Dr. Guglielmo Callipari
Managing Partner
In2Matrix, LLC
Imagine your financial director comes to you with a stack of banknotes worth $1 million and asks you to burn it. Would you agree to do this? Of course not. But when a company is not taking advantage of multinational pooling, this is the equivalent of what could be happening.
How does a multinational pool operate?
Multinational pooling is a unique concept that enables multinational companies to consolidate employee benefits from various countries into one single account, cross border. The purpose of pooling is to trigger economies of scale, optimizing costs. At the same time, it also secures enhanced underwriting limits and conditions. Furthermore, if the overall premiums paid are greater than outgoings such as claims, administration costs, commission and taxes, then up to 100 percent of the profits — so-called multinational pooling dividends — are credited back to the pool owner, the multinational company.
Why do multinational companies choose multinational pooling?
The primary reason employers choose multinational pooling is cost savings. Cost reductions can be astounding. Through multinational pooling, up to 40 percent can be saved. In addition, better reporting on local insurance contracts, easier transfer of employees among participating companies and enhanced and more flexible underwriting terms are achieved. Multinational pooling gives transparency and control over expenses worldwide as well.
To pool or not to pool
| Consolidated Premium | 100.00%
|
| Investment income | 1.50% |
| Total income | 101.50% |
|
| |
| Administration & brokerage cost and insurer’s profits | 22.50% |
| Local taxes | 1.25% |
| Risk and reinsurance charges | 6.50% |
| Claims | 45.00% |
| Total expenses | 75.25% |
| Total pooling balance to be returned to the client as dividend | 26.25% |
As a rule of thumb, only risk benefits such as group life, total and permanent disability and accidental death are to be pooled. Pooling of pension-, medical insurance- and annuity-related products should be avoided to maximize pooling dividends.
What are the advantages of pooling?
- No additional risk
- Better reinsurance protection
- Cost savings on employee benefits insurance
- “One Stop Shop” procurement for employee benefits cross border
- Enhanced medical underwriting terms
- Consolidated strength creates economies of scale
Next Step Forward
Identifying, designing, advising, monitoring and administering multinational programs is a multifaceted and continuous process. The complexity is mainly because of the ongoing changes in the legislation in the various countries as well as steady development in standard practice, employee expectations, the changing nature of the international insurance markets, and tax and regulatory requirements. For this reason alone, an international insurance program demands specialist skill.
Many organizations are well geared-up to dealing with insurers locally. When dealing with insurer groups globally though, it is necessary to receive proper guidance and advice. This starts with planning and designing a process, encompassing the introduction to the underwriters, the placement of the covers, the creation of the internal communication channels and the executing of the transaction.
Some of the characteristics of an efficient and cost-optimizing multinational pooling program are:
- Coordination and management of global insurance programs. This includes overseeing data collection and validation, premium allocation, documentation tracking, premium payments, insurance tax compliance and claims reconciliation
- Specialist advice on overseas practice and legislation, high-level knowledge combined with a multilingual capability
- Auditing of local insurance contracts and assisting companies to create efficiencies through streamlining activities
- Management and coordination of global services, including monitoring of overseas brokers
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