There has been a “significant rise” in the interest of introducing employee benefits risk to captives in recent years and the COVID-19 pandemic is “destined to accelerate this trend,” according to Sven Roelandt, global expert employee benefits financing strategies at Aon Global Benefits.
Roelandt explained that most international and local clients are working to anticipate the impact of local terms and conditions with regards to COVID-19.
He said: “Employee benefit policies, for example, are beholden to local law and insurance practices. In order to facilitate as much as possible equal treatment of employees across the globe, the latter can most often be ‘overruled’ by leveraging on the flexibility of reinsurance to captive approach.”
Roelandt also highlighted that if your organisation’s captive is well capitalised, “that while pandemic risk requires a specific underwriting approach, captives now have the opportunity to deliver what they have to a large extent been created for – provide cover on unusual risk and help face extraordinary risk-related challenges such as we are confronted with today”.
As providers of global employee benefit programmes see a spike in requests to consider COVID-19 related claims under a general ex-gratia, Roelandt said: “We can going forward expect the request to waive the exclusion being part of the standard procedure”.
Roelandt noted that it is likely that this will considerably affect pricing and maybe even raise questions around capacity. The shift in approach to employee benefits will, however, be more fundamental than the question around pandemic coverage.
He added: “In the past, considerations around the inclusion of employee benefits risk into a captive were first and foremost focused around a positive impact on capital requirements (diversification of risk), and access to underwriting margins and only to a certain extent, in a second phase would be influenced by increased governance, flexibility and provider consolidation.”
According to Roelandt, going forward, employee benefits risk will be increasingly looked at and analysed from a truly global risk perspective angle. Never before so many employee benefits contracts have been impacted by a single ‘event’.
He said: “As a side effect, breaking down of the corporate silos, a very common focus trend within corporations today, will be significantly facilitated by this unfortunate COVID-19 pandemic.”
“The need for human resources, procurement, risk and by extension finance to closely work together towards an efficient global employee benefits programme, has overnight become a given.”
He concluded: “In the end, employee benefits are about employee care and making sure the value is well perceived by the employee (and family) – the end-user(s). With the added complexity of pandemics, for many multinationals using their captive to achieve this will become a perfectly viable option.”