result in improved terms at a local level.
A growth sector
There are eight major pooling networks operating in various forms. They are either owned by insurers with a regional or global presence or are independent. Independent networks generally have a wider geographical coverage and have the ability to select leading insurers in each country as local members. Pooling offers firms the potential to realise economies of scale and to reduce the cost of their employee benefits provision through the payment of multinational dividends, while in each country, maintaining contracts with leading local insurers ensures that the best terms are achieved for the firm.
Given the trend towards higher premium rates in some countries and the increasing globalisation of business, the use of multinational pooling can only be expected to grow.
Pooling is not only the preserve of large companies: several networks offer small groups pooling, which is designed to allow smaller multinational businesses to take advantage of pooling with other similar-sized companies while being protected from variations in their own claims performance. There are usually no minimum employee or premiums criteria to join, provided there are insured contracts in at least two countries. Any losses are generally not carried forward. One of the leading small group pools has generated a dividend of an average of 13.94% over the period from 2011 to 2015.
Although it’s often overlooked, pooling has the potential to add significant value to the employee benefit programmes of multinational companies.