Change in the air
Currency fluctuations – driven by economic and political unrest – are contributing to the cost of expatriate packages.
Currency fluctuations – driven by economic and political unrest – are contributing to the cost of expatriate packages for those on the front line of globalisation for their organisations. Mandy Langfield looks at the challenges that international health insurance providers face when reacting to currency fluctuations and changing customer needs.
Currency fluctuations,” said David Healy, general manager for Europe at Aetna International, “are important to any organisation that transacts business globally. It’s about striking a balance between treating members fairly and maintaining a fiscally prudent approach to the business.” Brian Barwick, president and CEO of International Medical Group (IMG), noted that the effects of currency fluctuations vary from provider to provider, depending on a number of factors, including the extent to which the insurer transacts business in different currencies. “For example,” he told ITIJ, “for the typical US insurer that only receives premiums and pays claims in one currency, there is very little exposure to foreign currency risks. On the other end of the spectrum, IMG’s exposure is mitigated since our premiums and claims come from virtually all currencies. There’s very little impact from foreign currency fluctuations due to diversification – a drop in one currency will often benefit another currency exposure.” Kevin Melton, sales and marketing director for AXA PPP, agrees, and said that for his company, currency fluctuations are not of huge concern. He explained: “We see a high correlation between the currency in which premiums are paid and the currency in which claims are submitted to us. By way of example, when we receive policyholders’ premiums in euros, we are generally paying their claims in euros too.”
It's about striking a balance between treating members fairly and maintaining a fiscally prudent approach to the businessGenerally, though, when it comes to changes in currency values, international health insurance providers have to be prepared to take the rough with the smooth. Andrew Apps, head of global healthcare for Bellwood Prestbury, explained: “For the vast majority of IPMI players, particularly those offering a choice of currency options, premiums are calculated and set once (or twice) a year and remain held that way regardless of what may happen in the currency markets. This, of course, can work to the advantage or indeed disadvantage of the provider, depending upon what currency options they offer, and how they move relative to each other during the period.” For Apps, having premium rates set in stone for six or 12-month periods benefits clients and brokers, as it ‘keeps life relatively simple’. Barwick added: “A second factor that affects foreign currency fluctuations is the timing of establishing and changing premium rates. If premiums are accepted in multiple currencies, then frequent updating mitigates the exposure to fluctuations. Waiting to update premium tables for a programme with published premiums can create clear incentives for consumers to select a currency that doesn’t reflect current exchange rates.”
Variations around the world
Mercer’s 21st annual Cost of Living Survey finds that factors including instability of housing markets and inflation for goods and services have a significant impact on the overall cost of doing business in a global environment. “As the global economy has become increasingly interconnected, close to 75 per cent of multinational organisations are expecting long-term expatriate assignments to remain stable or increase over the next two years to address business needs,” said Ilya Bonic, senior partner and president of Mercer’s Talent business. “Sending employees abroad is necessary to compete in markets and for critical talent, and employers need a reliable and accurate reflection of the cost to their bottom line.” Mercer’s survey is designed to help multinational companies and governments determine compensation allowances for their expatriate employees. New York is used as the base city and all cities are compared against it, with currency movements measured against the US dollar. The survey includes 207 cities across five continents and measures the comparative cost of more than 200 items in each location, including housing, transportation, food, clothing, household goods, and entertainment. According to Mercer’s data, Asian and European cities score highly on the list of most expensive cities for expatriates, particularly Hong Kong in second place, followed by Zurich, Singapore and Geneva. The costliest city for the third consecutive year is Luanda, the capital of Angola. Despite being recognised as a relatively inexpensive city, imported goods and safe living conditions in this country come at a steep price. Other cities appearing in the top 10 are Shanghai, Beijing and Seoul in Asia, and Bern and N’Djamena.
If premiums are accepted in multiple currencies, then frequent updating mitigates the exposure to fluctuationsThe Expatistan website, which was founded in 2009 by Gerardo Robledillo in order to solve a problem that he himself had – trying to find out how much money an expat moving to a new city is going to need – uses the expense of food, housing, clothing, transportation, health and entertainment to calculate its findings. Sources used include the OECD, Spain’s National Institute of Statistics, the US Bureau of Labor and Chile’s National Institute of Statistics, and the website also relies on expats themselves to enter the prices they are paying for goods and services. Expatistan data suggests that London is eight per cent more expensive to live in than New York, 140 per cent more expensive than Sao Paolo, and 28 per cent more expensive than Sydney, as well as 14 per cent more expensive than Hong Kong. Meanwhile, research by Aetna International, a provider of health benefits to expatriates around the world, found in July 2015 that Dubai is the most sought-after location amongst US citizens searching for jobs overseas, shifting London, previously at the top of the list, into second place. Bonic of Mercer commented on why such research is vital to companies sending employees overseas: “Aligning workforce and mobility strategies by ensuring the right employees are in the right places is more critical than ever to manage globalisation. Properly compensating employees on international assignments is as important as it is costly.” According to Bonic, this is especially important for emerging mobility programmes with smaller pools of candidates and higher business needs for sending employees on international assignments. It is essential that these organisations have accurate and transparent data as they consider how to compensate fairly and in line with market demands.
The Americas
The Mercer survey showed that cities in the US climbed dramatically in the cost of living ranking due to the strengthening of the US dollar against other major currencies. Nathalie Constantin-Métral, principal at Mercer with responsibility for compiling the survey ranking, said: “The sweeping rise in the rankings of US cities this year is unquestionably due to the strength of the US dollar compared to the other currencies around the world.” Canadian cities dropped in this year’s ranking with the country’s highest-ranked city, Vancouver (119), falling 23 places. Toronto dropped 25 spots, to 126, while Montreal and Calgary fell 17 and 21 spots, respectively, to 140 and 146. “The Canadian dollar continues to weaken against the US dollar, triggering major slips in this year’s ranking,” explained Constantin-Métral.Europe, the Middle East, and Africa
Three European cities make Mercer’s list of the top 10 most expensive cities for expatriates. Zurich (three), the most costly European city, is followed by Geneva (five) and Bern (nine). Switzerland remains one of the most expensive locations for expatriates due to the surge of the Swiss franc against the euro. “Despite moderate price increases in most of the European cities, European currencies have weakened against the US dollar, which pushed most Western European cities down in the ranking,” explained Constantin-Métral. “Additionally, other factors like the Eurozone’s economy, falling interest rates, and increasing unemployment have impacted these cities.” As a result of local currencies depreciating against the US dollar, most cities in Eastern and Central Europe fell in the ranking. Prague (142), Budapest (170) and Minsk (200) dropped 50, 35 and nine spots, respectively, despite stable accommodations in these locations. Tel Aviv (18) continues to be the most expensive city in the Middle East for expatriates, followed by Dubai (23), Abu Dhabi (33) and Beirut (44), which have all climbed in this year’s ranking. Jeddah (151) continues to be the least expensive city in the region despite rising 24 places. “Many currencies in the Middle East are pegged to the US dollar,” said Constantin-Métral, “which pushed the cities up in the ranking. Steep increases for expatriate rental accommodations particularly in Abu Dhabi and Dubai also contributed to the increase of the cities in the ranking.”Asia Pacific
Five of the top 10 cities in this year’s ranking are in Asia. Hong Kong (two) is the most expensive city as a result of its currency being pegged to the US dollar and driving up the cost of living locally. This global financial centre is followed by Singapore (four), Shanghai (six), Beijing (seven) and Seoul (eight) – all climb in the 2015 ranking with the exception of Singapore, which remained steady. Tokyo (11) dropped four places. “Japanese cities have continued to drop in the ranking this year as a result of the Japanese yen weakening against the US dollar,” noted Constantin-Métral. “However, Chinese cities jumped in the ranking due to the strengthening of the Chinese yuan along with the high costs of expatriate consumer goods.”Insurers’ reactions
When it comes to changing cost containment practices in reaction to fluctuating currency values, Apps said that ‘the race is always on to keep costs down’, regardless of which currency is being claimed. He added: “While many of the insurers contract with third party cost containment organisations for the larger bills, more can and should be done in negotiating the smaller invoices. After all, they all add up and I find it gruelling that there seems little interest in proactively addressing this area.” Melton too said cost containment practices are the same, no matter where in the world or in which currency claims are being paid. “From a wider perspective,” he told ITIJ, “managing costs to safeguard the interests of our members and business clients is key. We have a dedicated, experienced team managing our relationships with healthcare providers, and take a robust approach when it comes to identifying and challenging unwarranted or unsubstantiated provider fees.” For IMG, a properly developed cost containment strategy that is multi-faceted, flexible and responsive should automatically allow for necessary adjustments that would mitigate material currency fluctuations. He added: “While those seeking elective care may be incentivised through benefit enhancements to receive care in countries where the currency exchange is favourable, the priority must be to ensure our clients are being directed to the highest quality providers with fair pricing – regardless of where they’re receiving care.” For Healy of Aetna International, ‘changing cost containment procedures frequently is not a practical solution’. “Instead,” he explained, “we plan ahead with a view to maintaining a consistent approach to member and cost benefits while reflecting the most recent currency trends.” Regarding the paradigm shifts in where expatriates are being sent on work-based assignments, and how insurers’ offerings alter in reaction to these shifts, Apps said that the IPMI industry is coming round to the idea that one size fits all is no longer appropriate. “Times have changed in recent years,” he told ITIJ, “in part, down to demand, but also down to changes in local regulation that have meant a more regionalised approach has had to be adopted by insurers.” In the UAE, for example, a minimum level of cover and benefit level is a requirement in order for the employee to secure a residency visa. He added: “While the cost of medical treatment can change dramatically from one country to another, so can the way in which medical treatment is dispensed, which can, more often than not, result in higher costs for the insurer for what is basically a straightforward procedure.” For Melton of AXA PPP, local knowledge is essential when it comes to providing the right service to policyholders. He said: “Providers [that have] a dedicated local capability, and the benefit of expert knowledge and resources when it comes to understanding market opportunities, local regulatory requirements and distribution channels, are well placed to serve and adapt to the changing healthcare needs of individuals and organisations.” Local knowledge is also key for IMG, as Barwick explained: “As international health underwriters, it is imperative that we keep up to date on world events, trends and developing markets.” This includes everything from political or civil unrest, to an increased risk of terrorism, or major health problems and natural disasters. “All of these situations,” said Barwick, “lead to a much higher risk of illness or injury than normal circumstances. At the same time, there are certain populations whose life work takes them into these locations at the time of crisis, including missionaries, relief workers, government contractors, members of the media or those in related occupations. Typically, these types of members may be spread throughout the world, so the exposure is relatively stable.”
The priority must be to ensure our clients are being directed to the highest quality providers with fair pricing - regardless of where they're receiving careIt also depends where in the world the insured is based in terms of which policy will best meet their needs, pointed out Apps: “In some emerging markets, the availability of suitable medical care remains limited, requiring the insured patient to travel abroad to obtain even the most basic of medical procedures. These increased costs have to be borne by the insurer, which inevitably have to be reflected in higher premiums.” For Aetna International, flexibility is essential, as ‘the majority of our members can move freely around the world, maintaining coverage, subject to local regulations’. He added: “The only exception would be instances of a member moving from a relatively safe environment to one that poses a far higher level of risk, such as relocating to a country that is potentially hostile or dangerous or a sanctioned country. Our underwriters would assess the risk and make a decision whether to allow cover, propose a more appropriate level of cover, decline or apply a premium loading.” Underwriting at Aetna, he continued, is ‘a constantly evolving process’.