ART's "soft" benefits create win-win employee benefit programmes

- Herman Schoeman, MD of Guardrisk

Today there are a plethora of risk financing tools available for companies who wish to take control of their employee benefit programmes in a responsible and cost efficient manner. These include rent-a-captives, cell captives, protected cell companies, captive insurance companies, risk retention groups and multi-national pooling mechanisms, to name but a few.

By their very nature, all these structures centre around the financial benefits that they normally provide for the company. But there is another facet that should be considered, and it's a very important one: by exploiting the "softer" benefits of alternative risk transfer (ART) structures, the company's employee benefit programme can become a valuable tool for attracting and retaining high calibre employees. For instance, despite the fact that many companies shy away from providing post retirement health care benefits, there are still companies out there offering these benefits to new recruits in order to differentiate themselves in today's highly competitive labour market.

And its not just companies seeking to be proactive that will find a use for ART in the employee benefits arena. The current climate of labour activism means that companies are increasingly being called on to prove that they are doing the best they can to provide social and financial security for workers.

With more and more companies converting from the defined benefit schemes of yesteryear to defined contribution schemes, its understandable that employees often feel that the company's focus is on the bottom line, rather than the workers? interests. But ART structures allow the company to turn that perception around, and ensure that employees receive packages that are better structured to meet their needs than "off the shelf", generic packages are.

It is still common practice for employers to structure their employees' packages on a cost-to-company basis, so it stands to reason that if you can use ART to provide benefit packages of same or better levels, at a lower cost, it leaves more money to pay workers and everyone knows, that when it comes to attracting and retaining staff, money talks.

ART structures - through the accumulation of reserves - facilitate a smoothing of contribution rates and the maintenance of promised benefit structures in an ever increasing cost and financially volatile environment. ART also allows the company to cover non-insurable employee related risks like permanent health insurance above the R75000 threshold, or group life assurance benefits above the non medical underwriting limit ? all of which are great competitive differentiators.

Traditionally, an employee benefits scheme is a once off transaction that gets reviewed annually at renewal time; self insurance structures, on the other hand, provide constant feedback and monitoring of benefits promised. Regular feedback means that management is constantly thinking about the effect of the scheme on the company and retirement fund. This in turn creates the tendency to implement risk management techniques like HIV/Aids management programmes, absenteeism management and disability rehabilitation programmes, which facilitates better claims experience.

Once the company starts looking more closely at the root causes of losses they are better able to control them. Take the example of the American Contractors Insurance Group (ACIG), a 35 member Bermuda-based captive established in 1981. In 1990 the company had 1200 workers compensation claims; diligent loss control reduced that number to just 300 in 2003, despite a twofold increase in the captive members? man hours.

It must be said that ART is not the a panacea for all employee benefit schemes ? in one in four cases it may not be feasible but, for the remaining three it can create a win-win situation for both the company and the workers: the company doesn't have to pay more, and the employees not only don't have to accept less, they often get more.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: +27 11 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: +27 11 615-3309 / +27 83 225 7450