PEOPLE.IDEAS.PERFORMANCE

116 Financing the EB Plan through a Captive Insurance Most employer self-insured their employee benefits program using an earmarked account. By self-insuring, the employer benefits from having access to the fund and being able to earn investment income to the un-utilized fund. However, self-insured has a drawback as the earmarked fund may be insufficient to cover the cost of the employee benefits program. Companies can enjoy the benefits of self-insured program and the benefits of an insurance program by self-insuring employee benefits via their captives, thus creating significant savings. One of the most notable trends in benefit financing in recent years has been the increased role of captives. Large corporations have been using captive insurance companies to retain and manage their risks centrally for decades. Out of an estimated 7,000 captive entities worldwide, around 100 are thought to manage sizeable employee benefits programmes. It is believed that the numbers are growing, and that interest has accelerated in recent years. Regulatory changes in Europe, with the implementation of Solvency II in January 2016, are also likely to boost interest in using captives to fund benefits. In recent years, European captives have been preoccupied with Solvency II’s new capital and risk management rules. However, many are now turning their attention to how they can get the most out of their captives under the new regime. The development of the captive employee benefits plan could also help to drive captive penetration into the mid-sized commercial sector. For example, looking at employee and property/casualty holistically could strengthen the business case for medium-sized companies to establish a captive for the first time. This could be a full captive (re)insurer, a rent-a-captive or virtual captive, such as a cell in a protected cell company. 5. &855(17 ,668(6 Rising costs and the centralization of employee benefits are also driving changes in the way companies fund and place insured benefits. Large international organizations are increasingly focusing on the management and financing of employee benefits. Organizations are looking at new ways to manage benefits — a significant expense for all corporations, and a cost that has been largely sidelined as it is usually in the domain of local HR. Now, large companies are looking to integrate HR and finance and get the best out of their benefits. Moving forward, risk managers are likely to take a much wider role in both employee benefits and the management of employee risk, going beyond risk transfer. Risk managers are increasingly looking at employee-related risks well beyond the scope of employee benefits cover, larger and more sophisticated companies are starting to take a more holistic approach to employee risk. Organizations realize that their employees are often their most valuable asset, and some risk managers are beginning to look at the risks around that human asset. Risks like the ageing workforce and talent are relevant to risk managers, who can look at such issues through a risk perspective. And while certain people risks fall into both risk management and human resources camps, there are overlaps between benefits and property/casualty insurance. Risk assessment and management is also an important factor in the financing of employee benefits. It covers a wide range of elements including the demographic and economic factors. The demographic factors cover the longevity risk, mortality risks and morbidity risks. These risk assessments are important for retirement fund planning, life and disability insurance as well as health benefits. The economic factors include investment risk, increase in inflation and other employment related factors such as turnover and employment rate.