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| Insuring
a Company’s Greatest Assets - International Expatriate Benefit Plans |
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| It is not
unusual today for a Canadian firm to operate a factory in India, an American
airline to have its reservations processed in Ireland, or a Bahamas registered
offshore company that originates in Toronto to have expatriate employees
in Africa. As we all know, the world has changed into a global
marketplace with a global workforce. More and more, Canadian companies
are sending their employees' abroad to search out new markets or run operations. |
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| The employees
who are sent abroad are attracted by the exotic locations, a chance to
travel and experience various social and business cultures, and of course
the lower taxation in some countries and sometimes the higher salary.
These employees travel frequently and are key assets for the business.
Most companies want to offer them optimized protection while safeguarding
the continuity of their business. |
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| Many Canadian
and U.S. companies are also hiring third-country nationals, especially
if they have skills that don't exist in the company or country. More
often than not, the offshore company will have to hire local nationals
to fill various positions. |
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| Depending
on the country and labour requirements, these local employees may require
benefits from a local insurance company. However, local nationals can be
fully or partially covered by expatriate benefit programs. Such a
decision will also hinge on the reliability and quality of the local insurance
firms. |
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| Selecting
an insurance company |
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| Some Canadian
companies operating offshore use a local insurance company, but this can
be fraught with inconvenience and danger. In some countries, supervisory
bodies or cartel arrangements strictly regulate insurance firms.
Other countries have blocked currencies or significant foreign exchange
regulations. It must be asked whether the employee really wants to
receive his or her benefits in a shaky currency? This is not a problem
if the insurance company is reimbursing health or dental expenses, but
currency payments for life and disability insurance for an expatriate should
be made in a stable currency, such as US dollars or UK Pounds. In
addition, employees may not be in a particular country long enough to qualify
for membership in the local insurance plan or there may be a citizenship
requirement. |
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| Having a pooled
offshore plan simplifies reporting, administration and communication because
the benefit manager will have one single-source-clearing house and will
not have to negotiate with several foreign insurers. Finally, companies
must decide whether they wish to deal with a highly stable European or
North American insurance company or a company from a less stable country. |
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| Challenges
for expatriates |
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| Dealing with
a Canadian insurance company for expatriates abroad can also present challenges.
First, the Canadian firm cannot insure local or third party nationals.
Second, payments can only be made in Canadian dollars. Third, Canadian
plans are designed to work in Canada with the Canadian health and workers'
compensation systems, not in a foreign private scheme or country.
Fourth, disability payments from Canada will only be made if the sick employee
returns to Canada, which might not be wanted or possible. Finally,
Canadian insurers will at least want a time limit on insuring someone
who works abroad. Basically, coverage when you need it may not be
there. One should also check with an accountant to ensure that being
part of a Canadian employee benefit plan does not affect residency status. |
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| Compounding
the preceding issues, statutory requirements imposed on benefit plans for
expatriates vary from country to country and many states have no reciprocal
social arrangements or do not allow the transfer of benefit entitlements
abroad. Insurance schemes put in place at the various countries may
vary so substantially that it is impossible to conduct product/price comparisons. |
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| A wide
range of insurance policies |
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| All of the
above point to the need to pool or consolidate international insurance
polices with one offshore benefit provider that will provide solid, portable
and continuous protection. This helps streamline risk management,
and cut administration and communication costs. Pooled expatriate
plans also harness savings potential through higher economies of scale
by insuring several operations in various countries under one plan. |
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| Perhaps
most importantly, expatriate plans offer portability of benefits and bring
the quality and security of benefits required by employees. Quality
benefits at a reasonable price for expatriates is an imperative. If an
employee becomes injured and has to be evacuated or is permanently disabled,
he or she will come to the employer for help. Benefit payments can
be made in the local or a set currency such as US dollars. |
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| Various expatriate
programs exist. Some of the plans offer a comprehensive program while
others offer just traditional insurance protection, such as life insurance.
Most expatriate benefit schemes offer life insurance based on a multiple
of salary, such as two of three. Others offer a flat benefit amount. |
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| The amount
of accidental death and dismemberment (AD&D) usually matches the life
insurance. |
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| As the name
implies, this insurance is paid if an employee dies in an accident or suffers
a permanent loss of use or severing of a limb, loss of an eye. etc.
The currency used should match that of the employee's home nation or American
dollars as a default currency. |
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| An even more
important benefit often overlooked by many expatriate employers is short
(STD) and long-term disability (LTD). STD usually starts after an
accident or maybe 8 days after a sickness and pays for perhaps three or
four months. LTD begins where the STD ends and continues until age
65 or for life. Benefits are paid either by the employee or the employer.
The typical plan pays 66% of an employee's salary. STD can be self-insured
by the employer, especially if there is a short benefit period where the
LTD takes over. During the 1990s, the costs for disability insurance
has risen steadily, especially with the onset of AIDS and increased depression
and stress claims. |
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| The rates
for the life and disability benefits are based on the age, sex, occupation,
income, and location of the employees. As an example, the company
of an expatriate who is traveling in Africa in a very politically unstable
country can expect to pay more than the company with employees in an office
in Chile. |
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| The next benefit
commonly offered is a health package. This coverage includes benefits
such as hospital expenses, drugs, professional services, maternity expenses
and physicians charges. The premiums are based on many of the same
factors as the life and LTD plans, but may weigh more heavily on the operating
nation. Due to the lack of a Canadian government run healthcare system,
the premiums for healthcare with an offshore provider will be higher than
in Canada. Medical evacuation and emergency travel coverage is also
available. |
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| Dental insurance
can be added to the plan to cover basic dental services such as cleaning,
scaling and extractions. Crowns and bridges are usually covered at
50%, as is dependent orthodontics. This benefit is more easily self-insured. |
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| Other employee
benefit plans include the payment of eyeglasses and contact lenses.
This benefit is quite inexpensive and can be self-insured. Many expatriate
employers provide other benefits to their employees such as a subsidized
or free room and board, and travel. This must be self-insured. |
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| Exclusions |
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| In terms of
fine print, it makes sense to examine the plan, paying particular attention
to the exclusions. Some lesser quality plans exclude maternity expenses
and care for newborn children while others place limits on pre-existing
conditions. Still other plans have pre-existing clauses that limit
the benefits for conditions which were being treated 90 days prior to being
insured by the medical plan. Such exclusions can be removed for an
additional premium charge. |
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| Another standard
exclusion clause is for war and riot. Only a few companies will remove
this exclusion. An offshore client operating in an African country
that is currently a war zone sought such protection. After some searching
we were able to find an insurance company that could remove the war exclusion
clause for an extra premium. Others don't give it much thought and
prefer to bear the risk on their own corporate shoulders. As a broker
with a background in political studies, I examine the political situation
in the countries my expatriate clients operate in to advise them of whether
or not they should try to have the war risk clause taken out. Janes
Magazine's web site has an excellent geopolitical update list on most countries
in the world that can offer some expert insight on various countries and
regions around the world. |
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| Accessibility |
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| A company
need not be big to obtain these insurance plans. Expatriate plans
are available for as few as 3 employees who may be in different countries.
If a company has over fifty employees, the plan design can be even more
flexible. Also, the larger the number of employees, the more the
claims experience becomes part of the renewal premium. With some
plans, if the annual international net results are positive, a dividend
can be paid to the head office of the multinational. If the claims
results are negative, it can be written off provided stop loss protection
was agreed, or carried over to a new accounting period. For most
small and mid-size offshore companies, their claims experience will not
affect their renewal rates. |
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| Some clients
have combined the local insurance schemes with the expatriate coverage.
This can be done, for example, by using the local health and dental coverage
with an expatriate disability and life insurance plan. In some cases,
it can integrate third-party policies. |
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| Selecting
a benefit plan |
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| Choosing an
expatriate benefit plan does not only depend on price. Another factor
is the ease of administration; for example, an employer will want a plan
with a 24-hour helpline for employees with queries about their membership
or medical coverage. Personalized membership cards and booklets to
effectively communicate the plan are also important. |
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| In addition,
employees are impressed by a plan that has prompt claims settlement in
any currency. Finally, it must be determined whether the expatriate
insurer is financially stable. This is of obvious importance, especially
for employees who become disabled and will be receiving payments for many
years. |
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| Conclusion |
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| At the end
of the day, the expatriate benefits are simply another way of compensating
employees. For Canadian and US companies operating overseas, expatriate
plans offer the best combination of cost, portability, coverage, ease of
administration and security. |
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