Supplemental health industry for small companies: Challenges and opportunities
Small companies in the supplemental health products market need to understand the unique challenges these products present in order to compete effectively.
In mid-2012, the Worldwide Broker Network (WBN) approached Milliman to suggest a joint approach to provide actuarial services to a global company providing software and hardware for point of sales systems in retail outlets. The company had retirement programs in 43 countries each with as few as one employee and as many as 300 employees with defined benefit (DB) or defined contribution (DC) promises. The plans ranged from simple gratuities to complex pensions and post-retirement healthcare benefits.
Many of the original list of 43 country exposures were in Asia. However, the company also has exposure in the Americas and Europe. Given the expectation of opportunities in Asia, coordination of creating the proposal was assigned to Singapore. Consultants were identified within the Milliman network with local specialist knowledge to carry out the work.
In March 2014, Milliman won the appointment for generally accepted accounting principles (GAAP) financial reporting in six countries (which were the only places with known DB promises at the time of writing). The countries were the United States, Canada, Mexico, Spain, Austria and Taiwan.
While it transpired that the client’s needs were not so concentrated in Asia as initially expected, to maintain continuity the relationship continued to be run from Singapore.
The company identified a single point of contact, a person designated as being responsible for human resources (HR) services worldwide despite this being a largely finance-related project. All communications (including subsequent proposals for out-of-scope work) were to be routed through him. The company’s contact then identified local HR and finance contacts who would provide data on membership and assets. They would respond to data and benefit definition queries and be asked to approve assumptions.
The final reports would be delivered to the company’s contact. In time, a central finance person in the company materialised who reviewed our reports.
Milliman Singapore prepared a standard report template for reporting under Federal Accounting Standards Board (FASB). We have so far prepared the December 31 valuations for 2013, 2014 and 2015.
For the plans in the United States, Canada and Austria, the valuations did not involve material difficulties. The company had a single point of contact and contract with Milliman, but day-to-day efficiency was established locally.
In Spain, there was one issue to resolve with the client. During the verification of contributions and assets, it was revealed that the funding of the plan had not been properly addressed by the client and additional work was necessary. While this caused extra work to complete the valuation, it also clarified that further out-of-scope work was necessary, adding to the value of the relationship.
In Taiwan, similar irregularities as found in Spain were discovered and, while at this time, no work is being done, it is clear that there will be future work to put the financing onto a stable basis.
While the American and Canadian valuation work was relatively straightforward, there have been discussions over the structures in place and proposals for advice for their future direction. Decisions as to the way forward in these larger populations are yet to be made. But we expect future work to be awarded.
Besides tidying up the funding in Spain and Taiwan and discussions over the future of the benefit programs in the United States and Canada, other projects have arisen. In the Netherlands, we provided support with a plan change in order to make the plans consistent with new Dutch pension legislation. We also assisted with the implementation of the plan change. Meanwhile, in Italy, historic benefit revisions may need to be revisited to complete the documentation. In addition, questions have been asked of the plan in Germany. All of this reveals that the transition from the company’s spinoff from another multinational company relating to its benefits programs may not have been tightly controlled and there still remain loose ends. Naturally, from an HR and finance perspective, the priorities will vary by country, and Milliman consultants need to be ready to act when the clients locally begin to address the problems.
After three years during which most contact had been via email, we had a face-to-face meeting at the company’s headquarters to review the relationship and what future support might be needed. At the time of writing, besides proposals for work in Spain and Italy, a proposal for the 2016 valuation work and coordination of global accounting disclosures are being prepared.
This case has revealed: