When it swung through Montreal in May for its general meeting, Insurope extolled the international pooling of group insurance plans. The trend is building, the association of over 80 insurers around the world confirms. Multinational clients whose insurer is a network member can group their plans distributed in several countries.
Risk sharing options
Several risk sharing options are available. Companies with positive results in a group obtain a premium return. In contrast, companies that accumulate a deficit may choose to absorb it immediately, stagger payment over a few years or not assume any risk. The premium paid depends on the proportion of the risk borne.
In 2005, 68.1% of group insurance programs included in a multinational pool administered by Insurope had positive experience. Five years later, the proportion rose to 73%, Jim Wallace, Insurope president, said at the event.
For competitiveness reasons, each country involved has only one partner, except the United Kingdom, served by Canada Life and BUPA. Standard Life represents Canada and Prudential the United States. Many of their employees attended the 27th general meeting. Insurope is not the only network of its kind: Generali Employee Benefits (GEB), International Group Program (IGP) and Swiss Life, among others, offer similar services.
“We consider international pooling as a second stage accounting,” Jacques Latour, vice-president, sales, group insurance at Standard Life told The Insurance and Investment Journal in an interview. “All of a given employer’s premiums are grouped together. For example, we insure Apple in Canada. If Apple’s global experience generates surpluses, they can be returned to the company.”
The risk-sharing agreements are global, Mr. Latour adds. “Which one to choose depends on the organization’s risk appetite and size.” They range from taking on 100% of the risk to none at all.
With 80,000 employees distributed in over 170 countries, Hewlett Packard bears 100% of the risk. For a modest risk premium, it takes on the deficit, and the surpluses are returned. A smaller employer might choose to pay a higher risk premium, but will not participate in the surplus. If there is a loss, the insurer absorbs it.
Insurope proposes a hybrid solution called Limited carry forward. It lets companies carry losses forward over a two, three or five year period. As long as a loss accrues, the company will not receive the surplus. “In the fourth year, the deficit is cancelled,” Mr. Latour explains referring to the three year option as an example.
Clients have an option to get their toes wet before taking the plunge with multi-pooling. “Multi-pooling is aimed at multinationals present in countries where fewer than 500 employees participate in a group plan,” Mr. Latour says. “They can ease into the concept of grouping by joining a pool with, for example, 300 employees in one country and 400 in another.”
Rising group rates
How does Standard Life gain from passing the dividend surpluses Insurope issues along to its clients? “It’s still challenging for us to retain clients in a context of constantly rising group insurance rates. Companies that belong to such groups usually stay with us,” Mr. Latour says. “Client retention is very good over a long period.”
This type of grouping is a balm for the enormous pressure on group insurance premiums exerted by drug costs and disability, Mr. Latour adds. “It’s like auto insurance for a company, except that it’s the insurer that takes the risk, and the employer gets the surplus,” he points out.
For Standard Life, positioned in the high-end niche in group insurance, Insurope confers essential advantages, Mr. Latour continues. Aside from reduced costs and premium return, pooling lets insurers offer clients more generous group guarantees. “For example, we can propose higher maximum benefits without requiring proof of insurability,” he says.
The plans administered by the Insurope network are unrelated to the pooling of costly drug claims that Canadian insurers undertook in April. Twenty-three insurers banded together to absorb the risk of onerous drug insurance claims triggered by exorbitant drugs and treatments.
Insurers will thus assume claims that exceed $25,000 annually per insured and family. “In this case, it is a catastrophic risk, which is shared among insurers or thanks to an agreement with a reinsurer,” Mr. Latour explains. Catastrophic claims will be shared among all the clients of participating insurers.