Corporate interest in funding EB programmes through the ART market continues to rise

Resources, in the form of highly skilled and experienced employees, have never been scarcer than they are right now. In an increasingly competitive labour market, companies are finding it difficult to differentiate themselves as employers, especially in the current economic climate. One of the key differentiators – and potential deal breakers – in this arena could be the company’s employee benefits (EB) programme.

Since the turn of this century, there has been a definite, and growing, trend for companies around the globe to move their EB programmes into alternative risk transfer (ART) vehicles like captives and cell captives, which allow them to tailor-make their EB offering to suit their employees’ particular risk profiles and requirements. All this with the additional benefit of being able to introduce cost savings and control (it is widely recognised that insuring EB programmes through an ART facility can cut costs by 10% in the first year, and up to 25% in future years). Improved cash flow is another consideration driving the trend to fund EBs through captives and cell captives. It would come as no surprise then that, over the past decade, all of South Africa’s major life insurance companies have established their own cell captive operations.

And if there still any large corporates that are doubtful about going the ART route with their EB programmes, the big names that emerged at the 2008 Generali Employee Benefits Network meeting in Norway as ‘converts’ should dispel any doubts. Philips, Coca Cola, Adidas, General Motors and Shell are among those companies that have placed their EB programmes into captives.

In the US (where, prior to 1999, legislation made the funding of EB programmes through captives unfeasible), eight corporates received approval from the Department of Labour between 2006 and 2008, which is more than any other three-year period since the rules were liberalised in 1999. And that number is expected to increase as employers explore using their captives for benefits other than the ‘traditional’ life, long-term disability, and accidental death and dismemberment risks. US employers are now looking to use their captives to reinsure annuities purchased from commercial pension plans and it is envisaged that captives could emerge as a useful tool for pension fund planning.

Closer to home, there is no doubt that post-retirement benefits have played a role in the growth of the EB trend towards ART solutions. For many South African employers, one of the largest financial risks they face in terms of their employees is that posed by post-retirement healthcare benefit obligations and the ART market offers a workable alternative for funding and managing these risks. Local ART providers can look forward to considerable growth in this sector, especially considering the forthcoming tax clarity from SARS on the funding and insurance of these obligations.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: 011 669-1001

Prepared  by:
Melanie Davis, PR@Work
Telephone: 011 615-3309 / 083 225 7450