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Survey Report

COVID-19 survey report: How are Employee Benefit captive programs assisting companies to respond?

Summary of key findings

Health and Benefits|Captives|Global Benefits Management|Insurance Consulting and Technology
COVID 19 Coronavirus

By Mark Cook and Paul McNiff | April 27, 2020

Our latest Pulse Survey assesses how Employee Benefit captive owners are using their captive programs to help their response to COVID-19. We had 45 companies respond to our survey, which represents nearly half of the Employee Benefit captive market.

COVID-19 presents challenging times for most multinational companies, and safeguarding employee health and wellbeing continues to be every company’s top priority. Employee Benefit (EB) captive programs have significantly grown in numbers over the last two decades. One of the primary reasons for this is their ability to give organizations more control, oversight and flexibility in how they deliver their life, disability and healthcare programs around the world.

Our recent survey “2020 COVID-19 Survey: How are Employee Benefit captive programs assisting companies to respond?” gives some insight into how companies that have implemented an EB captive program are using their captive model to support the business and its employees, and ultimately to manage the costs associated with delivering employee benefits.

Managing business costs

Global Employee Benefit costs represent a significant cost for every multinational company. For companies that exceed 10,000 employees globally it is not uncommon for global life, disability and healthcare costs to be upwards of $20 million per annum. And with over two-thirds of this spend being allocated to company-sponsored healthcare benefits, which are increasing at an average rate of over 7% per annum globally according to our latest Global Medical Trends survey, controlling these costs continues to be a top priority for most multinational companies.

With the recent exposure to the COVID-19 pandemic, it is not surprising that many companies are concerned about the impact it may have on their plan costs. The results of our survey show that over two-thirds of employers expect increases in employee benefit plan costs over the next 12 months, and 60% of companies believe the increases in healthcare costs will be moderate or significant. Companies will inevitably be looking to find ways to manage these cost impacts, and those that have active EB captive programs in place today are likely to use the control, oversight, and flexibility these afford them to support the business in doing so.

We are actively discussing the impact of the pandemic on the insurer market and its possible reaction. In many countries the state healthcare systems are leading the response to the pandemic, resulting in a redeployment of resources from the private sector to the public sector. In many markets, medical insurers are seeing the typical usage of medical plans drop significantly (as routine treatment is “put on hold”). These insurers are stipulating that in the short term – say 6 months – medical claims ratios will be lower than expected. Some insurers are looking at profit sharing rebates. In the longer term the claims ratios may be reversed and end up higher than “normal”, as routine treatment is permitted again and patients are keen to get back to their normal baseline health.

One of the financial benefits that a captive can offer a business is the ability to control and stabilize program costs for its local entities over a period of time. This is likely to be a significant advantage to companies that are subject to increased budget constraints as a result of the broader impact of COVID-19 on their core business activities. In fact, while around 80% of companies are expecting healthcare costs to increase over the next 12 months due to COVID-19, only around one quarter were planning to increase the premiums of the plans in the captive (Figure 1). This suggests many companies are looking to use their captive to help manage cost impact for the local entities who are paying the premiums.

What impact do you expect COVID-19 to have on employee benefit costs in the following areas over the next year?
Figure 1. What impact do you expect COVID-19 to have on employee benefit costs in the following areas over the next year?

Managing impact on employees

Employee health and wellbeing is the top priority amidst every company’s COVID-19 response, and ensuring that employees have adequate protection and access to appropriate healthcare during these times is of paramount importance. It is not surprising that over 90% of the survey participants have conducted an assessment of whether their benefit plans have any exclusions in relation to COVID-19, but only one-third of companies have completed that assessment for all countries. Only 1 in 5 employers has no gaps in their global portfolio, meaning that most employers have populations of employees that may be exposed to restrictions in access to their health, life or disability benefits as a result of COVID-19 (Figure 2).

Larger gaps
Moderate gaps
Small gaps
No gaps
Figure 2. Considering employee benefit plans in your captive vehicle, to what degree do the provisions in your local plans have gaps in cover resulting from COVID-19 related risks (death, disability, medical costs)?

Just over 70% of companies have considered how to deal with these gaps, according to our survey (Figure 3). There are several ways EB captive programs can be used to leverage greater control and flexibility to address some of these issues. Some examples include:

  • Allowing for greater freedom in plan design by providing coverage that would not otherwise be offered by a local insurer
  • Offering the ability to pay claims where exclusions (due to pandemic) may exist in the local policy, and where the local insurer will not overrule this exclusion in response to COVID-19
  • Using the programs as a funding tool to “sponsor” broader health and wellbeing initiatives that could be deployed to support maintaining or improving the wellbeing of employees
Answer "Yes"
Figure 3. Has your organization considered how to deal with gaps in cover (e.g. by adapting your captive ex-gratia policy)?

Half of employers that participated in the survey indicated that they were providing ex-gratia claims coverage for policies where life, disability or medical benefits were excluded in the event of a pandemic; and 80% of these companies were using their captive to fund these claim payments. In addition, almost two-thirds of employers were providing additional access to Employee Assistance Programs or Telemedicine, with around 40% of those using the captive as the tool to fund those initiatives (Figure 4).

Has your organization taken or planning any of the following as next steps for the plans in your captive vehicle in response to the COVID-19 epidemic?
Figure 4. Has your organization taken or planning any of the following as next steps for the plans in your captive vehicle in response to the COVID-19 epidemic?

Limiting exposure to the business

Captive programs provide a mechanism for multinationals to generate cost savings by retaining more risk at a global level. And while there are great financial and non-financial benefits to be enjoyed from implementing such a strategy, captive sponsors will naturally want to consider any adverse impact they might expect from COVID-19 as a result of retaining this risk. While nearly 9 out of 10 captive sponsors expect their captives’ claims exposure to increase due to COVID-19 related risks, only 14% believed that it was likely to be significant. It was worth noting that nearly 60% of participants have some form of protection strategy in place that can help limit exposure to downside risk if claims experience is more adverse than expected (Figure 5). In particular, of those that have a protection strategy in place, nearly three quarters have cover that is expected to respond to COVID-19 related risks, which will help contain any increase in exposure. These programs include a mixture of Aggregate Stop Loss, Individual Excess of Loss and Catastrophic protection. This suggests that many of the companies that have implemented an EB captive program have done so in a way that protects them from adverse circumstances like the emergence of a pandemic.

Answer "Yes"
Figure 5. Does your captive have any reinsurance protection in place?

In times of change, uncertainty and economic difficulty, companies need to be increasingly agile and innovative in their approach to managing all aspects of their business. Managing a global EB portfolio is no different. Captive financing for a global EB portfolio can present opportunities for cost containment and savings, improved governance and greater control that can prove invaluable in times of need. Our survey results demonstrate that companies which have implemented an EB captive model are utilizing it to further support the business and its employees in response to COVID-19.

To access key findings and more insights in the full PDF report, please contact Mark Cook (Global contact) or Paul McNiff (Americas)

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