Frances Jones explores how EB captives can support and accelerate an organisation’s DEI objectives
Businesses have turned their attention to diversity, equity and inclusion (DEI) in recent years — a move that has been catalysed by societal movements, such as Black Lives Matter (BLM) and #MeToo. These awareness campaigns have spotlighted deep-rooted societal discrimination and prejudice, primarily against ethnic minorities, women and the LGBTQ+ community.
Companies are increasingly using employee benefit (EB) captives as a mechanism to push their DEI objectives forward. EB captives present the opportunity for a parent company to normalise plan designs across geographical boundaries, presenting an array of coverages that would otherwise be excluded or limited from certain areas.
Using an EB captive to further a company’s DEI strategy has the potential to reap wide-reaching benefits for a company’s culture, creativity and future profitability. But how are DEI strategies becoming such a strategic imperative for a company’s long-term future?
Changing the status quo
According to a 2021 analysis by the Washington Post, only 8 per cent of the top executives in the top 50 “most valuable” public companies were black. It also found that at least eight of these companies employed no black executives. The investigation was prompted by the 2020 BLM movements, underpinned by the brutal murder of George Floyd and the immediate protests following his death.
Alex Gedge, a senior captive consultant at Hylant, notes: “Consumers and workers increasingly demonstrate that DEI and ESG issues are critical in purchasing and employment decisions. It’s unsurprising that companies are developing frameworks to bring these objectives to the fore. Since May 2020, US companies have committed about US$340 billion to fight racial injustice, according to McKinsey in 2023.”
Other statistics show that men still dominate corporate boardrooms. Only 6.6 per cent of all Fortune 500 companies in 2020 had women as their CEOs — a figure that was still celebrated as an “all-time high.”
No wonder then that various calls are being hollered to change the status quo. DEI initiatives call for businesses to reflect a wide range of characteristics among their workforce with various sexual orientations, ages, disabilities, genders and religions.
The benefits of a diverse workforce, representative of an area’s population, are touted for increasing productivity and being conducive to creative and innovative thinking.
Hylant’s Gedge says: “There are rewards for companies that focus on DEI. A 2020 McKinsey study found that companies with executive teams in the top 25 per cent of gender diversity were more likely to have above-average profitability when compared to less diverse companies.”
A 2020 LinkedIn study, ‘The Rise of Diversity and Inclusion Roles Across EMEA,’ found that 76 per cent of employees and job seekers said diversity was important when considering job offers. Some 80 per cent of survey respondents also said they want to work for a company that values DEI issues.
The general consensus among Gen Z and young millennials is that they want to see companies implement DEI policies, as well as expand the parameters of what they define as DEI. It’s clear that companies need to remain on this path to recruit, retain staff and increase output, especially the younger talent pool.
Mirroring the findings of the LinkedIn study, Frederik Van den Eede, chief marketing, customer and corporate social responsibility at Generali Employee Benefits (GEB), says: “The main reason we hear of companies focusing on DEI is related to opening up their potential talent pool as well as retaining their current employees – thus, increasing retention and reducing turnover.”
Hylant’s Gedge affirms: “A 2021 CR Strategies white paper identifies that corporate social responsibility [including DEI] is one of the top three drivers of employee retention.”
Since recent societal turning points, underpinned by 2020 events, many businesses have created DEI strategies while others have increased the priority of their existing strategies.
A captive push
“More EB captives [are] in use now than ever before,” according to a 2023 Willis Tower Watson (WTW) article entitled ‘How can an employee benefit captive support diversity, equity and inclusion?’
Allianz Global Benefits established its first captive programme in 2009 and has continuously enhanced it ever since. In the company’s release ‘Global EB Captive Solution’ it says: “captives have proven to be flexible management and finance insurance programmes in the EB area; especially adding new benefits, such as diversity-oriented employee benefits.”
Seeing them as a tool for DEI objectives is a more recent development, but it’s gaining momentum. GEB’s Van den Eede elaborates: “Since the COVID-19 pandemic, the use cases for DEI captives have greatly increased. It is now a common point on the agenda for captive managers, as the market continues to explore innovative use cases to accelerate the deployment of more inclusive benefits worldwide.”
Hylant’s Gedge comments: “An EB captive can allow for consistent coverage and the potential for more bespoke support, which can respond to different employee needs and requirements. For example, specific health requirements and support for employees overseas can be managed through the captive.”
The authors of the WTW article, Tom Levi and Stephanie Ings, identify the major rationale behind a company using this strategy. They list the reasons as “increased control over insured risks, allowing the company to influence the risks they are covered under.”
They add: “It enables the company to decide whether, or how, to price changes to the terms of benefits that are being included in the captive structure.”
In addition, they say that an EB captive can personalise its DEI cover to be more inclusive to meet societal and employee demands. This is a sentiment that GEB’s Van den Eede affirms.
He says: “Captives can assist a company in achieving their DEI objectives by pushing for inclusive benefits. Around the world, some benefits may not be commonly available due to the local markets. In addition, some benefits may not be expressly excluded. As the ultimate bearer of the risk, the captive can play a role in removing these exclusions or expanding the eligibility of coverage.”
He adds: “When there are absolutely no local solutions available, the captive can go a step further and fund claims on an ex-gratia basis or through a global umbrella policy aimed at covering the gaps identified within the local benefits.”
The larger and more widespread a company’s operations are, the more susceptible its DEI strategy is to the outcome of the “postcode lottery”, depending on a region’s legislative environment.
For example, in Myanmar, South East Asia it is entirely voluntary for companies to provide employee benefits, such as private health insurance coverage and other saving plans, despite the absence of a sufficient social insurance system. These benefits are not regulated and are offered through internal company policies, according to law firm DLA Piper’s Global Benefit & Pensions Index. Furthermore, 98 per cent of the population in Myanmar does not have adequate social protection, The International Labour Organization estimated in 2019. Theoretically, an EB captive could cover these protection gaps.
Taking a holistic view, Hylant’s Gedge says: “Captive service providers, including boards and ethical investments and investors, can meet DEI objectives. This can, in turn, demonstrate to consumers and external shareholders a commitment throughout the business to meet DEI objectives. Data can be vital to demonstrate a company’s commitment to meeting and exceeding DEI objectives. The captive can be a great provable example of meeting these objectives.”
Practical considerations
WTW’s Levi and Ings explain how this “gap-filling” can work. “EB captive structures predominantly work with one or more captive networks — global networks of insurers that provide the structure, administration and cash transfer of the EB insurances to enable the EB captive to function,” they say. “These networks work with local insurance partners to provide the insurance structure.”
“To alter the terms or the eligibility of the employee benefits, the local insurance partners need to adapt their insurance contracts with the multinational’s local business entirely. For instance to remove a suicide exclusion, or to expand spouse definition to include unmarried partners.”
Therefore, DEI solutions in an employee captive are dictated by the company, as opposed to the local markets which can be lacking. However, there can be limitations to what an EB captive can include in its policy, due to legislative environments. For example, in Saudi Arabia, where anti-LGBTQ+ laws are in place and homosexuality is illegal, it may not be possible to define a dependent as a same-sex partner.
In Saudi Arabia, DLA Piper’s Global Benefit & Pensions Index, says medical insurance is required for all employees, their male dependents under the age of 25, and their female dependents.
In this instance, it could be assumed that it may not be possible for an EB captive to define a same-sex partner as a dependent.
WTW’s Levi and Ings give a case study to demonstrate how a newly implemented EB captive can practically progress its DEI objectives in two phases.
The first phase was to remove certain exclusions from all contracts that were in the captive structure. The exclusions listed included suicide, HIV and pandemics.
They achieved this through “precise communications with their captive networks”, who notified their “local insurance partners to remove all state exclusions,” say Levi and Ings. “The implementation of this was also checked by an internal communication.”
They add that the second phase was to “expand eligibility for several benefits, including definitions of dependents under medical plans and beneficiaries under life insurance plans.” This was also achieved through the same methods of communication utilising the captive networks and local business entities.
A captive can go some way to even the playing field, but, of course, there are limitations. Irrespective of location, using a captive to accelerate different strategies requires accurate communication between captive network and local business entities. A top-down approach for coordinating this action will no doubt be required for the future success of EB captives.
