A new captive approach to war and terrorism risks in employee benefits

Geopolitical uncertainty now defines today's business environment. War and terrorism are real risks for employees and companies alike, and they demand strategic attention from captive insurers. Employees need to know if they're covered if the unthinkable happens — and captives need to understand what they are covering. Many organizations are asking questions like: Is war and terrorism covered by our employee benefit policies? Do our insurance policies cover acts of war?

For multinational employers, protecting employees has never been more important. Yet many organizations are finding gaps in coverage and lack clear local and global visibility into what is covered and for whom. When the company is the ultimate risk taker, via a captive for employee benefits, the duty of care and risk considerations are even more significant and vital to understand.

Across global employee benefits programs, war and terrorism coverage varies significantly by country, insurer and policy. Even exclusion language can differ, ranging from active war, where coverage does not apply if the employee is actively engaged in war activities, to passive war, where there is no coverage for any war-related incident, to nuclear, chemical or biological exclusions. Some policies standardly  exclude injuries due to riots or civil unrest. The result is uncertainty at the moment employees expect reassurance.

For organizations financing benefits through a captive, this challenge becomes even more significant. Employers, benefits teams, risk leaders, finance teams and insurers all need a shared view of the company's exposure. The company's captive is a strategic vehicle for managing risk. Understanding exactly what is being retained, transferred and communicated has never been more important for captives who cover employee benefits.

Why ambiguity is becoming a business risk

Traditionally, many organizations accepted differences in local insurance markets as unavoidable reality. Now, as global data becomes more accessible, employees may see that colleagues may have different levels of coverage, even in amongst organizations that value their global minimum standards. When similar employees receive different protection because of geography, insurer interpretation or local market constraints, organizations risk undermining trust when it matters most.

Increasingly, captive boards and global benefits leaders are asking different questions:

• Do we understand our global exposure to war and terrorism across employee benefits?
• Are our employees protected consistently?
• Does our captive reflect our risk appetite for war and terrorism coverage?
• Can we confidently explain our approach if a major event occurs?

A differentiated market creates hidden exposure

Our work with multinational organizations continues to highlight several common themes. War and terrorism provisions remain inconsistent across markets, with differences in definitions, territorial restrictions and exclusions creating a patchwork of protection. Coverage may depend on how an event is classified, whether an employee is considered an active participant, or whether exclusions relating to nuclear, biological or chemical incidents apply.

Organizations are also reassessing benefit levels in response to changing geopolitical realities. Enhanced life and accident benefits, hardship allowances and assignments into higher-risk regions all affect captive risk exposures and reserving. Our recent Middle East pulse survey shows employees value consistency more than generosity. They are not necessarily asking for unlimited protection. They want clear, fair and consistently applied principles.

Moving from reaction to strategy

Across the market, organizations facing war and terrorism risks are adopting more structured approaches to close coverage gaps. These approaches often follow a four-step process:

Captives ask: What level of protection do we want employees to receive, wherever they work?

Answering that question may involve redesigning benefit structures, using global umbrella arrangements to reduce inconsistencies, optimizing captive participation or accessing reinsurance to manage peak exposures. Each organization's solution may be different, but the objective remains the same: creating a program that is clear, resilient and aligned with business priorities.

Looking beyond insurance

As geopolitical uncertainty continues, organizations can rethink how they approach employee protection. Employee benefits captives can support and even drive a coherent global strategy — one that connects employee wellbeing, financial resilience, governance and risk financing, including war and terrorism coverage.

At WTW, we believe the organizations best prepared for tomorrow's risks will be those that move beyond disparate local decisions and adopt a globally connected approach. By combining global benefits consulting, our on-the-ground experts in 140 global markets, captive expertise, underwriting insight and access to reinsurance solutions, we help organizations understand their current position, identify hidden exposures and design employee benefit strategies that are both financially sustainable and aligned with their broader business objectives.

In an increasingly uncertain world, clear war and terrorism coverage in employee benefits is one of the most valuable protections an employer can provide.