MAXIS GBN’s Thomas Lienert explains the advantages that come with writing employee benefits into a captive insurance company and when it’s right to do so

It’s been a tough few years for multinationals. Covid-19, rising inflation, environmental disasters and conflict in Europe have left employers facing a whole host of challenges, impacting almost every area of their businesses.

While risk management has been in the spotlight as teams look to manage their captive programmes during these challenging times, arguably the biggest impacts of recent years have been on people and HR functions.

Cost-of living crises, changing ways of working and growing expectations from employees regarding their benefits have left HR and compensation and benefits professionals looking for new ways to meet their people’s needs.

Employers are faced with the challenge of offering the benefits that support and help to retain their current staff and attract the best talent in the market.

At the same time, they still need to balance their budget in a difficult economic environment. That’s why many multinational employers have turned to a captive to help manage their employee benefits risks, and there are some clear advantages in doing so.

For example, captives offer the chance to retain underwriting profits, remove exclusions, cover claims that might not be possible to cover locally and define pricing strategy.

Adding employee benefit lines to a captive can be quite complex and not every multinational will be ready to go down this road.

But having worked with many employers starting the journey of adding employee benefits to a captive, and having explored the idea with many more, we’ve noticed some common signs that suggest a multinational might be ready to begin. If that might be you, then read on.

Scale and alternative financing strategies

Typically, the most centralised multinationals, with a good understanding of their business risks and risk appetite, are best suited to adding employee benefits to their captive.

Writing business risks in a captive needs a strong risk management framework and it is often (but not always) the captives that have been writing property and casualty insurance business for a long time that look to add employee benefit lines.

Adding employee benefit business to an existing captive is a great way to diversify a risk portfolio. Employee benefits risks tend to be quite predictable, while other lines can be more volatile.

Know what you’re spending

A good understanding of your current employee benefits portfolio is important before considering adding benefits to a captive, for a few reasons.

Firstly, employee benefits fronting networks (like MAXIS GBN) will likely have requirements regarding minimum premium per country and the total premium being retroceded to the captive.

This is to ensure the portfolio is not only large enough but also diversified in terms of benefit types, so it can be priced effectively and withstand some volatility.

Secondly, a good understanding of the current portfolio will help to decide which policies are ceded to the captive. As the captive will take on the risk, it’s important to know what impact the employee benefit policies will have on the overall captive profitability.

Having a centralised approach to global employee benefit management normally means that the multinational will know the historical financial performance of the policies and will be able to better project how the portfolio will perform in the future.

Often, multinationals that have another type of global programme (such as a pool or global underwriting) are best placed to move their employee benefits policies to a captive because of the claims and financial performance data they receive from their employee benefit network partner(s).

HR and risk teams work closely together

One of the biggest challenges when trying to implement an employee benefits captive programme is ensuring the different functions involved are aligned.

Of course, the risk function and the captive are going to be involved, but employee benefits are commonly run by the HR or compensation and benefits teams.

Risk will have a good understanding of the business’ risk appetite and the other policies in the captive, but HR will likely have the best view on each country’s local employee benefit policies and the landscape. Employee benefits can be complex.

Each market will have its different regulations and laws, providers, cultural norms and employee expectations.

It’s HR that will have the best oversight as to which benefits are relevant, competitive and sought-after in each market.

Therefore, there needs to be a lot of communication between the different functions to understand each other’s objectives for the captive programme and ensure that everyone is working towards their common goals.

More control of your benefits

A big driver for moving employee benefit policies into a captive is the need for greater control and flexibility in employee benefits plans.

Aside from the potential cost savings and diversifying the captive, one of the greatest opportunities for multinationals is offering more and better benefits to employees.

Using a captive for employee benefit risks can really help employers to be more flexible with the coverages they offer.

As the ultimate risk bearer, captives allow employers to remove exclusions, set pricing and cover limits, and provide a minimum standard of benefits.

If you are looking at offering minimum standards of benefits, new coverages or health and wellness programmes to help attract and retain your people, then you could be ready to start exploring a captive approach.

Be ready for the long-term challenge

An employee benefit captive programme isn’t something that’s going to come together overnight. It needs a cross-functional effort, an existing captive in place, an in-depth understanding of risks, a centralised approach to employee benefits and buy-in from local entities to ensure they work with the network’s local partner.

It might require a phased implementation that gradually adds different countries and lines of business to the captive programme, so adopting a long-term mindset is something we would urge.

We also believe effective communication between all stakeholders will be a crucial factor for a successful implementation of a global captive programme.

We believe it still is the most effective and efficient way to run an overall employee benefits portfolio, so this is a challenge worth taking on.