International PMI: The local national dilemma

When asked how their companies planned to reduce the cost of international assignments, respondents to Brookfield’s 2009 Global Relocation Trends survey (an annual barometer of sentiment among multinational firms) cited two major options: reductions in policy offerings or amounts (32%) and an increased reliance on local hiring (21%).

Given the cost of expatriate assignments (Mercer estimates that a worker earning $70,000 in the US will probably cost the company four to five times that amount if assigned to Beijing), it is perhaps unsurprising that firms are looking to exploit the wealth of local talent available abroad. Running alongside this trend is a rise in the number of people accepting international assignments on local, rather than expatriate, contracts.

“This means there is an increasing pressure for large multinationals to give continuity of [healthcare] cover based on seniority,” says Kevin Melton, deputy director of market development at Vanbreda, an international private medical insurance (PMI) provider. “Why should one manager in Hong Kong be getting less of a package, just because someone from abroad, on exactly the same contract, has taken a job in Hong Kong?”

Finally, there is a growing demand for high quality medical care from what DKV Globality, the international health insurer (part of Munich health), describes as “financially and locally independent people” – high net worth, highly mobile, individuals.

These trends present challenges, and opportunities, for insurers and intermediaries.

“It [cover for both expatriates and local nationals] is a very common request,” says Simon Ball, head of UK global benefits practice at national employee benefit consultants Aon Consulting. “Most organisations are looking for a single policy where possible. The risk margins are reduced, you have the economy of scale from having everyone together and the terms are better.”

“We are seeing an increase in local hiring,” reports Sarah Dennis, international healthcare director at national specialist intermediary Jelf Group. “Employers do have to follow local laws so they can’t just bring in a load of expatriates to run an office location in certain regions. The problem we are finding is that the international PMI insurers are limited in terms of how much local cover they can offer.”

REGULATION

Providers contacted by Health Insurance expressed varying degrees of appetite for pursuing the local national market. There is, however, widespread agreement that international governments are becoming more protectionist, seeking to ensure that their local economies, not international companies, benefit from sales of health insurance.

Mark Cassidy, medical underwriter at Healix, which provides a range of services for insurers across the globe, including third-party claims administration, repatriation and evacuation, describes covering both expatriates and local nationals as a “thorny problem”.

“I think that anybody who says that they can do it has got to be very careful about what they are saying,” he says. “Most developed countries, and a lot of emerging countries, insist that home nationals are covered by locally licensed and admitted insurance companies.”

One approach insurers can take is to cap the number of local nationals covered on a group plan, offering the cover as a sort of concession to the client as opposed to aggressively seeking out this market. CIGNA’s “thumb rule” is to permit local nationals to constitute up to 10% of the group, according to Mark Coleman, director of international sales at CIGNA International Expatriate Benefits, Europe.

“The reason is that, in a lot of situations, we are providing non-admitted insurance,” he explains. “By keeping the local national population to a minimum, it is a defensive position whereby if we, or the intermediary, or the client, is challenged, we can say that we are providing the cover as an accommodation, rather than proactively marketing it in a country where we are not licensed. What we don’t do is offer a non-compliant product.”

Andrew Turner, international PMI manager at Aviva, confirms that the insurer is focusing heavily on the expatriate market. While group schemes will usually contain some local nationals and the cap is flexible depending on the region, there will be no aggressive pursuit of local national business.

“We have considered it in the past, whether or not to have overseas local businesses effectively, but at the moment the focus is on genuine international insurance,” says Turner.

GETTING LICENSED

Some intermediaries would like to see insurers actively pursuing a local license, rather than offering non-admitted products on a limited basis.

“I would like to see insurers coming up with more regional plans, but that would mean they have to get licensed and regulated in those countries,” says Jelf’s Dennis. “Some are starting to do this, particularly in the Middle East.”

Ron Buchan, chief executive of Allianz Worldwide Care, the insurer, says that there is an “increasing demand” for “borderless health insurance” among multinational firms and believes that, with a network of companies in over 70 countries, his organisation is well-placed to provide it.

“The resources I can bring to play here are not just my company but all the entities,” he explains. “We can provide local cover because the local company will have a network with providers and the fronting and regulatory knowledge.”

While stressing that the company is “primarily focused” on the expatriate market, Debra J Williams, managing director for Europe at Aetna Global Benefits, confirms that the company has an established presence in certain regions and countries, where it operates and sells locally-admitted plans.

“For example, Aetna Global Benefits has solutions in place that comply with the requirements in Abu Dhabi and Dubai,” she says. “Currently, we have a partnership with Royal & SunAlliance (RSA), a locally licensed insurance company which is fully compliant with UAE rules and regulations. We have also built strong, strategic partnerships throughout Asia and other parts of the Middle East in order to address similar regulations.”

Other insurers have sought to build partnerships with local insurers in order to address the regulatory challenge. In September Bupa announced a partnership with Russian insurer Ingosstrakh, offering a range of products to expatriates working in Russia and Russian citizens employed abroad.

Aon’s Simon Ball points out that, as the regulatory landscape changes, insurers without partnerships may need to act swiftly to change their approach, giving the example of Abu Dhabi where a change in regulation forced insurers to react very quickly to find fronting arrangements. Although international intermediaries such as Aon have the advantage of a local presence, they also have a great deal at stake.

“In terms of non-admitted products, we have to play far more by the rules because we have an organisation that could be taken to task for not doing so,” explains Ball. He points out that, even when you buy international cover, that may not preclude you from having to purchase local cover.

Jonathan Earnshaw, regional director at DKV Globality, believes that insurers without local partnerships are exposing themselves to risks and that the decisions about whether to secure licensing are based less on “intellectual”, strategic thinking and more on what they can get away with.

“In China, up until now, there has been a real grey market of people operating there without being locally licensed,” he points out. “But the main international brokers won’t sell products from their China office because they cannot risk losing their license.”

Certainly it would seem that the extent of the demand for products from local nationals can determine whether or not insurers seek to become locally licensed. Following a surge in business, Bupa is now wholly licensed in Egypt where, according to Bupa International’s sales director Tim Slee, it has been “highly successful”.

“The mere fact of our success and size has driven us down the route of fully regulated,” says Slee. “Once you are there, then why not source good quality risk?”

This strategy does raise questions, of course, about whether insurers are as conscientious about pursuing a local license in those regions where demand is less apparent, or authorities less stringent.

MANAGING COSTS

Regulatory “minefield” aside, some providers warn that there are other, very significant, risks to extending cover to local nationals.

“If you build a portfolio of local nationals, if you are not careful, you distort your risk profile because they claim more,” says DKV’s Earnshaw, warning that this can eventually hit expatriate members in the pocket.

While the large, international providers may have provider networks, others may not, raising questions about their capacity to monitor and control the costs of care. Allianz Worldwide Care has recently appointed local regional medical directors in a bid to exert greater control over providers.

“If your book is driven by local nationals your control of cost must be very good, and careful,” says Earnshaw. “Logically, long-term, an insurer which has a greater focus on expatriates is probably going to have a better claims experience than one which has no discrimination.”

Bupa International’s Tim Slee expresses a different opinion.

“We see very little evidence across our business that high net worth local nationals represent a worse risk than traditional expatriates,” he says, pointing out the fact that they will be much more familiar with local healthcare provision than expatriates. He agrees that it is important to have a provider strategy in place in order to “ensure reasonable and customary charges”. Bupa launched a partnership with Africa Medilink Ltd in July last year (its first network outside the UK) in a bid to tackle “overpriced and unpredictable” claims from some doctors.

“If you have good underwriting, ask the right questions and charge the correct prices for the product then the risk is no worse whoever you are insuring,” says Slee.

IS LOCAL BEST?

While intermediaries report requests from clients for one plan, Healix’s Cassidy warns that the ratings for covering both expatriates and local nationals “have not settled down yet” and agrees with DKV Globality’s Earnshaw that the two should “probably” be kept separate.

“To stay within the law, you should keep expatriates on a different plan,” he concludes. “That way you can give nationals their own plan, but be more contained. You have to use a local insurance company who will offer you a ridiculously low price, so why not take it?”

Aon’s Ball agrees that local can be best – that it makes sense to look for local policies in countries with a very strong domestic delivery of medical insurance. In Kenya, for example, Aon will generally recommend local policies which meet the expectations of local nationals. Ball points out that it can be difficult to revert to “significantly cheaper” local policies once international cover has been put in place.

One option for expatriates in areas such as Abu Dhabi (where the government has ruled that they must take out insurance from a local provider in order to secure a visa) is to take out additional insurance from an international provider.

“What we have found is that the local product that you need for visa requirements is actually very, very cheap and the cover it provides is not what an expat would want,” says Aviva’s Turner. “So expats are generally amenable to buying a local product and then using our product.”

Rachael Floyd, operations director for PMI Global, the newly-launched international division of national specialist intermediary PMI Health Group, says that locally hired expatriates (for example, Indian nationals hired by organisations within Abu Dhabi) would usually be given a “budget” form of cover, meeting minimum requirements set by the authorities, while expatriates sent across from the UK could expect more comprehensive cover.

She also points out that as an intermediary “pulling together” services in addition to brokering (such as a global EAP, access to nurses and health screenings) PMI Global can harmonise other benefits (beside insurance) for both expatriates and local nationals.

PROS AND CONS

Some providers question the wisdom of employers offering one health insurance policy to both expatriates and local nationals. CIGNA’s Coleman points out, for example, that in Africa the value of an international benefit in relation to a local employee’s salary is a “huge discrepancy”. Paul Weigall, head of sales at InterGlobal, agrees. “The minus of offering local schemes is that you are getting very low premiums but quite a lot of risk,” he says.

However, Bupa’s Slee believes that there are real advantages to covering expatriate and local national employees on the same policy.

“It is seen as a huge benefit,” he points out, “and organisations like to be consistent wherever possible. It allows senior managers to have the best healthcare, which might not be available locally.”

Several insurers draw the distinction between local nationals and high net worth, highly mobile individuals. As part of Munich Health, DKV Globality is able to access provider networks across the globe and while it operates a 10-20% limit on covering local nationals on group schemes, it is keen to address the high net worth market. Regional director Jonathan Earnshaw, says there is a high demand in South America, for example, for a product that will enable mobile workers access to high quality hospitals and the possibility of evacuation.

“The big question now for competitors is how long it will take them to set up a network and whether that network will be sufficient for the specific requirements of high net worth individuals,” says Earnshaw.

BROKER PARTNERSHIPS

So what does all this mean for intermediaries? Bupa’s Slee warns that the Financial Services Authority (FSA) is subjecting the distribution of FSA-regulated insurance companies to increasing amounts of scrutiny.

“Every intermediary has to be licensed in its own jurisdiction, so if you are a broker in Nigeria we will be looking for your Nigerian regulatory authority registration number to ensure you are a licensed organisation,” he says. “It is easiest for smaller brokers to go and find partners instead of getting licensed all around the world. We know a number of key distributors that already do that. It allows them to compete with the global benefit houses like Marsh, Aon and Mercer, who use their extensive global footprint to offer consistent advice all the way around the globe.”

“It takes time to get licensed and regulated as an intermediary but we could source introducer arrangements with reputable companies within certain regions that are already government-backed that we could work through,” says Jelf’s Dennis. “It is a way of making sure that the client is purchasing a product that is licensed and protected.”

Allianz Worldwide Care’s Ron Buchan believes there are “not enough” intermediaries developing these sorts of partnerships. “To my mind that is the obvious thing to do,” he says.

Corporate consultancy Bluefin has a network of European partners and is also a member of the Worldwide Insurance Network Group (WING), a group of independent partner brokers which claims to offer “a powerful alternative to the mega brokers’ impersonal, corporate approach to global insurance services.” WING covers more than 50 countries, enabling member brokers to contact partners in order to secure cover for clients.

Linda Torr, health and risk consultant at Bluefin, says the organisation has “big development plans” in this area and is “looking to expand considerably over the next number of years.”

Against a backdrop of globalisation, tempered by increasingly protectionist governments, it would appear that partnership is the way forward for both insurers and intermediaries.

REGULATION Q&A

Kevin Melton, deputy director of market development at Vanbreda International, shares his views on the regulatory environment in which insurers and intermediaries are operating.

Q. CAN INSURERS OFFER EXPATRIATES COVER REGARDLESS OF WHERE THEY ARE GOING TO LIVE?

A. No, they cannot. Certain countries have regulatory requirements that prohibit a non-admitted insurer from writing policies, irrespective of the status of the person seeking cover. For example, in Abu Dhabi, you have to have health insurance in order to get a visa but the only insurance products recognised are those authorised and admitted in Abu Dhabi. It is becoming increasingly difficult to write a global product.

Q. IN SOME COUNTRIES IS IT FORBIDDEN FOR AN INSURER TO COVER A LOCAL NATIONAL?

A. It is not necessarily forbidden but you would be in breach of local regulation. Some insurers will take a calculated risk but they could be fined by the local insurance regulatory commission. It is more likely that the local national will find that the international provider cannot replicate local providers. There is normally a way to solve these problems. Insurers can get licensed in countries, they may have a network of companies or they can set up their own company.

Q. WHAT IS AN “ADMITTED PRODUCT”?

A. This is one that is clearly authorised and regulated from within the country that it is written. Vanbreda will write an admitted product wherever it can. For example, we have an office in China so we will write products for expatriates in China with an admitted Chinese insurance company, so the product becomes admitted. If an insurance company writes a product where they are not licensed, that is a non-admitted product. They are doing nothing illegal, but theoretically, nobody on that contract is protected by insurance regulation within that country.

Q. SHOULD BROKERS BE FORMING PARTNERSHIPS WITH OVERSEAS BROKERS?

A. The insurance mediation directive in the EU allows brokers to sell in other countries. The reality is that they don’t because they don’t have multilingual staff and helplines. But there is nothing stopping them from giving advice to a company where, for example, the headquarters is in the UK but there is a big subsidiary office in Abu Dhabi. They cannot advise the client in Abu Dhabi if they are not licensed there, but if they have an affiliation in Abu Dhabi they can split the commission.