Pooling: are you doing it right?

Karine Desruisseaux, Sr Program Manager at SVEF

Having a multinational pool can be an easy way to receive additional money back if you have good claims experience. But are you really maximizing your pooling returns? Do you know what to look for and how to actively manage your pool?

Karine Desruisseaux, Sr Program Manager and qualified actuary at SVEF will share some insights and advice to help you elevate your pooling experience.

What is multinational pooling?

Multinational pooling involves a network of local insurers (the pooling network) consolidating the results of a company’s employee benefits plans within the network. At the end of the year, if there is a surplus, the company can receive a multinational dividend. That’s especially efficient for policies that are tariff-rated (like in Japan) or not experience-rated (typically due to the small size of the policy).

There are currently 8 different pooling networks: AIA (active in APAC only), Allianz, Generali, IGP, Insurope, Maxis (Metlife), Swiss Life and Zurich. Some leverage their own network of insurers (e.g., Generali and Swiss Life) while others rely entirely on partnerships (e.g., IGP and Insurope).

“In addition to the financial gains, multinational pooling can provide non-monetary benefits as well.”

What can be pooled?

Most employee benefits can be pooled, but there are a few exceptions. It will vary by country and/or benefit and/or network, so I won’t make an exhaustive list here. But a few examples are:

  • Benefits fully paid by the employee (e.g., optional benefits, since the dividend doesn’t go back to the payer.
  • Non-insured pension plans (e.g., 401(k) type DC plans).
  • India is still relatively new in the pooling scene due to local regulations, so very few networks pool benefits in India yet.
  • Medical benefits in Ireland and in the US are not pooled by any networks.
  • Accidental benefits cannot always be pooled, depending on the type of policy.

“Pooling networks have evolved in the past few years to include even more non-monetary benefits: access to more data, online portals, wellness benefits and more.”

What are other non-monetary advantages of pooling?

In addition to the financial gains, pooling can provide non-monetary benefits as well.  For example, pooling networks have an overarching Free Cover Limit (the amount of insurance under which an employee doesn’t need to provide medical evidence of insurability). If the network’s Free Cover Limit is higher than the local policy one, it will prevail.

Pooling networks also allow for lower headcount thresholds for group policy. If you were to go directly to an insurer to buy insurance in a low headcount country, they might tell you that you need to buy individual policies. But by going through your pooling network, you might qualify for a group policy instead.

Being part of a network might also help with renewal negotiation. A single insurer might not want to fight for your business; but the network sees your entire value as a client. I’ve seen cases when, by leveraging our pooling contract, we were able to get quotes earlier, or negotiate better benefits at no additional cost, for example.

“Pooling networks have evolved in the past few years to include even more non-monetary benefits: access to more data, online portals, wellness benefits and more. These extra benefits will vary widely by network, so I would highly recommend discussing it with your pooling partner.”

How many pools should we have?

Most companies get started on their pooling journey by setting up a natural pool: looking at their current insurers around the world and their pooling affiliation, they implement the pool with the most alignment with their current policies.

According to SVEF’s 2022 GPP survey, only considering members with pools, 46% have one pool in place, 32% have 2, 18% have 3 and 4% have more than 3.   There isn’t a right answer to the number of pools you should have: for a company, two pools could be limiting, while for another two is too much. It mostly depends on your size and the size of your pooling premium. One thing I would look for is are you in your own standalone pool or are you part of a multi-employer pool. If you have several multi-employer pools and your experience is good, you might benefit from combining them into a standalone pool to receive your full dividend. Even if your pools are standalone, you might gain additional advantages by combining and growing them; networks take size into account to determine fees, Free Cover Limit and access to additional resources, for example.

Active management of your multinational pooling network is key to its ongoing success and health.   And ideally an annual review is necessary to ensure the pool is being optimized and correctly managed.

“According to SVEF’s 2022 GPP survey, only considering SVEF members with pools, 46% have one pool in place, 32% have 2, 18% have 3 and 4% have more than 3.”

What benefits should we include?

When you are actively managing a pool, it is important to be intentional about the policies that you include. Benefits like life insurance (when you don’t expect claims to be paid often) are good candidates for pooling, because the policy will be in surplus most years, hence contributing positively to the pool. Meanwhile, medical policies typically have a high claims ratio, which means there’s very little surplus to extract.

With regards to disability benefits, it depends how they are paid. A lump sum payment disability benefit will look similar to a life policy, so would be a good pooling candidate. Disability annuity (paid during a long period of time) will necessitate a higher reserve, which will impact the pool negatively.

Benefits covered in most prominent pool

Pooling Article Benefits Chart

What financial mechanism should we choose?

There is no one-size-fits-all approach.  The results of the 2022 Global Practices and Policies survey show 41% of our members have a loss carry forward in place, 30% have a limited loss carry forward, 25% have a stop loss and 4% use another financial mechanism.

What should we do with the dividend?

How you decide to allocate your pooling dividend is up to you (except for a few countries like Brazil, where dividends need to stay in the country according to local legislation). We see most companies allocating the full dividend at the corporate level: 61% of them did according to the 2022 GPP survey, while that number was 53% in 2021. The rest allocate it to contributing countries (18%

Conclusion

In an ideal world, pooling dividends would be zero, because all the premiums would be set to the right level based on your experience. Unfortunately, that’s not always the case. So, pooling can be a nice tool to get some of that money back, while benefiting from additional non-monetary advantages. Actively managing your pool during an annual review will allow you to maximize your pooling potential.

 

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