ART comes into its own in EB market
Herman Schoeman, MD of Guardrisk

Recently much has been made of companies' efforts to tailor-make employee benefit (EB) programmes to suit employees individual needs. But the sad truth is that, in reality, benefits packages offered by the traditional market are generally still far from the level of flexibility required by companies and their employees.

This, coupled with the fact that trustees are increasingly coming under fire for making "wrong" or "bad" decisions, is forcing more and more companies to turn to the alternative risk transfer (ART) market to structure their employee benefit packages. The moral and legal obligation of trustees to consider all options in order to provide employees with the very best EB programme is often easier to comply with in an ART environment, where the employer is able to shake off the restrictions of a more regimented framework that does either not understand or does not cater for the workforce's requirements.

This is directly reflected in the phenomenal growth of the long-term cell captive industry in South Africa. In 2002 cell captives, net premiums recurring reached R293 million; in 2006 this rocketed to R1,2 billion, a 310% growth over four years. Over the same four year period, traditional insurers' (or "typical" insurers as the Financial Services Board refers to this sector) net recurring premium grew by just 20%.

And, if there's still any doubt that ART has firmly arrived on the EB scene: most of the country's major life assurers have formed their own cell captive companies in recent years.

Another reason that more employers are turning to ART solutions for employee benefits is the flexibility of the actual structure, bolstered by the fact that the facility can be set up to cater for the company's particular circumstances. This is much more cost effective than trying to adapt a traditional EB model, which has been designed to provide "one size fits all" benefits. The traditional market generally fixes benefits at preset points like annual salary, but within the ART market the employer can choose to apply criteria that suit the particular business. For instance, using a specified number of times annual salary benchmark for death benefits simply does not work for hourly workers; while, within an ART structure, benefits can easily be linked to more suitable criteria like wage bands whereby a particular group receives a specified benefit.

Applying ART solutions, like cell captives, to EB programmes not only enables employers to choose what benefits they want to offer, but also allows them to provide cover for workers, like seasonal and temporary workers, who are difficult to cover via traditional EB programmes.

Although ART was first applied to the local EB environment as recently as 1999, this trend is expected to increase significantly in coming years an expectation that is matched by developments in the international arena.

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