The management of COVID-19 pricing has shown two sides of the same coin when it comes to employee benefit (EB) captive programme behaviours.
On one side is those that worked closely with their local subsidiaries and network insurers to facilitate waiving all relevant existing exclusions, with a view to prioritising quality of coverage; and on the other side, those that ensured all exclusions remain in place – perhaps because their workforce is made up of a young demographic so the risk is mitigated.
Removing exclusions in the latter circumstance might only serve to put undue pressure on local insurers to do the same in order to remain competitive.
These responses to the COVID-19 outbreak help highlight the fact that the success of a captive is not just about pricing, it is about added value.
This is only achieved through understanding corporate philosophy and risk appetite. Pricing might represent the differentiator at the start of the journey, but over time it’s the human dimension that will ensure sustainability.
The pandemic effect
COVID-19 has not changed any of this, but it has arguably readjusted the business balance towards people. During lockdown, there was a lot more evidence of wellbeing, flexibility and support. Right now though, faced with an underlying economic crisis, the narrative for businesses across the world has quickly shifted towards business recovery. This is all about survival. Organisations are going to need a lift-off performance during the ongoing return-to-work phase in order to ‘up’ the financials. The priority is to balance the short-term need to reduce outgoings and the long-term impact these decisions can have on people and business. EB captive programmes can help greatly in this regard.
Where’s the roadmap?
There’s no blueprint though as no two organisations are the same and, accordingly, no two captives are the same. Understanding corporate philosophy is all about getting to grips with: what is the DNA of the organisation? What’s their purpose and ethos? The thing that determines their priorities and their risk appetite. Ultimately, it’s about understanding people – such as employees, local communities, network insurers and other key stakeholders.
But how do you build in this deep level of understanding? Not to mention the associated collaboration between all parties required to help the captive move forward?
Feasibility assessment
For this, the benefits of carrying out a feasibility study cannot be under-estimated: either at the very start to assess the value of adding employee benefits to a captive arrangement and looking at how to proceed; or over time to identify gaps in coverage as part of an existing EB captive.
A feasibility study would bring to the core all the pragmatics, allowing organisations to better articulate and understand their own philosophy and risk appetite, before making any decisions. It would ensure network insurers are assessed not only on pricing where everything becomes equal over the long term, but also on the added value they bring to all the market players involved to establish how they can support the organisation’s priorities.
Once a captive and its network partners are clear and aligned on corporate philosophy and risk appetite, they can raise the bar far beyond the financial aspects such as pricing optimisation and cost control, ensuring that the benefits programme supports people-related priorities, in terms of recruitment, retention, productivity and profitability, in a way that is sustainable.
Some of these non-financial aspects include:
- Tailor-made underwriting such as cost containment, medical underwriting
- Streamline process and global communication with insurance partners
- Flexible terms and conditions
- Easy access to information/single point of contact
- Digitisation: paperless/signature in insurance, captive reporting, online data access
- Prevention and mitigation: medical underwriting, local and central health and wellbeing initiatives
- Social trends alignment: for example, same-gender partners and mental health to be included in the terms and conditions
With age comes experience
It is generally the case that the more mature the EB captive, the more focused on the non-financial aspects it becomes.
Those organisations that have been using a captive arrangement for 10 to 15 years have reached a high level of underwriting skills, therefore economy of scale is no longer the key goal.
New captive arrangements tend to be more focused on the financial aspects only. This is perhaps understandable considering the lack of history and, hence, lack of knowledge.
However, some of the non-financial advantages could be realised at a much earlier stage, as mentioned above. Arguably, they should be realised at an early stage. As the COVID-19 experience has shown, the power to improve quality – as opposed to just cost – of coverage could be proven extremely valuable both to employees and to business.
Insights and early-mover advantages
There is an argument that considering the importance of corporate philosophy and risk appetite, the request for proposal (RFP) process should include consideration of these aspects, as opposed to pricing only.
If an assessment of a potential partner were not only based on how they perform as a financial operation but also on whether their philosophies were aligned, it could help make the relationship more productive from day one.
During the RFP phase, pricing is everything and here this is little differentiation between providers. What really sets a captive apart from its peers is the extent to which it is maximising the non-financial aspects.
Unfortunately, in the absence of a feasibility study, the first opportunity to assess whether philosophies are aligned comes after the RFP decision has been made: at the implementation phase.
At this stage it often becomes clear that continuing with the captive journey will require an investment of considerable time in building relationships with local HR because corporate philosophy hasn’t been articulated and understood within the organisation, never mind across other stakeholders. This is a common experience of course and certainly not a deal breaker, but it could largely be avoided.
Enhancing your EB programme: key points
It’s a case of the bigger the better when it comes to a captive programme. The more business an organisation includes within the captive, the greater the opportunities to influence the financial and non-financial aspects.
During the COVID-19 pandemic, captives are realising some of these non-financial advantages in terms of facilitating the removal of exclusions.
The only way to increase the amount of premium volume in the programme is to ensure all stakeholders are fully engaged on a global and local level. These stakeholders now extend beyond the traditional realms of HR and risk, to now also encompass procurement, compliance and legal.
Organisations don’t tend to have a central mandate to say that employee benefits business must be placed in
the captive.
Therefore, full buy-in requires a cohesive and persuasive narrative. One that extends beyond just the financial operation to also encompass the benefits that a personal and tailored approach to underwriting, terms and conditions can bring to people and business.
Success in this regard rests on everyone having an understanding of corporate philosophy and risk appetite. There’s an argument for articulating this at an early stage.
