ZURICH | EMPLOYEE BENEFITS longer so important. Furthermore, contracts included in a captive programme may well follow a longer-term pricing principle when it comes to renewal – for example, the length of the guarantee may be extended from two years to three years. These factors in isolation or combined may mean a shift away from a commissions-based remuneration basis to more of a fee-based structure. At the very least, this should help to reduce the level of local commission rates if this basis of remu- neration is retained. Policy conditions Since EB business needs to be transacted at a local level for regulatory reasons, each coun- try will have its own list of standard exclu- sions to cover scenarios such as passive war risks, AIDS, nuclear, chemical and biological events and suicide. Sometimes these may also extend locally to risks which are poten- tially subjective and very difficult to control – such as high-risk sports and pre-existing conditions exclusions. Having the flexibility to be able to dis- pense with some of these standard policy terms and conditions through a captive involvement, which would otherwise apply on a local basis may be the difference between getting new employees on board or not, and may thus help the local HR team considerably in their negotiations. The local fronting insurer and insurance network will be able to provide the captive with corre- sponding pricing information on particular risks, providing the captive with a tool to show HR the pecuniary value of such an additional cover and the advantage of involving the cap- tive becomes quantifiable. Underwriting Another way a captive can help HR to improve the attractiveness of the EB plans locally is by being more flexible with regards to the under- writing of local contracts. The most obvious example of this is by increasing the normal local free cover limit so that in particular senior employees do not have to be medically underwritten for their full cover. Other practical examples we have seen include waiving the waiting periods that might normally be applied for new entrants to be fully accepted for some sections of cover under a medical plan, and indeed, in the same vein, relaxing policy limitations for employees with pre-existing conditions who might not otherwise have full cover. “The main objective of the EB package is to make the company attractive as an employer so they can recruit and retain talent, whilst working within certain budgetary constraints” The aforementioned measures are all real cases of how use of a captive can give local HR the ability to improve the design and cover provided by their local plans to help meet the needs of the local company and their employees. Capacity issues Finally, the issue of capacity is an often over- looked area, but in today’s uncertain world it should not be undervalued. The events of 9/11, for example, led to a major rethinking of how insurer capacity should function. Up to that point in time, the concept of a major loss in any given area had not really been contem- plated by the life insurance industry. 11 The immediate aftermath of 9/11 in the UK was to see an almost immediate shrinkage in risk appetite in what were perceived to be high-value terrorist targets, such as areas like Canary Wharf. Capacity was immediately withdrawn for new business and existing pol- icies experienced significant rate increases plus dramatic restrictions on cover. Having a captive standing behind the risks helps to reduce the impact such events might otherwise have on the local company by providing the required capacity to help manage any premium increases and short term capacity shifts that the rest of the market is exposed to. Of course, capacity issues are not restricted solely to terrorist incidents. It is also worth bearing in mind that cat- astrophic events such as earthquakes, volcanic eruptions and pandemics can all have serious implications when it comes to pricing and underwriting of EB risks. In summary We have experienced that time spent making HR colleagues aware of these factors when preparing the way for an EB implementation to a captive will result in a greater understanding of how the struc- ture can be used to their advantage locally. This will result in a more efficient and suc- cessful EB implementation process. Companies running a captive will be able to optimise their EB coverages and could therefore become a more attractive employer. The EB captive approach requires a close collaboration between risk and HR management. From an insurer’s perspective, a customer centric approach is of high priority. The cap- tive, as the counterparty of the insurance pro- vider, should receive all necessary captive-rel- evant information from one source, which requires an insurance captive service centre of excellence that can deliver both non-life and life expertise in a holistic view. EMPLOYEE BENEFITS REPORT 2016 | WWW.CAPTIVEREVIEW.COM