International Group Insurance
Understanding What Is Necessary When Creating an International Group Insurance Plan
by David G. Tompkins, CLU
Sending an employee overseas is a huge investment for an organization—large or small. Most firms don’t realize that the cost of a failed overseas assignment can often run past $500,000 once all the costs are accounted for. Thus, it makes a lot of sense to invest in an employee’s financial safety net—his or her international group insurance.
These days it is not unusual for a U.S. manufacturing firm to operate a factory in India, an American airline to have its reservations processed in Ireland, or a Bahamas-registered offshore company to have expatriate employees in Africa. As we all know, the world has long since changed into a global marketplace with a global workforce. More and more, companies are sending their employees abroad to search out new markets or run operations. The employees who are sent overseas are attracted by the exotic locations, a chance to travel and experience various social and business cultures, and, of course, the lower taxation in some countries, and sometimes the higher salary. These employees travel frequently and are key assets for the business. Most companies want to offer them optimized protection while safeguarding the continuity of their business. Many Canadian and U.S. companies are also hiring third-country nationals, especially if they have skills that don’t exist in the company or country. More often than not, the offshore company will have to hire local nationals to fill various positions when needed. Depending on the country and labor requirements, these local employees may require benefits from a local insurance company. However, local nationals can be fully or partially covered by expatriate benefit programs. Such a decision will also hinge on the reliability and quality of the local insurance firms. Generally, most insurers are not keen on covering local nationals. If they do, the insurer will want to make sure the majority of the employees covered are expatriates.
Selecting an Expat Insurance Company
Some expat employers operating offshore use a local insurance company, but this can be fraught with inconvenience and danger. In many countries, supervisory bodies or cartel arrangements strictly regulate insurance firms. Other nations may have blocked currencies or significant foreign exchange regulations. It must be asked whether the employee really wants to receive his or her benefits in a fragile currency. Of course, this could also be said of the U.S. dollar of late. This is not a problem if the insurance company is reimbursing health or dental expenses, but currency payments for life and disability insurance for an expatriate should be made in a stable currency, such as U.S. dollars, euro, or U.K. pounds. In addition, employees may not be in a particular country long enough to qualify for membership in the local insurance plan,or there may be a citizenship requirement. Having a pooled offshore plan simplifies reporting, administration, and communication because the benefit manager will have one single-source clearinghouse and will not have to negotiate with several foreign insurers. Finally, companies must decide whether they wish to deal with a highly stable European or North American insurance company or a company from a less stable country.
In addition to looking at the overall cost of the expat benefit plan, one should also include ease of administration. Employees are also impressed by a plan that has prompt claims settlement in any currency and the ability to settle claims directly. Once the employee repatriates back to his or her home country, the coverage usually ends. Most expatriate plans are not in compliance with state and federal laws such as HIPAA, COBRA, and ERISA—check with your international insurance broker for guidance on this.
Avoid Using Domestic Plans
Some expat employers like to use their domestic insurer to cover their expatriate employees. This is not a good idea for a variety of reasons. First, the domestic firm cannot insure local or third-party nationals. Second, payments can only be made in the domestic insurer’s home currency. Third, domestic plans are designed to work in their home country and comply with domestic rules and administration, not the rigors of international administration and claims payments. Fourth, disability payments from the firm’s domestic insurer may have to be made if the employee returns home for treatment and often may not cover disabilities occurring overseas. Finally, these insurers will at least want a time limit on insuring someone who works abroad. Basically, coverage when you need it may not be there. One should also check with an accountant to ensure that being part of a domestic employee benefit plan does not affect residency tax status. Compounding the preceding issues, statutory requirements imposed on benefit plans for expatriates vary from nation to nation, and many states have no reciprocal social arrangements or do not allow the transfer of benefit entitlements abroad. Insurance schemes put in place at the various countries may vary so substantially that it is impossible to conduct product/price comparisons.
I have found that many human resources managers use domestic insurers because they want everyone to have the same coverage—but this misses the above points plus you can’t expect your expat plan to perfectly match your domestic employee’s coverage. These are expatriates and they have to be treated as such. Pooled expatriate plans also harness savings potential through higher economies of scale by insuring several operations in various countries under one plan.
A Wide Range of Expat Insurance Policies
The above-all points need to look at consolidating an international employer’s global insurance policies with one offshore benefit provider that will provide solid, portable, and continuous protection. This will help streamline risk management, and cut administration and communication costs. Such pooled expatriate plans also harness savings potential through higher economies of scale by insuring several operations in various countries under one plan. Expatriate plans offer portability of benefits and bring the quality and security of benefits required by employees. Quality benefits at a reasonable price for expatriates are imperative for HR managers. If an employee becomes injured and has to be evacuated or is permanently disabled, he or she will come to the employer for help. Benefit payments can be made in the local or a set currency such as U.S. dollars. Some of the international benefit plans offer a comprehensive program, while others offer just traditional insurance protection, such as life insurance.
Most expatriate benefit schemes offer life insurance based on a multiple of salary, such as two or three times of an employee’s earnings. Others offer a flat benefit amount. Two times’ earnings is a common amount of life insurance. Dependent life insurance is not very common in expatriate benefit plans. Most employers will match the currency of the cover with the salary the employee is paid in, but this is not a hard and fast rule. As one would expect, the U.S. dollar is the most common currency used for international benefit plans, despite its recent drops in value.
The amount of accidental death and dismemberment (AD&D) usually matches the life insurance. As the name implies, this insurance is paid if an employee dies in an accident or suffers a permanent loss of use or severing of a limb, loss of an eye, arm, finger, etc. AD&D coverage will vary quite a bit from plan to plan.
Most expatriate insurers will not offer short-term disability (STD) coverage. With employees and insurers dealing with each other over such long distances and the relative ease of self-insuring this benefit, a STD plan is usually not necessary for most clients. But an employer should have a written policy that states when income will be paid if the employee is sick or injured before the long-term disability (LTD) plan from the insurer commences.
Unfortunately, LTD coverage is an often-neglected benefit with most expatriate clients that I encounter. Despite the fact that your employees’ most valuable asset is their ability to earn an income, many expat employers still don’t have a salary continuance plan in place or worse yet try to self-insure. An LTD claim for an employee with a decent salary can easily exceed a million dollars if the employee becomes permanently disabled. Most disabilities lasting longer than two years are permanent in nature. A typical plan pays 60 to 70 percent of an employee’s salary. As you would expect, the rates for the life, AD&D, and disability benefits are based on the age, sex, occupation, income, and location of the employees. As an example, the company of an expatriate who is traveling in Africa in a very politically unstable country can expect to pay more than a company with employees in an office in Europe.
The next benefit almost always offered is a health package. This coverage includes benefits such as hospital expenses, drugs, professional services, maternity expenses, and physicians’ charges. The premiums are based on many of the same factors as the life and LTD plans, but may weigh more heavily on the operating nation. Medical evacuation and emergency travel coverage is also available. Dental insurance can be added to the plan to cover basic dental services such as cleaning, scaling, and extractions. Crowns and bridges are usually covered at 50 percent, as is dependent orthodontics. This benefit is more easily self-insured.
Probably the largest factor in the pricing of an international health insurance plan is where the employee can access treatment. Many expat health plans will price their health insurance to either cover or exclude treatment in the United States and Canada because of the high cost of medical treatment in North America. If one has American citizens covered, it is always a good idea to pay extra to make sure they are covered for treatment back in the United States. If an American expat becomes seriously ill or injured, they will want to get treated in the United States. Some plans will encourage the use of PPOs by eliminating coinsurance or deductibles if the employee is treated in a PPO network or if he or she gets treated outside of the United States.
While some employers don’t provide coverage for spouses and children, this can be a short sighted way to decrease costs. A spouse’s dissatisfaction with living overseas is a very common cause of foreign work assignments not being successful with the resulting high costs to the employer. It is a good idea to make sure your expat health plan covers an employee’s dependents well. One such important benefit is maternity.
Many group international benefit plans do not cover maternity or place limits and conditions on it because of the inherent high-claims risk. As you would expect, covering maternity is going to increase your costs. Almost all expat group plans will have a 12-month waiting period for maternity—something to think of before you send an employee or spouse overseas who is already pregnant or will be in the next 12 months. A good plan will cover newborns at birth, but administrators have to make sure that the insurer is advised of the birth and that the newborn child is added to the plan.
Dental and vision benefits are less common with many expat benefit plans, but it is still a worthwhile part of your benefits strategy. While dental benefits can be self-insured, you have to weigh the administration cost of adjudicating dental claims. Some employers might prefer to give the employee a dental allowance each year. Employee benefit plans include the payment of eyeglasses and contact lenses. This benefit is quite inexpensive and can be easily self-insured.
In terms of fine print, it makes sense to examine the plan, paying particular attention to the exclusions. As discussed, some benefit plans exclude maternity expenses and care for newborn children while others place limits on pre-existing conditions. Still other plans have pre-existing clauses that limit the benefits for conditions, which were being treated 90 days prior to being insured by the medical plan. Such exclusions may be removed for an additional premium charge by some firms. The larger the number of employees, the more the insurer may be willing to remove the pre-existing clause for health insurance and even cover employees without any medical questions. Another standard exclusion clause is for war and riot. All firms will have a war, terrorism, riot clause of some sort or another, but some will cover the employees if they are killed, disabled, or injured by such an event as long as they are an innocent bystander. This is what we call passive war risk. It basically means you are not covered if you are actively participating in a war, riot, or terrorist act. Any client who has employees in a country highly susceptible to such events should make sure that passive war and terrorism are covered. Of course, these days, which country is not susceptible to terrorism? As a broker with a background in political studies, I examine the political situation in the countries my expatriate clients operate in to advise them of whether or not they should try to have the war risk clause taken out. Controlled risks offers more in-depth risk analysis for clients who are sending workers to dangerous countries.
Other common exclusions or limited benefits in group insurance plans are participating in a crime, alcoholism, HIV for health benefits, mental illness, nuclear or biological attacks or accidents, contraception, obesity, cosmetic surgery, and fertility treatments.
A company need not be big to obtain these insurance plans. Expatriate plans are available for as few as three employees who may be in different countries. If a company has more than 50 employees, the plan design can be even more flexible. Also, the larger the number of employees, the more the claims experience becomes part of the renewal premium. With some plans, if the annual international net results are positive, a dividend can be paid to the head office of the multinational. If the claims results are negative, it can be written off provided stop-loss protection was agreed or carried over to a new accounting period. For most small- and mid-size offshore companies, their claims experience will not affect their renewal rates. Some clients have combined the local insurance schemes with the expatriate coverage. This can be done, for example, by using the local health and dental coverage with an expatriate disability and life insurance plan. In some cases, it can integrate third-party policies.
Selecting a Benefit Plan
Choosing an expatriate benefit plan does not only depend on price. Another factor is the ease of administration; for example, an employer will want a plan with a 24-hour helpline for employees with queries about their membership or medical coverage. Personalized membership cards and booklets to effectively communicate the plan are also important. In addition, employees are impressed by a plan that has prompt claims settlement in any currency. Finally, it must be determined whether the expatriate insurer is financially stable. This is of obvious importance, especially for employees who become disabled and will be receiving payments for many years.
You Don’t Have to Be a Large Firm to Obtain These Plans
Expatriate benefit plans are available for as few as three employees who may be in different countries. If a firm has fewer than five employees with no foreseeable growth, it may want to simply consider an individual international health insurance plan, such as the ones offered by Expat Financial. Once you have more than 10 employees, the plan design can be even more flexible. With some large benefit plans, if the annual international net results are positive, the dividend can be paid to the head office of the multi-national. If the claims results are negative, it can be written off if stop-loss protection was agreed or carried over to a new accounting period.
At the end of the day, the expatriate benefits are simply another way of compensating employees. For companies operating overseas, expatriate plans offer the best combination of cost, portability, coverage, ease of administration, and security. International group insurance is a vital part of an employer’s remuneration package for its expatriate employees, so making sure that the plan is well received by the employees is an important part of the firm and employee’s success overseas.
This article appeared in the January 2005 International Insurance Quarterly Section Newsletter, which is published by Chartered Property Casualty Underwriters (CPCU) Society.
David G. Tompkins, CLU, of TFG Global Insurance owns and operates Expat Financial with web sites www.expatfinancial.com and www.tfgglobal.com. Tompkins is a Chartered Life Underwriter (CLU). He has worked in the insurance and financial services business since 1991. Expat Financial has individual and group expatriate clients around the world. He may be reached by telephone at (604) 628-0624 or via e-mail at firstname.lastname@example.org.