Multinational pooling – combining group insurance risks, such as life, disability and medical coverage in two or more countries – allows surpluses normally remaining with the insurer to be returned to the multinational company in dividends.
Mercer said in its report that companies tend to passively manage their multinational pools, and thus experience underperformance. Companies can profit from more active management when considering such factors as careful selection of countries and contracts, scope and relevance of insurance protection and the basis by which interest and reserves are calculated.
One such scenario is how the pool calculates loss. Those pools where loss is carried forward – overall loss is carried forward in full to the following year’s account until canceled by future surpluses – the dividend averages 3.6%. Conversely, stop-loss pools – all losses exceeding the level of self-retention are cancelled by the insurer – average a dividend of just 0.2%, according to Mercer.
Cost savings can also be achieved through combining smaller pools into a larger pool. As pool volume increases, pooling networks’ total retention expense – risk plus administrative charges – decreases, particularly for pools $1 million to $5 million in size.
However, geopolitical risks are a consideration as contracts in individual countries can vary widely. Total claims ratio for life insurance range from 5% in Hungary to 97% in Puerto Rico, whereas, aggregate claims ratios for medical claims ranges from 20% in Switzerland to 96% in Brazil.
Those countries generating the highest overall surplus on premiums are:
- South Korea – 21%
- Ireland – 20%
- Greece – 18%
- Argentina – 16%
The United States produced an average dividend of 15%, while the United Kingdom recorded a deficit of -28%.
The survey examines more than 300 pools for 158 multinational companies covering 91 countries. Additional information can be found at www.mercerhr.com .