When war with Iraq was imminent, Middle Eastern-based business units of Citigroup were concerned as to whether their group benefit insurance policies contained war risk exclusions.

An inquiry was made to the AIG Global Benefits Network, the multinational benefits network that covers that region for New York-based Citigroup. "We were able to get an answer within 12 hours," said Citigroup vp Sven Grasshoff. And as a result, "we were able to take the necessary steps to add the war risk cover to one of the countries which had failed to pick up this policy rider."

It is incidents such as these, as well as the economies of scale, administrative savings and better reporting associated with multinational benefit networks that have helped the networks maintain their popularity despite the competitive rates that have diminished some of their financial advantages in many of the countries in which they operate, say network officials and consultants.

Pooling remains a viable concept, said Geraldine Pangaro, senior vp of John Hancock International Inc. in Boston, which operates the John Hancock International Group Program. "It still has a great deal of meaning for most multinational companies. I see it as a mature business, but one that certainly isn't peaking and on the decline. It's continuing to grow," said Ms. Pangaro, who is a former international benefits manager.

Alan Smith, director of international benefits and the international assignment program at Peapack, N.J.-based Pharmacia Corp., said, "As companies try to manage their assets, both financial and people, multinational pools provide that opportunity to an organization." Pharmacia has contracts with three networks to cover its more than 5,000 international employees who work in 70 countries.

Multinational pools combine the insurance coverages of selected worldwide benefits, which could include death, disability, accident and health. The pools are operated by about 10 networks that are composed of single insurers with branches, insurer partnerships, associations of insurers or some combination of these models. The networks use their various geographical strengths and service capabilities, among other factors, to distinguish themselves from one another.

There are about 2,200 pools in operation, according to consultant Watson Wyatt Worldwide. Multinational firms that participate in pools receive excess funds-the premiums they paid less claims and administrative expenses-in the form of dividends. There are various approaches to handle pool losses, including limited loss carryforwards, in which the pool loss in one year is carried forward to set against profits in subsequent years. Some companies have also considered using their captives to reinsure their pools.

Observers estimate companies can save anywhere from 4% to 15% of their worldwide premium by pooling their multinational benefits, depending upon the particular mix of benefits, the countries involved and how actively managed the pools are.

Andrew Thompson, Somerset, N.J.-based vp in Aon Consulting's international benefit consulting practice, who uses 7% to 10% in savings as a rule of thumb, said, "I wouldn't expect great savings in terms of an international dividend coming from a pool" that focuses on disability and medical coverages.

"But if I look at life (insurance) and retirement plans being pooled, where the probability of your profits and losses in any given year are pretty predictable, then I would increase my estimate of potential savings to that pool. That's a better pool configuration," Mr. Thompson said. Countries and their currencies also have an impact, he said.

"There's a lot of factors that come into play" in projecting savings, said Mr. Thompson.

How many networks?

Companies are generally advised to contract with no more than two or three networks to ensure continued economies of scale and to minimize the administrative fees each network charges for its services. "The rule of thumb would be as few as you can, as long as you can get all the financial and administrative benefits," said John Fitzgibbon III, national industry director for KPMG L.L.P.'s managed care practice in Hartford, Conn.

"Three is what you can effectively manage," said Pharmacia's Mr. Smith, whose firm works with the Guernsey-based Generali Employee Benefits Network, Insurope Multinational Benefits Assn. and John Hancock IPG.

Conversely, "it would be a mistake" for a large multinational company to have only one pool. "What you want to have is options," Mr. Smith said. Having two or three networks gives your local operations their choice of insurers, he said. "If you have only one pool and your locals don't like that local carrier, that company won't be able to take advantage of multinational pooling," said Mr. Smith.

There are no hard and fast rules as to how many employees or how many countries a company should be in before it contracts with a network. It would be a good time to start discussions with an international network "if you have two countries and you see the possibility to do some additional expansion in other countries," suggested Gianni Ban, Parsippany, N.J.-based senior vp of the Generali Employee Benefits Network.

Finance remains the primary driver behind companies' move to network pools, although there are fewer savings to be gained from using pools than was once the case, say observers. Observers say, years ago, because of various countries' tariffs, which are rates set by law, network dividends were the only way for companies to retrieve some of the funds insurers would normally have kept as profits.

But today, many tariffs have disappeared, which means there is less financial savings to be gained from pools, although they still remain economically worthwhile, say many observers.

Stephen Barry, Chicago-based vp and head of North American sales for the Winterthur Network, said, "There is pressure on local rates, and as margins get pushed down lower, the yields from the multinational pools will tend to be not as large as they once were. But there is still a material savings to be gained from following a pool solution and, ultimately, even a captive solution."

Pools still permit companies to take advantage of economies of scale, observers say.

"Essentially, they're capitalizing on their global purchasing power by grouping together insured benefit arrangements around the world under one umbrella arrangement," said Imran Qureshi, senior international consultant with Watson Wyatt Worldwide in Chicago.

By joining a pool, for instance, an employee in a small subsidiary may be able to increase his or her life insurance from $100,000 to $300,000 without having to undergo a medical exam because of the larger spread of risk involved, said Richard Polak, president and chief executive officer of Los Angeles-based Polak International Consultants Inc.

Furthermore, "companies want to make sure any reserves aren't sitting around in the insurance companies' treasuries. It's coming back to the employer who's funding all the programs," said William R. Sheridan, senior director, international human resource services, at the National Foreign Trade Council in New York, many of whose members have pools.

Centralized information

Pools also give companies a better handle on what is going on in their individual units, say observers.

One of the more important reasons to pool is the centralization of information it provides, said David Bryan, Insurope's Chicago-based U.S. operations director.

The network becomes "kind of the eyes and ears of the world for the clients," Mr. Bryan said. If a company wants to know about benefit plans in Thailand, "they don't have to be running around themselves trying to get that information," he said.

Ian Solomon, a New York-based vp with both the MAXIS network and Metropolitan Life Insurance Co., said, "Very often, when even a large corporation has got subsidiaries around the world, each with a local employee benefit plan, they're not well connected...and it's often very difficult for the financial managers in the parent corporation to fully understand what is going on by way of the employee benefit arrangements."

The standardized annual report produced by networks describes individual countries' employee benefits experience in a more meaningful and sophisticated way than would otherwise be the case, and it "gives the client a lot more knowledge of what is happening around the world," Mr. Solomon said.

"It's certainly a tool for risk management and control" that permits corporate executives to make decisions, said Philipp Frei, president of Swiss International Services in Saddle River, N.J., which represents the Swiss Life network in the United States. "It allows them to actively manage and make sure that the plan is sound and they do not have to pay too much in claims," said Mr. Frei.

Pools can also result in better service, Mr. Qureshi said. As a participant in a multinational pool, a small subsidiary may command more attention than it would otherwise. This is particularly important for noncommodity coverages such as medical, as opposed to life insurance, where all that is essentially involved is paying a claim and service is less of a concern, Mr. Qureshi said.

Observers say the only negative about pools is local subsidiaries may be unhappy with the local network insurer.

Paul Shimer, senior international insurance consultant with Mercer Human Resource Consulting in Hartford, Conn., said the local network insurer is "not always the best, even though the international networks will tell you that they've picked the best carrier in every country. And, by and large, I think they do, but you may get a stinker."

Mr. Solomon said also, "Local subsidiaries are often highly protective of their turf," and sometimes the global parent meets quite strong resistance when it approaches the subsidiary to participate in the pools, "so it requires a fair amount of selling," despite the obvious financial benefits.

But Aon's Mr. Thompson said these cases of resistance are "more the exception than the rule."

Passive vs. active

Many observers say companies follow two basic approaches in operating a pool: passive and active. Under the passive approach, companies leave it up to the local subsidiaries to decide to join a network. Under the active approach, followed by more centralized companies, local units are given less leeway.

"I think the best-case scenario is the parent company says, `We'll give you a choice. You provide the best vendor for your purposes and your business and your country that aligns with your business and our company philosophy, but...all things being equal, we would strongly urge you"' to use the network company, said Mr. Thompson.

There is a continuum of involvement by multinational firms, said Mercer's Mr. Shimer. The majority of multinational companies that join networks "don't do very much at all. I would say then there is a smaller minority that actually encourages their nonpooled locations to become part of the pool. And then there is a very small minority that really goes out and makes sure that not only do they have all their locations considered for pooling but they're also doing the right contracts."

Francis Coleman, worldwide multinational director at the AIG Global Benefits Network in New York, said while he is not sure whether there is a trend toward more active pools, there are a lot more companies focusing on their global operations and looking at their cost, "so we're seeing more interest" regarding those operations' insurance coverages.

One way networks have traditionally distinguished themselves from one another is in their geographical strengths. But observers say those distinctions have diminished to some degree over the years, although they have not necessarily entirely disappeared.

"In the '70s and early '80s, each network had their global strengths, but now most networks are pretty much global, with fairly good representation around the globe," said Mr. Bryan.

Service at both the local and corporate level is important, say observers.

Mr. Qureshi said corporations "should be looking to use a network with a strong local provider that's matched up to the particular coverage they have in that particular country."

And at the corporate level, Mr. Qureshi said, the question is, "What is the strength of the network representatives to be able to respond effectively to questions that you ask, to effectively coordinate responses around the world on a proactive basis?"