is covered in this issue on p.7 by courtesy of Benefits and Compensation International. 2009 and 2010 to date have seen us make important investments in education and training as well as in customer services. The addition of a “pool analysis” module now integrated within the Insurope CRM application for customers is a big step forward. The Insurope Customer Service Manager which provides dynamic CRM for the more effective development of multinational pooling now integrates analysis and download capacities for the last five years of multinational accounts and also gives an early insight into “provisional figures” for the latest pool accounting year. Initial reaction from customers and employer groups has been encouragingly favourable (see p.6). Such services are crucial if we are to meet the demands of a continually growing multinational pooling market in a cost effective manner. An indication of the rising interest in our activity is perhaps reflected in the number of new Pooling RFP’s to date requested in 2010. There have been 29 to date compared to a normal yearly average over the last three years of 31. Multinational Pooling is of course a premier cost-saving initiative and in times of recession those companies which have not hitherto looked into pooling seriously often begin to start to do so. Hugh Gallagher, Network Marketing Director As 2010 passes the half way stage many companies are looking forward to slow and steady recovery and return to growth following a year where the financial crisis left a firm mark on the global marketplace. Despite the downturn Insurope closed a decade of strong growth in international employee benefit provision with 2009 new premium growth coming in just under a targeted 10%. In the area of NEW pool customers Insurope led the market with an increase in client base of 10.3%. The 54 new multinationals added during 2009 reflected a broad mix of companies based in the USA, Europe and Asia. 2009 was also another excellent year for our “Multipool” multi-employer pool customers with 2008 payouts reaching 42% , consolidating the position of best track record in this market since 1983. This issue contains an independent analysis of “multi-employer” products currently available in the market (see p.2). Such good results have allowed Insurope to continue to invest centrally in human resources (see p.15) and technology (see p.6) to underpin the high quality services our customers require. In addition, at the local level we have continued to expand with new market leading network partners joining the network in the Philippines (Asian Life) and Vietnam (Baoviet). In keeping with the sentiment of cost-cutting of many of our customers, whom we polled on the issue in 2009, we decided to reduce our investment in major events over 2009 – 2010 and instead concentrate on local and regional alternatives in an effort to meet corporate travel constraints. Successful such events have taken place in the UK, the USA, Germany and Portugal. A regional “Nordic Forum” which covered a diverse range of international employee benefits topics ISSUE 15 JULY 2010 INSUROPE Number One Network for New Multinational Pool Customers in 2009 • Survey multi-employer pools • Events Nordic International Employee Benefits Forum • Norway what you need to know now for 2011 • South Korea pension provision becomes mandatory • International Plans insuring locals therein • Insurope Central Offices new appointments Inside
Transcript
is covered in this issue on p.7 by courtesy of Benefits and Compensation International.
2009 and 2010 to date have seen us make important investments in education and training as well as in customer services. The addition of a “pool analysis” module now integrated within the Insurope CRM application for customers is a big step forward. The Insurope Customer Service Manager which provides dynamic CRM for the more effective development of multinational pooling now integrates analysis and download capacities for the last five years of multinational accounts and also gives an early insight into “provisional figures” for the latest pool accounting year. Initial reaction from customers and employer groups has been encouragingly favourable (see p.6).
Such services are crucial if we are to meet the demands of a continually growing multinational pooling market in a cost effective manner. An indication of the rising interest in our activity is perhaps reflected in the number of new Pooling RFP’s to date requested in 2010. There have been 29 to date compared to a normal yearly average over the last three years of 31. Multinational Pooling is of course a premier cost-saving initiative and in times of recession those companies which have not hitherto looked into pooling seriously often begin to start to do so.
Hugh Gallagher, Network Marketing Director
As 2010 passes the half way stage many companies are looking forward to slow and steady recovery and return to growth following a year where the financial crisis left a firm mark on the global marketplace.
Despite the downturn Insurope closed a decade of strong growth in international employee benefit provision with 2009 new premium growth coming in just under a targeted 10%. In the area of NEW pool customers Insurope led the market with an increase in client base of 10.3%. The 54 new multinationals added during 2009 reflected a broad mix of companies based in the USA, Europe and Asia.
2009 was also another excellent year for our “Multipool” multi-employer pool customers with 2008 payouts reaching 42% , consolidating the position of best track record in this market since 1983. This issue contains an independent analysis of “multi-employer” products currently available in the market (see p.2).
Such good results have allowed Insurope to continue to invest centrally in human resources (see p.15) and technology (see p.6) to underpin the high quality services our customers require. In addition, at the local level we have continued to expand with new market leading network partners joining the network in the Philippines (Asian Life) and Vietnam (Baoviet).
In keeping with the sentiment of cost-cutting of many of our customers, whom we polled on the issue in 2009, we decided to reduce our investment in major events over 2009 – 2010 and instead concentrate on local and regional alternatives in an effort to meet corporate travel constraints. Successful such events have taken place in the UK, the USA, Germany and Portugal. A regional “Nordic Forum” which covered a diverse range of international employee benefits topics
ISSUE 15 JULY 2010
INSUROPE Number One Network for New Multinational Pool Customers in 2009
• Survey multi-employer pools
• Events Nordic International Employee Benefits Forum
• Norway what you need to know now for 2011
• South Korea pension provision becomes mandatory
• International Plans insuring locals therein
• Insurope Central Offices new appointments
Inside
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INSUROPE NEWS
Paul Shimer Founder and Principal Consultant of Tallwood Global Benefits LLC, Paul Shimer has been professionally involved with international benefit programmes for over 34 years, including 18 years with a leading global human resources consulting firm. Mr Shimer has expertise with expatriate and local national employee benefit plans and multinational pooling of group
insurance contracts.
A graduate of DePauw University in Greencastle, Indiana, he has the Certified Employee Benefit Specialist (CEBS) designation from the International Foundation of Employee Benefit Plans and the Wharton School, and is a Fellow of the International Society of Certified Employee Benefit Specialists (ISCEBS).
Tom Harrison Having begun his career in pooling sales/service and account management roles at John Hancock’s International Group Program (IGP) and AIG, Tom Harrison started Benefits Direction, Inc. (BDI) 14 years ago. In addition, he has corporate international benefits experience at the Norton Company, Digital
Equipment Corporation and Stratus Computer.
He has been the Chairperson of the Corporate International Benefits Committee of the International Foundation of Employee Benefit Plans and also of the Central Massachusetts Business Group on Health. Mr Harrison has BA, MA and MBA degrees in International Relations, Political Science and Business respectively.
Multinational pooling has been a very useful tool for managing insured employee benefit plans since the 1950s. The first pool was implemented by AIG in 1954, followed in the 1960s by other international insurers such as Swiss Life and John Hancock’s IGP. The market really took off in the 1970s with the entry of Generali, Insurope and other networks, some of which – like GAIN and Winterthur – have folded their tents. In fact, it is somewhat surprising to find that eight international networks continue to compete in what many professionals considered to be a mature market in the 1990s. That was a time in which surveys indicated that nearly all of the large multinational companies such as Chase Bank (now J.P. Morgan Chase) had at least one pooling arrangement, and many such as General Electric were participating in two or more.
What is Pooling ? Pooling is an insurance product that links group contracts covering local employee benefit plans offered by a multinational employer in an agreement to “pool” the claims experience of all participating contracts. When the experience produces a positive balance, the employer is eligible for an “international dividend” equal to the pooling surplus after deducting expenses, commissions and local taxes. When the experience produces a loss, the pooling deficit is either carried forward to future years, or written off when covered by “stop-loss” insurance.
Pooling can produce significant cost savings. International dividends can range on average from 5% to 15% of pooled premiums, depending on claims experience. The pooling networks, to varying degrees, produce detailed annual reports to support the experience results which may include information on plan design and changes to participating contracts. This data can serve as a valuable tool to help manage a global benefits strategy.
Pooling also delivers improved service since the insurance network assigns a representative in the parent company’s home country to provide information, resolve problems and coordinate communications on all participating contracts.
Pooling has a long history of delivering value! However, receiving value from pooling requires employers to insure local group contracts with the network carrier in many countries, covering relatively large numbers of employees. This can be problematic for large multinationals with highly decentralized authority to contract with local insurers. Conversely, this can be a real opportunity for smaller companies that wish to take advantage of pooling group policies covering smaller numbers of employees. With the maturing of the stand-alone (large pool) market, the various networks more recently have been focusing upon the much larger and growing number of smaller and emerging multi-nationals. Each network now has developed a pooling program designed to meet the needs of small to medium-sized multinational organizations. Our goal is to outline how the various small pool programs compare on major design and delivery aspects, drawing on a survey that we recently conducted. The survey results below are based upon the participating networks’ responses to our questions.
Small Group Pooling Survey We asked eight networks to respond to our survey on small group pooling, and received responses from AIG*, All Net (Allianz), Generali, IGP, Insurope and
multi-employer pools
* At the time of writing, AIG is in negotiations to sell its life insurance operations to MetLife. Should the sale take place, this could impact the small group pooling product offered by the successor company.
† We did not receive responses in time from ING and MAXIS, each of which offers a small group pooling arrangement. Nonetheless, should an organization be considering them as a small pool provider, this study furnishes guidelines for questions and information to be reviewed in the analysis and selection process.
‡ £1 = US$1.54; €1 = US$1.35 as at 9 April 2010
§ £1 = €1.14; US$1 = €0.74 as at 9 April 2010
Everyone into the Pool : Multinational Pooling for Small Groups
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Swiss Life. What follows are the results† of our survey for each of the questions we asked. Every one of the six networks offers a small group pooling arrangement of some kind; however, as always, the devil is in the details. Therefore, we asked:
“When did your network initiate small group pooling; and what are the minimum eligibility requirements to participate in your network’s small group pool?”
AIG. Since 1999/2000; a minimum of two countries, 100 insured lives and a US$25,000‡ risk premium with a US$2,500 annualized premium per risk policy.
All Net. Since 1997; a minimum of two countries with 25 insured employees and a €10,000§ total risk premium. Generali. Since 1992; a minimum of two countries, 100 plus insured employees and a US$20,000 annual group premium to qualify for the Generali Premier Pool (GPP). Each client will have a single, stand-alone pool.
IGP. Since 1981; there are no minimum requirements.
Insurope. Since 1984; there need to be contracts in at least two countries of which one is poolable.
Swiss Life. Since 2004; the minimum requirements are one poolable contract with at least 10 lives.
The winner in this category is IGP which has no minimum requirements, except that the local contract must meet the minimum for local group underwriting which is required by all the networks.
Next, we asked:
“Will your network allow a “natural pool” consisting of existing business in the small group pool? If so, are there any requirements for initiating/maintaining participation in the small group pool?”
AIG. Yes, with parameters to meet certain growth rates over a given period to reach the minimum size for a stand-alone pool.
All Net. Yes, but it requires a new contract to be included in the pool within 24 months and the client does not receive dividends until the new contract is concluded.
Generali. Yes, the natural pool is a foundation for starting the GPP pool. Ongoing management by the client and Generali is necessary to expand the pool and transition to the traditional Generali Worldwide Group (GWG) pool.
IGP. Yes, with a tacit understanding that the client will afford IGP opportunities to quote new business.
Insurope. Yes, there are no pre-set requirements for MultiPool.
Swiss Life. Yes, a client may participate in Swiss Life’s small group pool with one poolable contract and at least 10 lives. If no additional contracts are added to the pool within three years, the pooling agreement can be discontinued. Moreover, the periodic premium of the newly acquired contract(s) must equal at least 10% of the total periodic premium of the existing business in the pool.
The winner in this category is Insurope which has no pre-set requirements, not even the need to add extra contracts in order to maintain participation in the small group pool. However, IGP is a close second in this category since Insurope also encourages and seeks every opportunity to quote for new business.
Next, we asked about “free cover” (free cover is the maximum amount of insurance issued without medical evidence of insurability):
“What is the current maximum free cover provided by your network’s small group pool?”
AIG. US$200,000 for any local poolable contract up to 1,000 lives, with the exception of Western Continental Europe, which is US$500,000; other countries such as Brazil, Peru, India and Vietnam have local regulations or reinsurance requirements that determine free cover limits. There is no network free cover limit.
All Net. There is no network-wide free cover limit nor does All Net cap local free cover limits.
Generali. There is no network free cover limit for its small pool program; local underwriting and market practices apply; however, Generali will take over contracts on a “no worse terms” basis.
IGP. There is no network free cover limit; a free cover limit is set by country; customization is possible based on local contract terms, types of coverage, size of group, and countries participating in the pool.
Insurope. Network free cover in 2009/10 is as follows: death in service (life insurance) €700,000; accidental death (stand-alone contract) €700,000; disability income of €45,000; and a disability lump sum (PTD¶) of €700,000.
Swiss Life. There is no network free cover limit; the network is willing to negotiate improved local terms based on types of contracts participating in the pool, potential growth and client commitment to add new business.
The winner is Insurope as it is the only small group pool to offer a network free cover limit. However, all networks are agreeable to negotiating improved terms on new business that will transfer contracts to carriers that belong to their own networks.
multi-employer pools
¶ Permanent Total Disability
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INSUROPE NEWS
Next, we wanted to know how each network considers payment of surplus as an international dividend, including the rating approach for the small group pool. So we asked:
“How does your network share surplus with clients in the small group pool? Is surplus shared only with those clients who contribute a positive balance to the pool? Is surplus shared with clients whose local contracts produce a surplus? Or does your network use another methodology?”
AIG. The network uses a loss carried forward rating approach. If experience is negative, the loss is carried forward with interest; deficits are first applied to subsequent positive years’ experience with any remaining balances to be at the client’s disposal based upon a dividend payout sliding scale per premium level.
All Net. The network uses a stop-loss rating approach. The surplus is shared only with those companies that contribute a positive balance to the pool. Negative experience is covered by stop loss and is not carried forward.
Generali. The network uses a stop-loss approach. The client receives 30% of the experience balance when the pool is positive; no losses are carried forward.
IGP. The network uses a stop-loss approach. Clients whose experience generates a surplus receive a portion of their net positive result as a dividend; no losses are carried forward.
Insurope. The network uses a stop-loss approach. Surplus is allocated to clients on the results for each participating subsidiary (local contract), not the aggregate for all subsidiaries (local contracts) in the small group pool; no losses are carried forward.
Swiss Life. The network uses a stop-loss approach. Clients whose (overall) experience contributes to positive results share pro-rata in the overall surplus; no losses are carried forward.
The winner is Insurope which will allocate a percentage of surplus based on the experience of each local contract’s own positive contribution to the client’s overall positive pool balance.
Next, we looked at each network’s actual results for the small group pool, and asked:
“What was the average percentage of surplus paid by your network’s small group pool for the past five years (2004-08)?”
AIG. Approximately 75%.
All Net. 21.43%.
Generali. 5-9% of pooled premium (not “surplus”).
Using figures furnished by Generali, the average pooled premium in the small group pool was US$52.8 million over the period 2004-08.
Insurope. 37.4%.
Swiss Life. 26.18%.
AIG’s response may reflect the fact that it uses a loss carry forward rating approach and only reports five small pool clients. The other networks all use the stoploss rating approach, which adds a stop-loss insurance charge to their expenses. In this case, the winner is Insurope whose average 37.4% of surplus reflects competitive expenses as well as claims experience.
As for claims experience, we also asked:
What was the overall incurred claims experience in your network’s small group pool (ratio of total income to paid claims, reserves and expenses, including commissions) for 2004-08?
Two networks, Generali and Swiss Life, provided actual loss ratios for each year, allowing for the five year average calculation:
– Generali, 79%, and
– Swiss Life, 89.5%.
All Net provided four years of actual loss ratios, to produce an average of 49.11%.
Insurope stated that its overall loss ratio over the past five years was 87.5% of risk premiums.
AIG responded that its overall incurred loss experience for the five year period was about 50% of risk premium. Again, this seems to reflect the size and duration of the AIG small group pool since it is not typical of the numbers provided by the other networks. However, loss experience is based on the risk content of the pool spread over the size of the pool. TABLE 1 above reflects the size of small group pools using the number of clients and average premium volume for each network.
multi-employer pools
TABLE 1
Relative Size of Small Group Pools (2004-08)
Network Average number of clients
Average premium volume ( US $ )
AIG 5 Under 500,000
All Net 46 19.3m
Generali 42 52.28m
IGP 470 237m
Insurope 270 84.4m (est.)
Swiss Life 72 36m
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INSUROPE NEWS
Based on a more detailed review, the winner for the average percentage of surplus paid over the past five years is Insurope whose average incurred claims experience was 87.5% and which paid out an average of 37.4% of surplus after deducting expenses, taxes and other costs.
Since small group pools have the potential to grow with added contracts/countries, we asked:
“What happens when a small group client exceeds the maximum eligibility requirements? May the client elect to remain in or leave the small group pool?”
AIG. The Small Group Policy Agreement (SGPA) is offered for a maximum of three years, or when the pool meets criteria for “graduating” to the regular pooling solution.
All Net. The network does not enforce any small pool maximum.
Generali. It is considered to be a “starter pool” and has a two year maximum period to reach 300 lives and US$50,000 in annual risk premiums for eligibility to continue as a GWG participant. However, this is somewhat flexible and Generali is prepared to work with clients who are proactively working to achieve GWG status.
IGP. A stand-alone pool is offered at 1,000 covered lives.
Insurope. A pool automatically becomes a stand-alone pool on January 1 when the account exceeds 1,000 insured lives and €300,000 pooled death and disability premiums.
Swiss Life. Clients may remain in the small group pool as long as annual pooled premium is less than SF 1 million.
The winner is All Net which does not have a small group maximum for pooling, followed closely by IGP which “offers” but does not require a stand-alone pool at 1,000 covered lives. All other networks either consider “dropping the pool” if certain requirements are not met (AIG and Generali) or transfer the client to a stand-alone pool when the maximum criteria are reached (Insurope and Swiss Life).
Finally, we were interested in how the networks view the prospect for growth in pooling in general, and small group pooling in particular, so we asked the following questions:
● What annual percentage growth (revenues / number of clients) does your network expect from small group pooling over the next five years?
● How does this growth compare with that expected for your network’s total pooling business (revenues / number of clients) in the next five years?
The results can be seen in TABLE 2 above.
Clearly, it is difficult to arrive at an overall consensus for growth of small group pooling over the next five years when one third of the networks covered in the survey (AIG and Insurope) expect growth to exceed overall growth for stand-alone pools; half (All Net, Generali and IGP) expect overall growth to lag growth for stand-alone pools; and one network (Swiss Life) expects about the same growth rate for both small group pools and overall pooling. However, if these responses translate to action plans, it is likely the responses indicate how the networks will approach the market for small group pooling. Accordingly, we may expect an aggressive effort to seek expansion of small group pooling from those who foresee higher growth than for stand-alone pooling.
Is there an Overall Winner ?
We conclude that each of the responding networks is a winner when being considered for starting or expanding a small group pool, for the following reasons:
1. Each network offers a small group pool.
2. Each network wants to attract new business from small group pooling.
3. Each network responded to our survey.
We hope this information is helpful and leave it to the reader to draw his/her own conclusions before jumping into a pool.
The above article is reproduced by kind permission of the authors and Benefits & Compensation International.
multi-employer pools
TABLE 2
Network What is the annual percentage growth the network expects from small group pooling
in the next five years?
How does this growth compare with that expected for the network’s total pooling business
in the next five years?
AIG 20% premium growth Higher than network total pooling business
All Net 10-15% About half the rate of the stand-alone pools
Generali Growth expectation of 5% in number of small pool clients and 10% in annual premium volume in next five years
Expects growth to be significantly lower than for larger pooling arrangements
IGP 3-5% Expects growth for small group pool to be slower than growth in stand-alone pooling
Insurope Expects premium growth of 10-15% Expects a higher growth rate in small group pooling than in stand-alone pools
Swiss Life 5% premium growth Expects growth to be the same (5%)
How the Networks View the Prospect for Growth in Pooling
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INSUROPE NEWS
The Insurope CRM
New Pool Analysis Module "The pool is no longer a black box to be looked into once a year " - Tony Hatton Gore
Insurope has recently completed a number of successful "demos" including that with the Silicon Valley Employers Association as well as various individual Customers such as Tony Hatton-Gore reviewing here the Arup Group Insurope Customer Service Manager :
• This development by Insurope enables clients to view data relating to the performance of the pool in real time, to understand how to better manage risk and develop the pool more proactively
• It means that the pool is no longer a black box to be looked into once a year when the results are available so that we can monitor performance and manage the expectations of pool results
• It is a convenient and up to date source of pool management information
• In short it adds value by making it easier to manage pools effectively
A major addition to the Insurope CRM platform for Customers is a Pooling Analysis Module which has met with much acclaim in the market. As well as providing a tidy visual packaging of key data over the last 5 years of pool results this new component gives the Customer an earlier look into "Provisional Figures" for the new pool accounting year in question. In addition to this, the platform provides a valuable measurement tool to track all pool expansion and renewal activity in real time.
Through the remainder of 2010, the new look Insurope CRM will be introduced to major customers with more extensive distribution thereafter. The CRM Platform will also form part of the Insurope service proposition in the event of major pooling bid exercises and major new multinational business activity.
Focus on education and training Much of the time the lowest price is the main driver for the choice of insurer for a local employee benefit plan – in some cases this will be the right thing to do.
In other cases the lowest price may indeed not be the right option depending on the accompanying pooling context.
The problem confronting many advisers, as well as local benefits and procurement managers is how to determine which in the mid to long term is the best path to take.
It is therefore clear that an advanced level of knowledge on what pooling really involves in detail for the case in question is required.
During 2009 Insurope has set out to provide the right environment for an optimum level of knowledge sharing across the international employee benefit marketplace ( see Download Zone at www.insurope.com ).
Detailed literature, accompanying powerpoint education and training modules and a new multinational pooling proposal document all focus on trying to make a measured judgement on the pooling of a particular plan that bit easier.
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Insurope / Danica Nordic International Employee Benefits Forum: Copenhagen This one day event, co-hosted by Insurope and Danica, Insurope's Network Partner for Denmark, was devised specifically for the benefit of business partners in the Nordic region. It looked at the effect that the recent economic downturn has had on international employee benefits globally and treated a number of areas currently under focus at the European level.
A recent study which looked at key issues and evolving trends in employee benefits in the USA over the next 5 years also provoked discussion on the likelihood of some of these taking effect in Europe and elsewhere. Participants were also able to gain valuable insight in how to optimise pooling to improve their bottom line via commentary from some of the region's most experienced multinationals.
comprised different components, commonly referred to as pension pillars. Replacement income as a concept had a long history, with AGIRC* and ARRCO† being examples of the first compulsory complementary systems, introduced in the early 1940s in France. Pension layers had developed autonomously and separately in different countries depending on economic and social considerations. Certain similarities tended to apply in countries in the same geographic area. The Scandinavian approach, for example, was to provide compulsory pension cover on top of social security. Different pension layers were called by different names – ATP, ITP, etc. In a standard three-pillar system in Western Europe – the idea of pillars having taken over from layers – the different pillars were as follows:
First pillar. Social security was generally a pay-as-you-go system, financed by employer and employee contributions in addition to State subsidies.
Second pillar. This generally consisted of occupational plans, introduced voluntarily by the employer and funded via group insurance, pension funds, book reserves or bank savings (in Denmark only), financed quite often, but not necessarily, by both employer and employee contributions (which were often tax driven).
Third pillar. This comprised the whole of an employee’s private individual retirement savings where, again, the vehicles chosen were often tax driven.
Mr De Wée commented that local legislation did not generally specify under which pension pillar the existing pension system belonged, with Switzerland being the one exception. Switzerland clearly defined its three-pillar concept, the second pillar comprising the compulsory (BVG/LPP) part and the voluntary top-up part. He said that there were numerous west
events
Donald Watson, Head of C&B Extruded Products, Hydro Aluminium, presenting a brilliant and entertaining Wrap Up Session.
By courtesy of Benefits & Compensation International we reproduce here a report on one of the subjects covered at the Forum which may prove helpful to many readers.
Defining the Retirement Pension Pillars Mr Luc De Wée, International Research Consultant at Towers Watson in Brussels, began his presentation on retirement pension pillar definitions in Europe, with the comment, “Nowadays the pillars aren’t the same as 10 years ago.” While all European countries had multi-pillar pension systems, there was definitely a divide between Western Europe and Central and Eastern Europe (CEE). He believed that there was a lack of clarity in this area, not helped by governments sometimes failing to be clear when introducing change.
In defining a pension pillar, Mr De Wée observed that it was all about income replacement for an employee at retirement and that a pensioner’s income
* Association générale des institutions de retraite des cadres
† Association pour le régime de retraite complémentaire des salariés
‡ Denmark, Finland, Norway and Sweden
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European countries that, on top of the social security system, had an additional compulsory pension system (in the case of France, Greece, Switzerland, the UK and all four Scandinavian countries‡). This was particularly the case in Belgium, Italy and the Netherlands. Retirement termination indemnities also applied in Austria, France, Greece and Italy. He did not think it was always clear whether these termination indemnities belonged to the first or the second pillar.
Mr De Wée believed it was necessary to be clear about which pillar was which in Western Europe, especially in the context of taxation. He pointed out the need for a compulsory second pillar. There were problems that pay-as-you-go systems would face before long because of the ageing of populations. A drop in replacement income at retirement would be considerable for those individuals who were not covered by a compulsory second-pillar system and/or an occupational plan and who had not been able to accrue adequate personal retirement savings. The question of how to fund the compulsory second pillar properly was open. He noted that in most west European countries employer and employee social security contributions were already high. There was thus not much scope for increasing them although certain countries were planning to do so, often in stages. He thought it would be interesting to see whether some west European countries would follow Eastern Europe by transferring contributions from the pay-as-you-go system to a private funded system. Applying the Swiss model was another possibility. Portugal and Malta were considering the implementation of a compulsory second pillar.
Turning to Central and Eastern Europe, Mr De Wée said that the multi-pillar pension system concept had been developed there after the fall of the Berlin Wall and the move from a communist regime to a free liberal economy. This process had started at the beginning of the 1990s for most CEE countries and was still continuing. These countries had usually adopted the World Bank Model which, confusingly, differed from the west European three-pillar system. The World Bank Model consisted of the following:
First pillar. This was the pay-as-you-go social security system.
Second pillar. This was a mandatory, fully funded defined contribution system.
Third pillar. This was a voluntary, fully funded defined contribution system (an occupational pension plan).
Multi-pillar pension systems were already in place in :
However, he said that some of these countries were going beyond the structure recommended by the World Bank and others did not follow the structure at all. The Czech Republic was in the process of implementing its multi-pillar pension system. He identified Hungary as being a country that had gone beyond the World Bank model in applying :
• a pay-as-you-go social security first pillar,
• a mandatory, fully funded defined contribution second pillar,
• a voluntary pension fund third pillar,
• an individual, tax-advantaged retirement savings fourth pillar, and
• an occupational pension plan fifth pillar.
He then mentioned three countries that did not follow the World Bank model. These were :
• Lithuania (where the second pillar resulted from a voluntary decision taken by the employee);
• Russia (where many features remained from the former Soviet system); and
• Slovenia (where there was a mandatory second pillar only for certain categories of employee).
The existing mandatory second-pillar pension systems were all defined contribution, State regulated, privately managed by pension funds and based on individual accounts. They were financed by a transfer of contributions from the first pillar to the second pillar.
There were three different financing principles :
• employer and employee contributions (Bulgaria, Estonia, Latvia, Lithuania and Slovakia),
• employee contributions only (Croatia, Hungary, Poland and Romania), and
• employer contributions only (Russia and Slovenia).
Mandatory affiliation applied to those born after a certain date in Bulgaria, Croatia (in stages), Latvia and Romania. In Hungary and Slovakia affiliation only applied where employees were affiliated to social security after a certain date.
He believed that the issues in the CEE were :
• a risk of uncontrolled growth in the number of pillars (for example, Hungary),
• a move away from the recommended World Bank Model (for example, Slovakia),
• a future role for occupational pension plans, and
• the development of a fourth pillar of voluntary, individual retirement savings.
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Mr De Wée’s conclusion was that:
• Western Europe and the CEE needed to align their concepts of a multi-pillar pension system, with Western Europe clarifying where its existing systems belonged in the multi-pillar pension concept (the EU perhaps playing a role here); and
• there was definitely a need for a compulsory second pillar covering all employees for additional retirement income beyond social security, although financing was a question mark.
It was not clear whether or not west European countries would follow the CEE route by transferring contributions from the first pillar (unfunded) to the second pillar (funded). If they did, would the contribution transfer relate to only employer or employee contributions or to a mixture of the two? He thought it quite possible that the west European countries concerned would tackle this problem differently.
Secret of its Success lay in the variety The idea of holding an international employee benefits forum in Copenhagen drawing on the Nordic region for participants worked well. The day’s agenda somehow included 12 presentations without seeming overwhelming in any way. I suspect that the secret of its success lay in the variety of speakers (from around Europe) and the topics. We moved between the world economy, benefits for globally mobile employees and enterprise risk management.
Irena St John-Brooks Benefits & Compensation International
Annual Sales Meeting 2010 In conjunction with the Nordic Forum Insurope held its 2010 Sales Meeting in Copenhagen on 8 - 9 February with Network Partners from 22 countries worldwide in attendance.
In the area of Network Partner new pooled premium production, 1st place went to Storebrand of Norway for the second consecutive year. 2nd place went to GNP of Mexico with 3rd spot going to Danica in Denmark.
Alejandro Lopez Pineda, Director de Ventas, GNP pictured here receiving 2nd prize from Danny Saelen, Insurope Chief Operating Officer.
The meeting also provided the occasion to bid farewell to two persons who have made a major contribution to the success of Insurope down the years, namely Henry Casares, Director Insurope USA and Sven Nyqvist (right) of Alte Leipziger in Germany who was a long standing Chairman of the Insurope Technical Committee.
Henry Casares listens on with reflection while Jim Wallace, Insurope's CEO reviews Henry's tremendous contribution to the world of international employee benefits.
events
"Variety of Speakers"
Ian Thomson GSK, pictured here, delivered a risk manager's perspective on pooling employee benefits.
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INSUROPE NEWS
Insurope Lisbon Meeting 2010
"You only really notice the importance of free cover when it’s not there !"
On 26 May Insurope held a seminar in Lisbon on pooling in conjunction with local network partner T Vida. Over 100 participants from the Portuguese employee benefits community gathered to improve their knowledge in our area with sessions in both Portuguese and English. The event really came to life for many of the audience when Silva Tavares related as follows the importance of a 20 year relationship with Insurope :
"Starting in 1989, when Swedish o w n e r S t o r a w a s the major shareholder the hugely i m p o r t a n t l o c a l company Celbi became the basis for a new pool arrangement. At that time there was no multi-employer possibility but, even then, Insurope found a way to s t a r t a poo l w i th a
single country in order to accommodate the local client.
When ownership changed to Stora Enso, the pool benefits started to be more understandable, due to their proactive sharing of the international dividend with subsidiaries.
In 2007 Celbi was sold to a Portuguese group (ALTRI) and was obliged to leave Stora Enso's pool. Then again, Insurope was proactive, searching for a subsidiary of this new group outside Portugal, and being successful on that search. Then, there was a new opportunity for pooling. In 2009, the first truly Portuguese multinational pool was started, thanks to this long term relationship”.
A c c o r d i n g t o S i l v a T a v a r e s —“the real benefits of pooling are the international dividend and the free cover limit, although, the FCL is a benefit that is only really understood when it is not there. As a matter of fact, nobody at Celbi really understands the advantage of FCL, because it is so long since anyone went for a medical that nobody can remember. Some other companies from Altri Group (Celbi's new owner) have a much better perception of that because they have had the opposite experience".
Germany
A Forum for international employee benefit specialists took place in Germany in May. The event, organised by Alte Leipziger, Insurope's network partner for Germany, was supported by the presence of the Insurope Executive Committee and attracted employers and advisers from various parts of the country. Dr Marco Arteaga, Aon Jauch & Hubener and Alexander Gunkel, BDA were among those guest speakers presenting. Ingo Hannemann is responsible for Insurope activities in this very important multinational parent market.
Will the pension reform affect private occupational pensions ?
Yes, changes in the Norwegian National Insurance Scheme mean that the laws which regulate private occupational pensions will also change. The Norwegian Banking Law Commission has been assigned the task of examining and proposing amendments to these laws, where the objective is to adapt the laws to the changes in the National Insurance Scheme and the agreement-based early retirement pension scheme (AFP) for the private sector. Storebrand expects that occupational pensions will follow the same model as the National Insurance Scheme with respect to flexibility in when employees can begin to take out their pension.
When will the new private occupational pension rules come into effect ?
The Banking Law Commission presented its report on May 5th, 2010. The authorities will now start to work on formulating the new regulations, and these are expected to be approved by the Norwegian parliament in the second half of 2010. The new statutory rules for private occupational pensions are expected to come into effect on January 1st, 2011. The proposal is also that further changes in the occupational pensions will be discussed, and more comprehensive changes will probably be in force from 2013.
What are the changes for Defined Contribution pensions ?
• Flexible retirement between the ages of 62 and 75.
• Continued accrual of pension as long as the individual continues to work, regardless of age.
• Pension payout until at least 77 years old, and must be a minimum of 10 years.
• Up to the age of 75 employees can choose between limited or lifetime payout.
What are the changes for Defined Benefits pensions ?
• Flexible retirement between the ages of 62 and 75.
• Continued accrual of pension through further work. Members who do not have full vesting (30 years) when they reach the vesting age of 67 years continue to be credited with additional service, but without wage adjustments.
• Special rules regarding the further accrual of
country profile - Norway
Why are pension costs increasing? There are several reasons for the increase in pension costs and there being relatively fewer people in work:
• People are having fewer children – and the increasing share of the elderly in the population is resulting in more pensioners.
• People are living for longer – and thus receiving a pension for more years.
• The percentage of working women has increased – more women are accruing pension rights.
• Higher average pensions – more people are accruing larger pensions and over longer periods.
• The retirement age has dropped – more and more people are retiring early.
• People are studying for longer and starting to work later – fewer years in work.
Why does Norway need a pension reform? It has been estimated that maintaining the current pension system will lead to the costs of providing retirement, disability and surviving dependants’ pensions almost doubling by 2050 (measured as a share of the GDP).
The National Insurance Scheme is a so-called “pay as you go” system, which means that the pensions being paid are financed by the current tax incomes from those who are working. The larger percentage of older people is leading to a decline in the ratio of those in work to each pensioner.
When the National Insurance Scheme was established in 1967, there were 3.9 people in work for each pensioner. In 2003, this figure had fallen to 2.6 people in work for each pensioner and it is estimated that it will be further reduced to 1.6 by 2050.
Fewer people in work for each pensioner means a greater payment burden for those in work. Maintaining the current pension system would therefore probably have led to huge tax increases for those in work.
A pension reform which slows the increase in pension costs is therefore being implemented in order to avoid too great a burden on those in work.
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Country profile - Norway
INSUROPE NEWS
pension for members who already have full accrual and continue to work after reaching the vesting age of 67 years old.
Possible changes from 2013 It is necessary to change the defined benefits plan in order to adjust to the changes in the national insurance scheme. There are listed several issues that will be discussed in the Norwegian Banking Law Commission, which makes the proposals for new regulatory changes for the occupational pension schemes. There are several technical and actuarial issues, but there are also proposed new products for DB plans (for example Hybrid plans).
There will probably also be changes for DC plans. One important issue is the maximum levels for savings (percentage of salary) which is possible in order to get favourable tax treatment. We expect the level to increase from the limits we have today. In today’s DC plans the maximum savings is 5% of salary from 1G to 6G and 8% of salary from 6G to 12G (1G is the base amount, which is approximately NOK 72,000). This will make it easier for companies to move from DB to DC.
employees” per country and wishes to have a “one stop” solution by purchasing insurance from one insurer. Reasons for this might be that group contracts are not available in certain local countries; better terms are available by grouping the employees together; etc. etc.
In terms of risk taking Nordben has the appropriate reinsurance support and premium ratings to underwrite such business (although there may be restrictions on the type of disability benefits that can be provided). However, the main issue for Nordben is that it is not licensed to trade in any particular local country and in providing insurance to local employees the multinational may well be required to use a licensed insurer to insure local employees. Nordben does not wish to disrupt local insurance markets and would always suggest that local carriers are used unless there are mitigating reasons for the multinational to look at other alternative financing.
Where there are mitigating reasons we would require the arrangements to be constructed as an insurance of the multinational as opposed to there being a direct connection between the employee and Nordben. So if a multinational is contractually providing the benefits to the employee, in the event of death or disability the claim is against the employer not Nordben. However, the multinational will have purchased insurance from Nordben to indemnify it from the death and disability claim. This insurance has the same effect as Nordben reinsuring the multinational’s commitment to its employees.
On the assumption that the above is acceptable (and we highlight below some of the issues that the multinational needs to consider) then Nordben must contract with the multinational in a jurisdiction that is acceptable to Nordben from a regulatory perspective. If there is no acceptable jurisdiction we might suggest to the multinational that the contract is executed by our Guernsey based trust subsidiary, Nordben Pension Trustees, who will hold the insurance in trust for the multinational.
It should be noted that in some instances it will not be possible for Nordben to provide insurance to the multinational. It should also be noted that Nordben will never insure statutory benefits.
Issues that the multinational should consider:
• Can it provide for the benefits by means of a contract as described above?
• The tax and accounting implications of such an arrangement both for the employer and the employees.
• The alternative financing options i.e. local provision.
Nordben, Insurope’s partner based in Guernsey, provides flexible insurance solutions for globally mobile employees, expatriates, third country nationals and similar. However, from time to time a multinational company approaches Nordben via Insurope to insure “local employees”.
The reasons for the approach usually fall into one of the following categories:
1. The network does not have a partner in the given country and the multinational wishes to pool the risk.
2. The multinational wishes to provide “hard currency” benefits and/or cannot access appropriate insurance in the given country e.g. the benefit is not usually provided.
3. The multinational wishes to insure lives in a “difficult country” e.g. high terrorism risk etc.
South Korea, long regarded as one of the “Asian Tiger” economies , is the fourth largest in Asia and is the 11th largest exporting country in the world. Despite its miraculous growth performance for the past four decades, Korea is one of the fastest ageing societies in the world and is simultaneously one of the countries with the lowest birth rate. Its income replacement by national pension is low while average career employment is shorter than life span. As a result, the Korean government is in the process of making retirement pension mandatory i.e., employers need to adopt a retirement pension plan before the end of 2010 in order to receive tax benefits.
There are numerous pension providers in the market and amidst enhanced competition, Kyobo Life, with its five decades of history and expertise in the Korean insurance market, has unbundled its retirement pension business since 2005 and quickly emerged as one of the most competitive players in the Korea pension market.
Kyobo Life operates nationwide in Korea and provides various financial related services. It is financially sound with a Moody’s rating of “A2” and solvency ratio of 213.1%. Despite the financial crisis, in the FY 2008, Kyobo Life recorded the highest of net profit of KRW 292 billion in the industry thus proving its risk management capability. The company is also well known for its pursuit for ethical management and corporate social responsibility program for which they have received numerous awards from various prestigious organizations.
In Korea, Kyobo Life developed the first retirement product in back in 1976. It has over 30 years experience in the retirement savings management and currently manages KRW 4200 billion pension assets with 770,000 participants. It is also the first company to set up a Retirement Pension Task Force, develop a pension IT system, offer all products in the market through an Open Platform and provide IFRS service to clients.
Currently, Jin Ho Park, FAS, EA, MAAA, FAC heads Kyobo Life’s Retirement Pension Department with its 360 Pension Experts and 63 Asset Managers. It was the first company to put together a comprehensive pension professional team comprising of actuaries, asset managers, labour attorneys, tax accountants, AICPA, CFP, financial risk managers, graphic designers and advertising professionals. Jin Ho Park
and another Senior Consultant, Ji Hyun Kim are two respected pension actuaries in Korea who enable the company to provide optimum customised services to global companies.
As for Kyobo Life’s asset management capabilities, it is the only company with an investment return of over 4% for three consecutive years. Most banks have recorded lower investment returns while securities companies have produced negative returns. Given its strategic alliance with Axa, Kyobo-Axa investment managers are able to provide localised world class asset management services. Kyobo Life also manages the credit risks of its investment assets through its Risk Management and Monitoring system.
An important factor in adopting retirement pension is the pension provider’s support in employee communication. Kyobo life develops and provides customised communication programs for different clients in different industries to meet their special needs. Their nation-wide Customer Plaza caters to clients located in various parts of Korea while their 909 pension consultants are also able to provide door to door consulting services.
Kyobo Life’s website is specifically designed for both employees and HR managers. It is not only easily accessible but also operates in English. Kyobo Life differentiates itself from other companies by assisting global companies’ Korean subsidiaries in communication and reporting with their Parent Company Head Offices. The company’s track record shows five consecutive years of customer satisfaction awards and a place in the Korean Insurance Hall of Fame.
Insurope in conjunction with Kyobo Life, have in the past conducted Pension Forums, one taking place in Singapore in 2007 and attracting 120 HR managers from 70 Global Corporations. Insurope and Kyobo have a strong partnership in providing the highest quality product and services to its global clients and continues to seek ways to enhance client satisfaction.
country profile - South Korea
Kyobo Life - Optimum Pension Provider for your Korean Operations
Asia Pacific Insurope is pleased to announce the appointment of Jeff Jones as Director, Insurope Asia Pacific.
Jeff’s main areas of responsibility will include business development through the Insurope Network Partners in the Asia-Pacific region, the overall promotion of Insurope throughout Asia and the operational management of its Asia-Pacific central offices.
Jeff joins the organisation from Microsoft where he spent five years as Regional Benefits Manager for Asia. Before that he spent 17-odd years in the insurance sector and in international employee benefits consulting, including a spell with Mercer in both Canada and Singapore.
USA - West Coast Insurope has appointed Lisa J. Morrow as Regional Director for the West Coast in the USA.
Lisa was most recently with Mercer on its health and benefits team, managing a variety of clients based on the West Coast. Before that she worked at The Walt Disney Company as a Senior Consultant, Strategy &
Program Development in its corporate employee benefits department where she developed and implemented benefit strategies, managed vendor relationships and project managed strategic initiatives both domestically and globally. Lisa is based in Los Angeles.
Europe We are also pleased to announce the recruitment of our new EMEA Director Dieter Gistelinck as part of the re-enforcement of our resources in EMEA.
Dieter joins us from his position as Vice President at Willis Multinational Employee Benefits, where he has been responsible for the development of the Willis Multinational Benefits Practice and the expansion of the Willis multinational client portfolio in
Europe since 2006.
Dieter was also a Willis EB Client Advocate for some of the larger Global Willis Network accounts and developed the London based Multinational Practice, which he continued to lead after his relocation to Gras Savoye Consulting in Brussels at the beginning of 2009. Prior to that, Dieter worked at the IGP and ING Multinational pooling networks, responsible for a variety of European regions.
Further investment in Europe sees the recruitment of Sven Roelandt, as new Regional Director for the Netherlands and Denmark, marking the reinforcement of our resources in EMEA.
Sven has worked as a EB Sales Manager for Zurich and Vivium (ex ING Employee Benefits operation) in Belgium before joining Generali Belgium as a Business EB Specialist responsible for major clients and all Generali network linked clients. In
this capacity Sven acted as the local network partner Generali representative for Belgium.
central offices
I've been settling into my new role with Insurope for just a bit over five months, and it’s been an exciting ride. There is so much to share but I will only share the highlights.
I have visited nine of the fourteen markets and hopefully by the time you read this I will have been to two more. This is a massive area and the opportunities are endless. Size seems to be astonishing: China has 37 cities with > 2 million people; India has 16, and neither country has the most populous city (Tokyo and Seoul are each over 24m) nor the most dense (Hong Kong and Singapore are among the top 3 worldwide).
Thinking about work for a moment, we do have amazing contrasts within the region: some markets are just starting out with the basic social programs and private benefits, while others like Australia have a mature,
successful superannuation program that the government wants to overhaul. I will be looking to help share best practices from market to market, not only with our network partners, but with key clients too.
Asia is home to a competitive business culture and everyone wants so much to learn and improve, and we can play a key role in that. In fact, I am thinking of starting a regional newsletter to help facilitate that, mainly for people in Regional / Global Benefits roles. Ideally they should get out to APAC to experience the markets, but if they cannot then we'll try to share news and ideas in a creative, fun style.
I'll bid you farewell as I get back to it... but maybe leave you with just a comment on the exciting challenges here : I've seen a lot of the region compared to most, yet I've seen little. I have a lot of enriching experiences in APAC and yet a lot to learn.
Letter from Asia - Jeff Jones
The Insurope News has been prepared to provide information about Insurope, its network partners and the services and products available. While much effort has gone into maintaining accuracy of all data, no guarantee or warranty can be given regarding the comprehensiveness of reporting on any specific issue. Action should not be taken on the basis of any article without addressing supplementary sources.
For further information on any of the articles in this Newsletter, please contact the Insurope Secretariat.
INSUROPE SECRETARIAT Editors: Hugh GallagherAvenue des Arts 9 Kris Vanmunster1210 Brussels, BELGIUM Production: Dave Rowan
