Employee benefits in an evolving workplace

Captive Review assesses why employers may be increasingly looking to captives to finance their employee benefits propositions in the midst of a changing marketplace.


Across the market, I am being told time and again that 2023 will be a big year for employee benefits across the insurance spectrum.

As you can find in the comments of market experts, the employee benefits sector is changing.

The war for talent is raging, employees are increasingly expecting more from their employers when it comes to employee benefits, and the costs of delivering these are ever spiralling.

That’s perhaps why brokers and carriers have in recent weeks been using this time to relaunch their employee benefits propositions, with Lockton unveiling Lockton People Solutions and Zurich introducing Zurich Integrated Benefits.

“More than simply managing benefits programmes, employers around the world need help engaging their workforce, recruiting and retaining talent and driving efficiency for their business,” said Tom Schaffler, Lockton’s People Solutions’ US executive committee chairman.

While Wendy Liu, the new CEO of Zurich Integrated Benefits, explained: “The lines between our personal and professional life are becoming more blurred and employees are expecting their employers to take care of holistic needs rather than just a work experience.”

Captive response

And as larger scale employers struggle to juggle all these needs with keeping costs at a manageable level, the case for forming a captive becomes all the more compelling.

“A captive is the most efficient and effective way for multinationals to manage their global employee benefits risks,” says Paul Lewis, chief business development officer at MAXIS GBN, which uses its network of 140 insurers to match a company’s employee benefits needs and set up its own programme.

“Doing so gives multinationals greater control, the ability to closely manage global programmes, offer benefits that might be unaffordable through local underwriting, retain any underwriting profit and, if there’s already an existing captive in place, diversify risk.”

These advantages of forming a captive to manage employee benefits have been well documented for decades, but they have become especially powerful when put in the context of this ‘changing marketplace’ that has developed.

“Our captive clients, as the ultimate risk bearer, can tailor their employee benefits programmes to meet their people’s specific needs and cover aspects which may not usually be covered in certain markets, for example fertility treatments, support for same sex partners and gender dysphoria coverage,” Lewis adds.

Customised coverage

International Paper Company (IPC) is a multinational that has been financing employee benefits through captives for close to two decades.

Its assistant treasurer for global risk management, David Arick, says that it is the ability to customise coverage and draw on their own data to narrow down exactly what employees want that has made the captive solution work so well over many years.

As a case study, when IPC put its group term life programme into a captive, it was able to offer an enhanced benefit for employees who passed away in a car accident, so if they were wearing a seat belt, their family would receive an extra benefit.

“It gave employees an incentive for wearing their seat belt, which we knew was good for them and for their families, but it also gave them an extra financial benefit if something were to happen,” Arick explained.

As employee expectations shift, the captive has the flexibility to keep adjusting the benefits package to what’s required.

“Some of the emerging needs, like mental health benefits, things that insurers may resist providing, using a captive to finance that benefit plan gives the HR people a lot more flexibility to do what they think is right for employees regardless of what the insurance industry is willing to offer,” Arick explains.

In doing so, IPC has been able to save money by not financing benefits of little value to employees and gain a step on their competitors in the war for talent by offering what employees most want.

HR cooperation

Arick, who is also a board member of RIMS, explains that the model functions best when a company’s HR department and risk managers are working in tandem.

HR assesses exactly what employees want, as well as what competitors are offering, and the risk managers find the most efficient and cost-effective way to deliver a competitive and tailored employee benefits package to their staff. “HR owns the function, but it’s a partnership,” Arick says of how the process works at IPC.

“HR are in touch with employees day-to-day, hearing why we’re losing people and getting feedback on what’s important to staff, and we facilitate the best way to finance the employee benefits programmes. If we come across data that helps them make better informed decisions, then we supply that. If they have more risk-orientated questions, they come to us and we have a conversation.”

Convincing HR managers to turn over large parts of employee benefits responsibilities to risk managers has historically been a stumbling block to introducing captive solutions to employee benefits, but having recently seen how effective captives can be at helping employees, this attitude is shifting.

For example, MAXIS GBN has helped its captive clients to understand and respond to both pandemic exclusions relating to Covid-19 and exclusions relating to passive war during the ongoing Ukraine crisis.

“This means that our clients have been able to cover their people, even when they were no longer covered by the policies and contracts in place, as well as being able to process ex gratia payments and pay claims that would not have been possible under local policy terms and conditions,” Lewis explains.

Financial rewards

However, even before the pandemic, the popularity of using captives for employee benefits was increasing, according to Arick.

Now that Covid-19 is far less prevalent, Arick says there has been greater uptake, which will continue into 2023.

“During the pandemic, everyone was just trying to tread water and survive, but coming out of the pandemic the global economy is very uncertain, so companies are looking at every opportunity to save cost, and exploring captives will see an upsurge,” Arick adds.

Contributing to the financial hardship for companies is employee benefits itself. Lewis says that many companies put in place digital healthcare, telemedicine and employee assistance programmes during the pandemic, services that are now difficult to remove.

Paired with some inflationary pressures, the cost of supplying a competitive employee benefits programme is on the rise. In this environment, having an underwriting income stream from the captive is highly attractive.

“Captives retain the underwriting profits from their employee benefits programmes, meaning that there are financial benefits of choosing to write employee benefits in a captive compared to a pool, global underwriting or by continuing with a local employee benefits strategy,” Lewis adds.

“Many multinationals are reinvesting the underwriting profit they retain and using that to care for their people in order to offer them more and better benefits, drive their diversity, equity and inclusion plans, and meet the unique needs of their workforce.”

Whether companies choose to go down the captive route or not, though, there is no question that employers will have to develop their employee benefits offerings in one way or another in order to keep up with the changing expectations and retain their best people.

Those that fail to adapt will find it’s their bottom line that suffers long term.

As Lewis says: “Traditional employee benefits programmes that focus only on life insurance and pensions are a thing of the past. It isn’t just about providing standard benefits, but making sure they are the ones people value and want. A one-size-fits-all offering isn’t effective anymore – workers want benefits that are tailored and relevant for them at their current stage of life.”

12 August 2024
5-6 November 2025

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