Advisory Services Network AG (ASN) and Nordisk Aktuarservice ApS create new offering to protect companies against a type of risk they say has not been properly quantified up until now

Advisory Services Network AG (ASN) and Nordisk Aktuarservice ApS have partnered to launch a new captive solution for employee benefits that targets HR-related risks.

The offering identifies and measures – by risk modelling and data – the HR risks of an organisation, looking at drivers of losses such as stress, absenteeism, workers’ compensation, and sick leave, and calculating the associated total cost of risk.

Leveraging this information, risk managers can evaluate results based on a cost and benefit analysis and decide on risk mitigation initiatives.

Although savings compared to conventional insurance have often been demonstrated with local benefits insurance retroceded to a group captive, there is limited evidence on how this arrangement affects the overall costs of HR risks. 

The product puts clients in a “best-case scenario” where companies have a deep understanding of their HR-risks before they are insured. 

Bayer’s captive is set to be one of the first to thoroughly evaluate this new solution, and the group’s global head of insurable risks, Swen Grewenig, explained to Captive Review why this offering is needed.

“Amid the current significant HR-related risks and business disruptions, we, as insurance risk managers – in a joint effort with other stakeholders within the company – are compelled to take decisive, possibly bold actions. These must equally consider the relationships between environmental, social, governance, and financial performance.”

Grewenig said that organisations should equally focus on short- and medium-term metrics that are linked to a sustainable long-term vision and strategy, and that a close collaboration with other key stakeholders to address HR and employee benefit risks was imperative at Bayer.

Using the captive

The new solution recognises the considerations involved in placing employee benefits risk within a captive. 

European multinationals’ CFOs generally support using captives for non-life risks but sometimes question their use in benefits insurance. Out of roughly 6,000 captives today only around 100 handle benefits insurance, with 40%-50% focused on US benefits.

ASN and Nordisk Aktuarservice state that the following considerations have influenced this current situation:

• HR risks (such as stress and illness) have not been quantified, unlike P&C risks
• It is increasingly difficult to manage employee risk benefits in a captive under more and more tightening capital requirements and reserving rules
• The financial repatriation of funds related to benefits plans into Bermuda or other offshore domiciles no longer yields high returns on capital investments

However, the involvement of captives has shifted from being a reactive response to rising costs to a proactive strategy involving targeted and quantifiable measures aimed at achieving improved outcomes. 

ASN and Nordisk Aktuarservice say that captives will ensure equitable access to mental health support, remove barriers for all employees, and facilitate the controlled and proven implementation of coordinated digital solutions and specialised programmes.

Solution benefits

The proposal announced by the two companies is to start with pilot projects to obtain a comprehensive understanding of the respective HR risks within an organisation: How do stress, illness, and absence influence employee benefits programs, and how can these factors be managed? 

The framework proposed focuses on active risk management rather than administration of employee benefits programmes. Consequently, premiums and costs can be negotiated based on concrete facts and data.

The new setup also includes ESG reporting with key HR risk indicators and can be extended to track employee churn and retention, so companies can use results and output in their ESG reporting.

“The solution announced very much embodies such an innovative approach in developing innovative strategies related to employee benefit risk-transfer solutions to adapt to the ever-changing global landscape,” added Grewenig.

“By leveraging technological advancements and fostering a culture of continuous improvement, we can ensure long-term success and resilience. This proactive approach will not only mitigate risks but also create new opportunities for growth and development.”

Healthcare costs concern

The continuous escalation of healthcare costs has remained a significant concern, consistently outpacing general inflation and placing substantial pressure on all aspects of employee benefits packages.

ASN and Nordisk Aktuarservice highlight that organisations which have been self-funding health plans through self-insurance, whether locally within countries such as the United States, Brazil, Mexico, the EU-zone or internationally via global underwriting or reinsurance to captives, are experiencing heightened financial vulnerability. This is due to the increasing frequency and impact of high-cost claims worldwide.

And this ongoing financial burden is what necessitates that organisations critically assess their established benefit strategies and proactively investigate innovative and forward-thinking solutions to ensure the sustainability of their programmes in the long term.

“Every generation confronts distinct challenges. Today, we contend with sustaining economic growth, ensuring accessibility to medical advancements, managing limited resources, and fostering workplace diversity,” added Grewenig.

“Furthermore, data analytics, cloud computing, and machine learning can help enhance the human condition. Corporations play a pivotal role in addressing these issues; however, they are unlikely to invest in human capital if they concentrate solely on short-term profits.”

Neglected risk area

Neglecting to manage the rising cost trend at all levels may endanger employers’ capabilities to attract and retain talent, while also affecting their financial stability and competitive edge. Captives can serve as effective tools to implement the necessary solutions.

ASN and Nordisk Aktuarservice point to the ongoing development and widespread adoption of innovative therapies, which they say have the potential to significantly transform the healthcare market, leading to increased financial exposure for employers. 

Forward-thinking organisations, they say, can implement alternative funding and coverage models that provide greater central cost control for head offices while enhancing employee benefits packages. 

This includes strategic approaches to the use of specialty medications, which offer groundbreaking treatments. 

With effective management, employers can control costs by reducing treatment duration and successfully facilitating the return of key employees to a healthy and satisfied state.

For more information, reach out to Klaus Kroeier, CEO and actuary, Nordisk Aktuarservice ApS, on +45 20 51 54 62 or kk@aktuarservice.com