When DHL Worldwide Express, the world’s largest international express distribution network company, decided in 1996 to create a truly global multinational insurance pooling programme, it was in response to the perception that insurance networks that largely control their overseas subsidiaries would be better able to manage the data and reporting requirements of a full 100% captive reinsurance arrangement. Main consideration was given to networks who owned and operated their own multinational subsidiaries as opposed to those who operated them through a network of agencies.
DHL’s programme has more than tripled in terms of annual risk premiums since then. “The programme, as begun in 1996, with 38 countries participating and annual risk premiums of around €6.6m now counts 84 countries with premiums of over €20m and covers more than 55,000 of our staff around the world,” says Hugh O’Neill, who is group risk director at DHL’s Brussels world headquarters. Overall DHL operates in many more countries with over 75,000 employees.
Before 1996, there were three relatively small separate pools which DHL worked with. O’Neill says that the main reason behind the decision to go global was that a conceptual study undertaken by the group to evaluate the possibility of reinsuring all employee benefits into their own captive insurance subsidiary had recommended they follow this path. “Since such a programme had not been previously undertaken on such a large worldwide scale and since at the time benefits insurance network knowledge of full captive reinsurance programmes was limited, this arrangement was concentrated into one network which was judged to have the best technical expertise in delivering captive reinsurance.” The selected network was additionally expected to have extensive geographic coverage throughout many of the countries in which DHL is active.
The single pool network at present covers group life insurance, group medical insurance, long term disability insurance and accident insurance. O’Neill hints that coverage may extend to pensions in the future. “It is possible that some pension risks will be included in the future although this is not currently the case.”
Already 84 of DHL’s 90 countries and territories providing insured employee benefits are covered under the programme and there are plans for further expansion.
“Territories that are not included in the global pooling programme are either being earmarked for inclusion or are simply too small to participate,” says O’Neill. Occasionally it turns out that there is simply no insurer network in the country being evaluated.
Ironically, the pooling arrangements don’t cover the US, even given that DHL has over 10,000 employees there, but recent regulatory changes in this region mean that DHL is currently reviewing this situation as O’Neill points out : “US benefits coverage will be evaluated and this is an area where we expect to see continued growth.”
The programme was designed from the outset as a means of minimising the frictional costs that are associated with administering and taking care of insurance benefit schemes in many different countries concurrently. “DHL sought to guarantee that employees at local level would continue to get the same quality and degree of coverage,” says O’Neill. Thus the programme was set up to, and indeed has succeeded in streamlining material costs and guaranteeing the efficiency and competence of insurers at local level, whilst at the same time providing a “far higher degree of accuracy” in terms of claims and premiums from its central administration than could have been achieved by hitherto traditional pooling.
This level of cost effectiveness compared to purchasing coverage at local level, along with the material improvements in data quality that the new pooling structure brings are not the only main advantages, as O’Neill points out. “There is also the question of timeliness. Captive reinsurance of our multinational pooling gives us early warnings of potential claims or changes in trends, particularly in the area of medical insurance, and this allows us a higher degree of accuracy when budgeting for this kind of expenditure on a group basis.
“There are no real specific drawbacks to multinational pooling , particularly when talking about the captive reinsurance market,” suggests O’Neill. Nonetheless, he says that it can only be achieved where a conscious decision has been taken to assume risk in return for lower premium expenditure. Furthermore, O’Neill stresses, multinational pooling at this level can only work if there is a high degree of cooperation between insurers and clients. “Such global programmes do not run of their own accord and considerable co-ordination is required in order to ensure that all the appropriate elements of the programme are managed smoothly.”
Since DHL, as the owner of the captive insurer, is ultimately assuming practically all the risk that the programme of employee benefits coverage requires, there also needs to be “a true partnership” between the parent company, its captive insurer subsidiary and its chosen pooling network. “A programme of this size and nature cannot operate effectively if there isn’t a willingness on all sides to address issues in a timely and efficient manner,” states O’Neill.
When it was established five years ago, the AIG/Winterthur joint network was used exclusively by DHL for its entire multinational pooling arrangements. Though these two companies have recently demerged their networks, O’Neill says that DHL continues to work with each since they have built up sound knowledge and experience of their needs. “Both these companies have considerable experience in managing our global captive reinsurance programme, so we will continue to use them as the sole networks.”
O’Neill points out, however, that brokers are not used and that it is a condition of participation that insurance contracts must be drawn up directly between the local office of either AIG and Winterthur and DHL’s local subsidiary.
But this condition doesn’t apply to consultants. “DHL does use consultancy firms to provide strategic advice on the development and expansion of the existing global employee benefits programme,” says O’Neill.
With the programme now firmly established and covering more than two thirds of DHL employees worldwide, O’Neill believes it is now relatively mature and the future outlook is for continued growth through bringing in US benefits coverage, as well as adapting to the continued changes in social security structures, particularly in Europe, which mean that commercial insurers and employers will need to provide more in the way of privately funded health and retirement benefits.