Captive Insurance Strategies for Multinational Employee Benefits

Ask corporate leaders around the globe about the greatest challenges they face, and no matter the industry, attracting and keeping high-quality employees will be near the top of the list. The same technology that has given businesses the flexibility to hire people from far-flung locations has sharpened the competition for skilled candidates, allowing the best people to become even more selective about where they choose to work.

Employee benefits programs have always been a visible demonstration of the importance a company places on supporting its workforce, and most corporate leaders take great pride in creating attractive programs offering industry-leading benefits. As they hire people across borders, though, ensuring everyone receives similar benefits creates challenges of its own. That makes the need for global coordination of benefits increasingly critical.

The captive insurance concept provides a versatile strategy for supporting and funding multinational employee benefits programs. Beyond providing the many traditional advantages of a captive insurer, it can dramatically simplify the process of compiling and streamlining benefits for employees in many countries.

The company creating the captive can bundle all sorts of health-related coverage and other benefits, such as life, long-term disability, dental, mental health, and higher levels of maternity and paternity benefits. (US regulations preclude the use of a captive to fund traditional health insurance.)

Just as important as the nature of the benefits is the wealth of data available through a multinational captive. Analytical tools allow companies to explore and understand their claims histories in ways that haven't been available. That makes it easier to highlight opportunities for claims reduction related to issues resulting from the nature of the company's work.

Captives may also be used as a vehicle for making voluntary benefits. Companies can even deploy a captive for more bespoke and unusual coverage, such as travel and accident insurance. However, since those benefits are funded by employee contributions, they cannot be commingled with employer-paid benefits. An approach that provides an excellent alternative is to participate in a group captive arrangement with other companies wishing to offer the same set of benefits.

Creating an effective multinational employee benefits captive requires addressing a significant amount of information and regulatory oversight. For example, many countries have complex labor laws around benefits, taxes, and investment. In the European Union, the Solvency II regulations set steep restrictions for insurance structures on matters such as capitalization. Other laws like the General Data Protection Regulation (GDPR) for any personal data of individuals from Europe and the Personal Data Protection Act (PDPA) in parts of Southeast Asia govern how the company and captive protect personally identifiable information.

Health and welfare programs offered in the US operate with oversight from multiple federal departments and laws like the Employee Retirement Income Security Act (ERISA). Captives generally cannot be used to provide health insurance to US employees.

US employers can pursue another form of self-insuring to protect themselves from catastrophic claims by adding a layer of reinsurance on their plan through a stop-loss program. Technically, the use of stop-loss is seen as a risk retention tool and not a true employee benefit. Given that, there are two ways a US employer can use the captive strategy with stop-loss coverage. The first is through a group captive arrangement involving multiple companies. The other involves combining that layer of risk in a captive with other coverages like property or cyber and obtaining a prohibited transaction exemption (PTE 79–41) from the Department of Labor. (The captive may be required to use a fronting insurer.)

Companies that want to use a captive insurer to align benefits for locations or employees who live in multiple countries will often begin through a pooling process. Because of the inherent complexities of that process, we generally recommend that companies develop a structured timeline that gradually adds individual countries into the captive over an 18-month period.

It's possible that a particular country may have unusually low costs for the same benefit, so the local managers and employees may not want to be added to the pool. Some companies allow that option while others mandate full participation.

Experienced benefits managers recognize that the development of a captive-funded multinational employee benefits program is an enormously complex undertaking that can demand effort measured in years, not months. Even a company that's only at the investigatory stage will benefit from the help of a captive partner with extensive global experience.

Establishing such a captive across multiple nations involves constant engagement with underwriters, actuaries, fronting insurers, local regulators, policy administrators, and others. In nations like Germany and the Netherlands, the process also involves relationships with local legislators, bankers, and other influentials. Additionally, data needs to be managed with care. Rather than creating these controls and resources on its own, a company gains access to everything it will need when it chooses the right consultant.

The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.