Financing employee benefits through a captive provides substantial savings opportunities for multinational companies, according Towers Watson’s multinational pooling and benefit captives study.
The 2014 research, which analysed 52 captive reports across five insurance networks and 14 research study participants, showed that multinationals using a captive for financing global employee benefits yielded annual median returns of 11.3 percent on total plan premiums.
Their annual average returns were 5.1 percent, with the difference between the median and mean largely attributable to the experience of one company with significant losses, according to Towers Watson.
“Annual costs for multinationals’ employee health and risk benefits are enormous,” commented Mark Cook, senior international consultant at Towers Watson. “Global benefit leaders need to manage these long-term costs if their companies are to remain competitive in the global war for talent and keep pace in their marketplaces.”
“Captive arrangements can help them manage these costs while providing data and insights critical to effectively managing their employee benefit programmes around the world.”
Towers Watson’s study also revealed wide variations in the profitability of individual contracts within captive arrangements based on geography.
Guernsey policies produced the largest dividends of 65 percent, while benefit contracts in Denmark, with average returns of –77 percent, were the worst performers.
Life and accident insurance contracts were the most consistently profitable, with returns of 23 percent, while standalone medical contracts were consistent deficit producers, with average returns of –2 percent.
“Captives are becoming an established part of the employee benefit landscape for multinationals alongside a variety of other techniques,” said Cook. “Companies with large multinational pooling arrangements tend to have an easier transition to a captive strategy and solution, especially if they pool with a network that is also strong in captives.”
"As our data illustrates, captives can provide an even greater opportunity for financial savings, particularly for companies with the capacity and desire to take on additional risk in employee benefits on a global basis. Captive strategy and solutions should be considered carefully and most large to mid-size multinational companies that assess this properly find they have such capacity.”
