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Many large employers, to reduce costs, are paring down the number of international benefit networks they deal with, observers say.
At the same time, with most large multinationals already accounted for, networks are turning more to small and midsize employers to generate additional revenues.
They also are competing with one another on price, service and administrative capabilities, say observers.
A multinational benefit network is a working arrangement among insurers through which companies with employees in multiple foreign countries can obtain various employee benefit coverages.
International benefit networks still fill employers' needs despite the growth of "megainsurers" with their own vast geographical networks, say observers.
There is "absolutely no question" international benefit networks provide a value, said Bill Coplin, director of global benefits at Santa Clara, Calif.-based Applied Materials Inc. "It's a combination of different things. Saving money is critical" as well as the ability to negotiate coverage terms and conditions, he said.
Liz Partyka, a consultant with Lincolnshire, Ill.-based Hewitt Associates L.L.C., said that rather than being limited to a given insurer, companies "can work with these networks and through these affiliates still have the financial benefits and still receive the benefits of reporting through the affiliates, so our clients definitely see it as very valuable."
Bob Wesselkamper, a principal and senior vp with Sedgwick Inc. in Chicago, said, "Pooling networks provide quantifiable and non-quantifiable benefits to clients."
"The quantifiable advantages are the reduction in the gross cost of benefits through dividends. They continue to prove that this is a successful means of reducing the gross cost of benefits," said Mr. Wesselkamper.
Furthermore, "the networks themselves are becoming more attuned to the non-quantifiable advantages" they offer, he said. These include acting as a central source for data collection and claims questions as well as providing information on typical and mandatory benefit practices to supplement consultants' help.
The three most important advantages of dealing with a network are savings, service and control, said Gianni Ban, New York-based executive vp of the Aetna/Generali International Benefits network.
Working with a network can give employers information on local market conditions and products and consequently enable them to exercise better control over what their local subsidiaries are doing, said Mr. Ban.
A possible drawback, he acknowledged, is that companies linked with one network cannot give their local subsidiaries the freedom to find a different insurer in a particular local market.
Meanwhile, large employers are trimming the number of networks with which they deal. "I think if you asked a lot of the employers, they prefer to have only two pools," said Greg Arms, senior vp at AIG Life Cos. and director-group management division. He works with the AIG/Winterthur Alliance and is based in New York.
"Maybe that third or fourth pool really isn't viable anymore economically, and it's an extra burden in terms of reporting," said
Mr. Arms. It is easier now to have a geographic spread with only one or two networks because the networks are in more countries and have more partnerships, he said.
More and more multinationals are paring the number of networks they deal with, agreed Robert Pickrell, president of Brussels, Belgium-based Insurope. "I know of a case right now, for example, in which they've got about four networks, and they're going out to bid with the concept of: 'Why do we need four? Let's pare this down to two, and at the same time let's pick the best networks that offer the best financial arrangements and the best services,'*" said Mr. Pickrell.
Hewitt's Ms. Partyka agreed there is a trend toward paring networks. However, she added, clients just becoming involved with networks may decide to work with two or three "in order to encourage competition among the networks," she said.
"It's not necessarily true across the board" that companies are paring down, said Applied Materials' Mr. Coplin, whose company works with Insurope and is considering working with another network as well.
"I think it really is a function of how companies make strategic decisions. Some companies have a strong central control and therefore prefer to pare down and put their eggs in one basket and negotiate hard with one network."
Others prefer a more decentralized approach, he said. "I don't think you can make an unequivocal recommendation one way or another," Mr. Coplin said.
Meanwhile, competition among the networks is strong. "We've seen a movement of the networks to recommunicate and differentiate themselves from other networks to include almost a remarketing of their focus on regions as well as target markets," said Sedgwick's Mr. Wesselkamper.
The networks are becoming more attuned to client demands, he said, adding he was impressed by the creativeness of networks in making recent presentations to a U.S. client with 50,000 employees in Europe.
In addition, while the networks cannot dictate local market conditions and the rates charged at that level, they are cutting their own costs, said Mr. Wesselkamper.
Competitive pressures are driving this trend, he said. "There are only so many networks, and there are only so many multinational corporations that can make use of their product," he said.
"I think that it comes down to the fact that most of the networks from a financial perspective are fairly competitive with each other," said Insurope's Mr. Pickrell. "I don't think any one of the networks holds dominance over the other," he said.
"I think there are really two issues, essentially, the first being what kind of a financial arrangement will a network give to the extent that it can lower the ongoing cost to a corporation, and the second is the service that network will provide to a client," Mr. Pickrell said.
In addition to price, "the networks are competing based on reporting capabilities and the kinds of information they're able to provide and the timeliness of it," said Ms. Partyka.
"Competition among the networks is always very fierce," said Aetna/Generali's Mr. Ban. Both the European and the American markets are becoming "more and more mature, more knowledgeable, and consequently, the competition is stronger and stronger."
However, Barry Blecher, an international benefits consultant and a principal with The Kwasha Lipton Group in Fort Lee, N.J., said: "I don't see a lot of movement from one network to another by U.S. corporations. They found one or two networks that they want to deal with, and they seem to stay relatively put unless their global geography is changing, unless they're moving from one country to another and they need to find a different network that can better serve them in a new part of the world that they're expanding into."
One network response has been to pursue business among smaller multinational companies. Almost all the large multinational companies have at least one pooling agreement, and "I think that market is saturated," said Paul Shimer, a consultant with William M. Mercer Inc. in Hartford, Conn.
"I'm seeing more interest among the international insurance networks for smaller business," which they are pursuing aggressively, said Mr. Shimer.
"I think this a tendency for all the networks," said Generali's Mr. Ban, adding that large multinational companies already have "something that is established and difficult to move."
"From All Net's perspective, a target definitely would be more towards the smaller to midsize international organizations as opposed to larger," said Carol J. Buteyn, assistant vp at Allianz Life Insurance Co. of North America in Minneapolis.
All Net, the Allianz network for international employee benefit plans, entered the market Jan. 1, 1996.
"Much of the emerging market is from the midsize companies that are expanding overseas, and we also see that all companies are expanding overseas. It is not something that's confined to the giant multinational corporations anymore," said Mr. Blecher.
"I think the kind of issues they have are different," added Mr. Blecher. "They are looking for help in establishing new programs" rather than seeking advice on existing programs, he said. "I guess also because of the size at which they're expanding overseas, they tend to start off more modestly.
"If you have a handful of employees, you're not about to jump into setting up an employer-sponsored pension fund, and on the other hand, you may look for an insured product" rather than a self-insured one, he said.
"It's a totally different environment" from dealing with the large multinationals, said Eric Janssen, San Francisco-based managing director of GAIN, which always has focused on the smaller employers. "You have to do a lot more hand-holding." He added, though: "It's not a new trend. That's been going on for a few years now."
AIG's Mr. Arms also said, "I think that there are a lot of emerging companies that are going international for the first time, and they represent an excellent opportunity for new business for the networks.
"But frankly, there have always been a lot of companies that are newly emerging. You just have to target them."
At the same time, his network also is "still getting a lot of business from existing clients, major companies that are expanding internationally. We are getting business as they enter new countries" as well as successfully attracting business from other networks.
Insurope's Mr. Pickrell also said that though Insurope has pursued smaller companies' business, the market among large multinational firms still is growing. "I always hear the statement that.*.*.the market has been saturated, and I find it interesting that if you took all the major networks and combined their in-force business-that is, number of clients-you would probably reach a level of, let's say, 2,000.
"Now, are you telling me there are only 2,000 large multinationals in the U.S.? I don't think so. The question is better asked: Are corporations, or for that matter international corporations, taking responsibility for the international benefits, or are they simply allowing their subsidiaries to do whatever they want? And there, I think, it becomes more a question of whether that corporation is committed to lowering its benefits cost.'