Using multinational pooling for effective management
In essence, multinational pooling is a technique that allows organisations with multiple operations around the world to consolidate their employee benefit insurance contracts in these countries with a local insurer of an international insurance network.
Financial and non-financial advantages of multinational pooling are often described to include:
q economies of scale and purchasing power;
q global experience rating;
q financial cost savings;
q liberalised underwriting terms and conditions;
q annual reporting;
q ease of transfers between countries for expatriates and mobile
q a management tool and information base.
Though many benefits professionals know and understand the advantages of pooling, they seldom realise its full potential. What can an organisation do to ensure that it optimises the advantages of multinational pooling and manages the arrangements in place in the most effective manner?
The answer lies in actively managing the pools and making them part of the overall international benefits function. This is a seemingly simple answer. Below we set out four steps to help put this into practice.
Step One: Determine your short and long-term objectives
Step Two: Develop an infrastructure
Step Three: Evaluate pools regularly
Step Four: Keep actively involved with local management
Step one: The first, vital step is to develop a policy and some practical guidelines on how to use pooling and how pooling fits in with your company’s HR and business strategies. It is critical for any organisation to identify its business strategy and HR infrastructure. For example, is your organisation’s business strategy based more on a centralised model or decentralised model? What is the relationship and structure of the corporate functions and the business units? Does the HR function fall under the corporate umbrella or are there separate HR organisations within each business unit? Are there HR professionals based in all your locations worldwide and what level of benefits expertise do they have?
It is in every company’s best interest to ask itself these questions (and many more) before becoming involved in any pooling exercise, as the responses will help set objectives, determine the resources needed and the time horizon within which objectives can be accomplished.
For example, a Fortune 200 company based in the US recently decided to embark on a multinational pooling exercise. As a company it has spent significant “up-front” time establishing realistic expectations, mainly due to its decentralised structure and aggressive acquisition strategy. It recognises that it may face obstacles at various stages of the pooling analysis simply as a result of its decentralised business model worldwide. However, by clearly defining its strategy and structure and setting realistic objectives, it has also set the stage for a simple and straightforward approach to the exercise.
Any company setting expectations and guidelines should provide direction to corporate, regional, and local managers with employee benefits responsibility. This will allow all those who will be affected and involved with employee benefits to work towards the same objectives. The more clarity that is provided, the more effective the implementation of any policy will be.
Step two: Once the self-assessment is completed and goals identified the next step (developing an appropriate infrastructure) is one that is often overlooked or, at most, done in a very ad hoc manner. However, it is a very important stage in the process because, if done properly, here is where a company can build the structure that will allow it to maximise future returns.
A suggested approach is to include representation from corporate management, local and/or regional management, insurance network(s) and external advisers. Primarily, it is essential that someone take ownership of any pooling initiative. Therefore, it is advisable to obtain support from senior management at headquarters in order to have the proper backing and to give the occasional push to move things along.
Communication of the concept of multinational pooling and its objectives to local and regional benefits and HR management to win their co-operation and input from day one is essential. By engaging them from the outset there is the added advantage of getting their input and insight into potential problems that those at the centre may only come to realise when it was too late.
Build a partnership with your pooling networks to ensure they are helping you to maximise your financial gains and are giving you timely information. Insurers are a great source of data and are often aware of local country issues before you are. They can also provide a historical perspective that you may not have been aware of and a link to that history that could prove to be very useful.
Finally, consider an adviser who can provide you with independent, objective information and ‘double check’ local issues.
As an example, a commercial security printer/paper maker and leading provider of cash handling equipment based in the UK, has just completed the initial phase of a global risk benefits analysis spanning over 20 countries. One of the main reasons that the initial phase was completed effectively was due to the ongoing communication from the corporate ‘champion’ to the local offices worldwide. The local operations were responsive in gathering and providing information under tight timeframes because they had been included as part of the ‘bigger picture’ early on.
Step three: Having laid the foundation, it is essential to continuously monitor progress otherwise all that initial hard work will have gone to waste. We do not live in a static world, any structure put in place can only be expected to remain effective over time if it is capable of adapting as changes occur.
Some suggestions for guaranteeing continual flexibility and adaptability include understanding the current pooling contract(s) and how the accounting operates. It is also good practice to obtain interim status reports from the pooling network(s) before the final pooling report is delivered in order to monitor claims experience. Remember to analyse the year end reports and hold the networks accountable for accurate, reliable and timely data. Additionally, gather data on benefit plans for countries or business units that are not currently pooled and develop a database of information on the non-pooled countries and monitor them for future pooling consideration. Finally, as the pool grows and matures, make sure to examine and consider alternative cash flow options (note that this usually requires that the organisation assume more risk).
Step four: The final step, but one whose importance should not be underestimated, is to maintain and continue ongoing ties and relationships with local management. Some ways of achieving this are to make certain you get involved at an early stage in any acquisitions and constantly have in mind any opportunities created by organic growth. Mergers and acquisitions typically require a lot of work to be done in a short period of time. When a strong foundation has been established and a close relationship with the pooling network(s) exists, the process of integrating new employees into existing benefit arrangements is often made much less painful and it is easier to rapidly implement new arrangements if this is necessary.
Once you have done all the initial work, it will be easier to be involved on a local basis going forward. This will allow you to play a role in the local renewal process as well. By having corporate involvement, you can reap many rewards for the organisation during the renewal process by:
qWorking with local management to leverage your company’s global purchasing power with the pooling network in order to obtain even more competitive rates or better terms and conditions for the local insured plans.
q Review past claims experience (every two or three years) of the insurance contracts being considered for pooling, to determine whether the contracts are a good risk for pooling.
q Consider transferring out of insured funding vehicles to trusteed funding vehicles or, at least, ratchet up the type of insured vehicle chosen (eg from deferred annuities to deposit administration).
This has been a rapid tour of ways multinationals can make more effective use of pooling in today’s world. But today’s world is changing, driven primarily by the opportunities and technological advances associated with the burgeoning growth of the internet.
In all probability, multinational pooling will be revolutionised by the availability of these new tools. We are already starting to see insurance companies moving away from their accepted distribution channels and communicating directly with their clients using secure websites. Also, employers are enthusiastically embracing the interactivity that web techniques offer in tailoring their employment packages to individual employees’ circumstances.
It takes a very small leap of the imagination to envisage insurance providers expanding their Internet capabilities in the area of multinational pooling, but this is a story for another day.
In this article, we have described some of the more immediate ways to manage multinational pooling. The process is not overly complicated. In fact, the formula is basic. However, it does take time to develop the infrastructure and to monitor progress. Like any other successful venture, careful planning at the beginning pays huge dividends in the long run. Done properly, pooling is a highly effective financial management tool that will help you develop a foundation to manage your global employee benefit programmes.
Paul Marcotullio is with international consultants Watson Wyatt in Reigate