BENEFITS &COMPENSATION

INTERNATIONALT O TA L R E M U N E R AT I O N A N D

P E N S I O N I N V E S T M E N T

Cross-Border Coverage in theNew Age of Expatriate Assignments

Nicholas Dobelbower and Catherine Trombley

Nicholas Dobelbower is a Senior Consultant with Lockton Global Benefits.Based in Washington, D.C., he assists multinational clients in the development,implementation and ongoing support of their international employee benefit strategies. Mr Dobelbower has over 15 years’ experience as aresearcher and consultant for private and intergovernmental organizations and has lived and worked in Belgium, France and the United States. He has an MA and a PhD from Duke University and is certified by the Society for Human Resource Management as a Global Professional in Human Resources.

A Consultant with Lockton Global Benefits, also based in Washington, D.C.,Catherine Trombley assists clients in the development, implementation andongoing support of cross-border and international employee benefit strategies.She has worked in the field of global benefits for seven years, specializing inexpatriate and local national concerns for not-for-profit organizations and USgovernment contractors. Ms Trombley is a native speaker of Spanish and alsospeaks Portuguese and Arabic. She has a BSc in Foreign Service fromGeorgetown University, where she majored in Culture and Politics.

Just as you might feel nostalgic and surprised to seesomeone jogging down the street with a Walkmancassette player or would hesitate to update Facebookusing a dial-up internet connection, so might employeebenefits managers be frustrated by trying to maketraditional cross-border insurance solutions fit theneeds of today’s global organizations.

Make no mistake, the expatriate assignments of the20th century (Globalization 1.0) are rapidly becoming athing of the past, as global organizations deploy talentin new ways, from diverse locations, and for differentpurposes. While we do not expect insurance to evolveas quickly as technology, rapidly changing needsdemand that coverage and benefits be upgraded for the21st century (Globalization 2.0). Despite the constantmurmurings about expatriates being replaced by localtalent, globalization seems to be increasing theaggregate number of assignments and the number ofassignments per company.1 The type of assignment andprofiles of assignee are what is changing.

TRENDS SHAPING THE NEW ASSIGNMENTSeveral key trends are changing the way expatriateassignments are structured, which will demandmeaningful changes from expatriate health and welfarevendors and service providers. These trends have been driven by the shifting business and human resource paradigms of expatriate-sendingcountries (traditionally North America and WesternEurope), in tandem with the effects of globalizationwithin host countries.

The first of these trends is a shift in the incidence andpurpose of expatriate assignments driven by thebusiness needs and international strategy of the * return on investment

multinational headquarters. Traditional‘expatriate assignments’ were previouslyreserved for high-level managers whoseinvolvement in a project or expansion was essential.However, in recent years, what are increasingly referredto as ‘international assignments’ are becoming a careerrite of passage for younger professionals, either at theinitiative of the multinational employer eager todevelop the global savvy and sophistication of its futureleadership or in response to the increasinglyinternational aspirations of young professionals aroundthe globe (Generation Y, also known as the ‘Global Generation’). Offering an internationalexperience through a structured development program or a liberal assignment policy can represent a significant advantage for employers looking to attract high-potential talent in competitive labor markets. Today, we can expect 40-50% of ourexpatriate population to be under the age of 40, largelywith no previous expatriate experience. This shift in theprofile of expatriates is influencing the corporate andfinancial perspective on ROI* and, in turn, how benefitsfor these assignments are structured. It comes as nosurprise that companies are adopting an increasingnumber of mobility policies to introduce greaterflexibility and reduce costs. A recent survey indicatesthat multinational companies with 100 or moreassignees have, on average, four formal assignmentpolicies, and some have as many as eight or more.2Meanwhile, the cross-border insurance coverageavailable in the market remains largely unchanged andinflexible.

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The second trend is that financial scrutiny of expatriateassignment costs has led to the sourcing of expatriatetalent from outside the headquarters country. Ascompanies continue to successfully expand in differentcorners of the globe, the perception that only seniorexecutives from US or European home offices cansuccessfully lead the charge seems antiquated. Thirdcountry nationals (TCNs) and intra-regional transfereesare becoming more critical to global initiatives due totheir unique combination of global experience andlower cost benefits demands. They often enter anassignment with knowledge of the host country culture,may speak the local language, and quite simply mayalready come equipped with the soft skills needed forsuccess on an international assignment. These elementscombine and allow such assignees to be more effectiveat a potentially lower cost than a headquarters executivewould demand. Global organizations will increasinglydraw from their global talent pool rather than theirheadquarters and other traditional expatriate-sendingcountries.

The third key trend we see affecting expatriateassignments and the suitability of available cross-bordercoverage is the growing sophistication of many host countries whose governments have increased their scrutiny of expatriates. Host countries are placing new regulations and restrictions on foreign nationals as they have become more engaged in the global economy and more experienced in dealing with trading partners from around the globe. Enhanced social and regulatory infrastructure is part and parcel of economic development and the maturing of local labor markets. China has recently required foreign nationals to participate in its social insurance scheme; Brazil now requiresoutbound assignees to retain their Brazilian labor rights while abroad; and the list of countries requiringlocally admitted and compliant insurance for foreignnationals will only continue to grow. Doing business inemerging and developing markets will require constantvigilance and responsiveness on the part ofmultinationals.

THE NEW EXPATRIATE ASSIGNEEAs multinationals seek new growth and salesopportunities, they are moving into an increasinglydiverse number of countries. While the USA, China, andSingapore remain top destinations, the spread ofcountries is widening. A recent global survey found thatcompanies identified 41 different countries in their topthree destination countries and 74 countries whenasked about new destinations.3 This is a dramaticallydifferent state of affairs compared with 10 or 15 yearsago. The same survey indicates that, in order to controlcosts while sending talent to an increasing number ofcountries, multinationals are reducing benefits andturning to localization as part of an underlyingphilosophical shift towards a “wholly global workforce”that is available to “go where the job is.” In order topromote the movement of talent into a growing numberof emerging markets, while also avoiding the cost of atraditional expatriate assignment, these cost-containment strategies are being complemented by a preference for younger, single assignees or intra-regional transfers in emerging market areas.

Generations X and Y Go GlobalIn 2003, a survey of expatriate trends reported that the majority (63%) of expatriates were age 40 and older and the remaining 37% were under the age of 40.4 Fast forward to 2012 and a similar survey showsthat younger generations are closing the gap, with 44%under age 40 and only 56% age 40 or older. Anoteworthy 13% of assignees are now between the agesof 20 and 29.5

Concurrent with this shift, candidate experience andpurpose of assignment have also changed. The same2003 survey shows evidence of a lingering careerexpatriate dynamic, with 47% of expatriates reportedlyhaving had previous international experience; in 2012,only 21% had previous international assignmentexperience. In terms of assignment objectives, the 2003and 2012 surveys share the same list, which includes thefollowing:

– filling a skills or managerial gap;– building international management expertise;– launching new endeavors; and– facilitating technology transfer.

Where they differ, however, is in the 2012 addition of‘career development’, coupled with buildinginternational management expertise. We may bewitnessing the end of the “career expatriate”, asinternational professional development assignmentsand transfers on local terms gain prevalence. From aninsurance perspective, the plans designed and priced tocover these high-level career expatriates are often toobenefit rich and too costly for the profile of theemployees that increasingly fill international assigneeranks.

Expatriate assignments have become more diversified intheir intent and, today, are focused as much onproviding career advancement for promising youngemployees as on corporate and strategic growth.Expatriate insurers have so far shown little interest incatering to the specific health and informational needs of the under-40 set, notably contraception andfamily planning, sexually transmitted diseases, andsafety concerns associated with high risk sports oractivities.

GREATER ASSIGNEE AND DESTINATION DIVERSITYThe appetite for geographic expansion into newmarkets is shifting the traditional headquarters–subsidiary workforce dynamic. The home office is nolonger the sun around which all the subsidiaries revolve.Globally, the subsidiaries of multinationals now accountfor over 69 million jobs, growing in 2011 at a rate of 8%,compared with 2% for local employment growth. Inaddition, foreign affiliates in emerging and developingmarkets – as opposed to developed markets – arebeginning to account for the majority of the globalworkforce outside of the headquarters country.6 In arecent survey of 366 senior multinational executivesconducted by the Economist Intelligence Unit, 39% ofrespondents stated that they will expand into emergingeconomies in the next five years.7 Within the sametimeframe, 18% of these business leaders anticipate thattheir companies will employ 85% of their workforce

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outside their headquarters country, and 40% of large multinationals (US$10 billion in annual revenues)expect to have 70% of their workforce in foreignsubsidiaries. Meanwhile, most cross-border coverage issituated in the headquarters country and influenced bythat country’s domestic benefits culture and localinsurance market. The assignees of the future willincreasingly originate in countries other than the homeoffice, yet they are covered by plans primarily of US and European design. There is a growing disconnectthat international insurers are only beginning toappreciate.

With a rise in the use of TCN assignees – a trend that willcertainly grow stronger over time – new challenges arepresented to employers and insurers alike. Thirdcountry nationals may not be used to paying for healthinsurance and may be unfamiliar with deductibles andcoinsurance. They may be more likely to leave familybehind, creating a potential coverage gap for theirtrailing dependents if they and their dependents are notplaced on international plans. Assignees frompredominantly Islamic countries may expect to becovered by mutual insurance (takaful) rather thancommercial products.

At the same time, international plans offered by US andEuropean carriers are still largely designed and pricedfor the traditional model of expatriation: developedcountry middle-aged senior executives or careerexpatriates. Requiring a TCN assignee or a youngprofessional development assignee to pay fordependent coverage can be a tough sell at the premiumrates we often see in the expatriate insurance markettoday.

SCALING BACK EXPATRIATE BENEFITSThe number of expatriate assignments has generallyincreased, despite the fact that costs have remainedrelatively static. Statistics show that, in the period from1993 to 2003, 51% of corporations had, on average,fewer than 50 expatriate employees. In the period from2003 to the present, the majority (52%) now have 100expatriates or more and only 34% of corporations havefewer than 50 expatriates.8 How then can expatriatecosts be contained and how can a return on investmentbe assured?

Among US-based multinationals, we see the effects ofthe shift in expatriate profile in the varying approachesemployers take toward downsizing expatriate coverage.During Globalization 1.0, expatriate benefits tended to be extremely generous and were designed to offset the unforeseen hardships of being on assignmentwhile providing a sense of security for the assignee to venture into foreign lands with his or her family in tow. These assignees tended to be executives or career expatriates who demanded access to the highest-quality care with the least administrative or out-of-pocket cost. Today, as the profile of new assignees has changed, we see US multinationalsseeking to structure expatriate benefits that closely resemble their US benefits, presumably becausethey do not feel that expatriates should be treated any differently than their domestic counterparts. The assignment is no longer a marker of special statuswith increased privilege. If companies are truly nolonger sending employees on assignments because of

the irreplaceable value of their expertise, but often as astep in their development or even as a type ofinternational professional exchange, then havingassignees shoulder their share of the costs would seemto make sense.

Generally speaking, a cost-sharing approach is morecommon among companies where ‘internationaldevelopment’ assignments are widespread. Thesecompanies are often new to expatriate management, areyounger companies, or are in sectors where flat and matrix corporate structures predominate.Companies that are veterans of expatriate managementand were involved in this arena before the ‘boom years’still tend to differentiate toward higher benefits forexpatriates.

In the case of cross-border medical insurance, this UStrend of offering domestic-style benefits abroad canoften mean that expatriates are covered by plans withdeductibles (excesses) ranging from US$100* to as muchas US$750 and coinsurance of only 70% or 80%. Thesedesign elements are intended to promote betterconsumerism and reduce costs in the US domesticmarket, but they have little relevance outside the USA,where they only create unnecessary and unexpectedinconveniences for the assignee. Most egregious of these are assignments to host countries where the annual cost of an employee’s healthcare might never exceed the premium cost-share and out-of-pocketdeductible, dramatically eroding the value of the coverage and the employee’s perception of it as a benefit. In other cases, the presence of deductibles and coinsurance makes hospitals ordoctors in the host country reluctant to accept an employee’s insurance card because of theadministrative hassle and uncertainty of receivingpayment in full from multiple parties (insurer andpatient). While this type of benefit structure may beacceptable to young expatriates from the USA, greatattention needs to be paid to the impact on TCNassignees, on the one hand, and senior executiveexpatriates, on the other.

Interestingly, expatriate medical carriers in the USA donot seem to be looking at ways to reduce costs foremployers and assignees. Many insurers still have astrong inclination to offer exclusive concierge servicesand plan designs. Expatriate carriers continue to buildout new programs and initiatives such as global wellnessprograms that track healthy lifestyle management,maternity management programs, and extensive onlinemember tools through which it is possible to scheduleappointments and find the equivalent name ofprescribed medications in several different countries.Many expatriate carriers have sought to add or facilitateaccess to political and natural disaster evacuationservices or offer information through their web tools onthe security environment of a destination. Underwritersat many US expatriate insurers seem to evaluate the riskof this cross-border population as if it was stillpredominantly composed of the old guard ofexpatriates, with the utilization patterns typical ofcouples in their forties with children.

* US$1 = £0.62, US$1 = €0.78 as at 25 September 2012

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The Pitfalls of LocalizationThe desire to reduce the costs of internationalassignments in the light of their changing objectivesmay result in companies’ trimming expatriate benefitsor adopting policies – such as immediate localization forwhat will more than likely be a temporary assignment –that may not be prudent for the welfare of the employeeand may even be creating additional risk that couldultimately be borne by the employer.

Immediate localization or transfers on local terms, evenwhen it is understood that the transfer is notpermanent, continues to increase as an alternative totraditional expatriation. This allows the organization tooffer the transferee the same medical, life, disability, andpension benefits offered to local hires. Localization is byfar the most cost-effective strategy, as the per-personcost of local benefits can be as low as 10-20% of what anexpatriate insurance package would cost. The oftenoverlooked downside is that, if candidates placed on alocal benefits package are not carefully selected and thelocal insurance policies are not fully understood by thesending country, the restrictions of a local policy mayresult in unforeseen issues and inconveniences.Although the multinational may want to treat him/her asa local employee, the transferee usually retains strongties to his/her home country, and local coverage may notbe suitable for someone who is more “cross-border”than local. We have seen numerous cases where, forexample, the employee returns to his/her home countryon a regular basis and is surprised to discover that thehost-country medical coverage is not valid or adequateabroad. The inability to receive care outside the hostcountry may create significant difficulty for assigneeswith medical conditions requiring regular maintenanceand may result in assignment attrition or, in the worstcase, a catastrophic situation where the employer mustbear the cost of treatment or evacuation. Employeeslocalized in Asia, for example, may not realize or havebeen fully informed that their host-country medicalpolicy does not cover maternity, pre-existing conditions,or a host of other things that would normally be coveredby social or private insurance in many other parts of theworld. Employees transferred to Brazil may not beaware that they will not be eligible for surgical coveragefor up to 12 months from their date of employment.Each country has local norms that will not appearnormal to non-locals.

From a life and disability perspective, it should be notedthat local policies often contain restrictive, ifidiosyncratic, exclusions that expatriate policiestypically do not. The most notable of these are thedefinitions and exclusions for war risk. In many cases,war risk or security exclusions are based on the variabledefinition of travel or assignment to countries for whicha security advisory has been given in the past six monthsby the relevant foreign ministry or similar authority.Depending on where employees are located, thisexclusion can have profound ramifications foremployees and their survivors. Many benefits managersfail to realize that such exclusions not only apply torecognizable war zones like Iraq and Afghanistan, but ifa policy uses a ‘security advisory’ definition, may alsoextend to areas as seemingly mundane as Greece or thePhilippines. Another challenge raised by the localizationstrategy in the area of life insurance is the potentialneed to provide evidence of insurability when the local

group is small or in countries where such evidence isroutinely required. As employees move from country tocountry, they are at greater risk of losing theirinsurability or of having to be medically underwrittenmultiple times.

What we see then is that employers and insurers aretaking very different approaches to the expatriatepopulation of today. Employers continue to push theenvelope of cost savings in the new age of expatriateassignments by experimenting with two extremeapproaches: offering home country-style benefits or hostcountry localization, rather than a benefits packagetailored to meet the unique challenges of an internationalassignment. Insurers seem to be focused primarily onadding superficial enhancements (like an internet portal)to jazz up the same old guard expatriate plans. Perhapswhat should be discussed is a completely different designto meet the needs of the new expatriate population:regional plans with targeted care for each assignment,modules and classes of coverage to match the specificexpatriate needs of a population, and access to care thatmatches the demographic needs of the population.

CONCLUSIONRecent changes in the expatriate insurance industry – theconsolidation of several existing carriers and theemergence of new ones – provide further evidence of thegrowth of international assignments and the opportunityto develop innovative insurance solutions. It remains tobe seen whether these providers will successfully craftproducts that will meet the needs of the new(predominantly non-US, non-European) expatriateworkforce while offering value to companies seeking toprovide more restrained packages. Some of thechallenges that carriers face in the areas of expatriatehealth, life, and accident coverage include the following:

– adding services only where needed and trimmingcosts by eliminating unnecessary services;

– designing regional coverage options that narrow riskexposure and offer better pricing;

– ensuring that coverage is locally compliant in allmarkets where clients are doing business;

– developing culturally and religiously desirableproducts;

– improving direct settlement options in countrieswhere payment in full is required at the time ofservice;

– offering mobile technology solutions in addition todesktop interfaces; and

– seeking greater integration with local socialinsurance and local health systems.

In addition, it is worth considering the rapidlyimproving quality of healthcare in developing countries.Most international medical coverage is priced to includemedical evacuation for the expatriate who is mistrustfulof care anywhere but home; meanwhile the number ofcountries offering world-class facilities and medicalexpertise continues to grow. Is there any need torepatriate a British expatriate working in Singapore, oreven India?

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References1 ‘2012 Trends in Global Relocation’, Cartus, 2012; ‘2011 Mobility Outlook Questionnaire’, Associates for International Research,

1 March 2011; and ‘Global Relocation Trends 2012 Survey Report’, Brookfield Global Relocation Service, 2012.2 ‘2011 Mobility Outlook Questionnaire’, Associates for International Research, 1 March 2011.3 ‘2012 Trends in Global Relocation’, Cartus, 2012.4 ‘Global Relocation Trends 2003/2004 Survey Report’, GMAC Global Relocation Services, May 2004.5 ‘Global Relocation Trends 2012 Survey Report’, Brookfield Global Relocation Service, 2012.6 ‘World Investment Report 2012, UNCTAD’, United Nations, 2012.7 ‘The Next Chapter for MNC Globalization: Scaling Risk to Opportunity’, Economist Intelligence Unit, 2012.8 ‘Global Relocation Trends 2012 Survey Report’, Brookfield Global Relocation Service, 2012; ‘Global Relocation Trends

2003/2004 Survey Report’, GMAC Global Relocation Services, May 2004; and ‘Global Relocation Trends 2008 Survey Report’,Brookfield Global Relocation Services, April 2008.

Today, there are more than 20 noteworthy internationalcarriers, and US healthcare giants United Healthcare andBlue Cross Blue Shield have just entered the fray, but fewexisting carriers offer solutions suitable for themultinational company desirous of having a singleinternational carrier. Due to the increasing number oflocal regulations and requirements, carrier options arelimited when assignees are being sent to or fromcountries like the USA, United Arab Emirates, China,Australia, and Switzerland, each of which presents itsown unique compliance hurdles.

Advisors and carriers need to take stock of the significantcultural and demographic shift developing in the newexpatriate workforce. These are not the expatriates of

Globalization 1.0. In the new age of expatriateassignments, we will see assignees from virtually everynation in the world, whether developed, transitional, oremerging. Their ranks will be composed predominantlyof “millennials” and Generation Z employees, who grewup in a world of instant results, rampant technology, andpre-packaged facilitation for nearly every aspect of theirlives. From a benefits perspective, these employees willhave high expectations with regard to service andefficiency. Paper claims forms, faxing, and slowreimbursement periods will not pass muster; they willexpect prompt settlement by handheld device. With thatin mind, we can anticipate that these new expatriateswill be every bit as demanding as their oldercounterparts, if not more so. Ω

Copyright © Pension Publications Limited 2012.

Reproduced from Benefits & Compensation International, Volume 42, Number 3, October 2012.Published by Pension Publications Limited, London, England.

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