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Financial Services
Friday, December 1, 2006
Help at hand

Retention of human capital, undoubtedly a company’s most important asset, is becoming more and more challenging, says Guardrisk in a recent Update newsletter. But help may be at hand from a seemingly unlikely source: your insurance broker.

Says Guardrisk, in the environment of increased governance after events such as the 9/11 terror attacks, the Spitzer investigations and the new International Financial Reporting Standards, many leading international brokers have established corporate service practices. They aim to meet the increasingly sophisticated disclosure and accountability requirements of corporate entities to ensure that all on balance sheet risk is properly managed.
Gone are the days when you would expect to see your broker only at annual renewal time. Now they are expanding their offering to clients, utilising their actuarial expertise and experience to assist companies to manage benefits issues, and with the formulation of companies’ remuneration strategies. They also bring to the table skills that a typical internal human resources (HR) person simply could not be expected to possess.
Just one example of how brokers can add value is with share option schemes. A few years ago, share options were nothing more than a cheap way of paying senior employees. It did not cost the company much and administration entailed little more than elementary record keeping. But that has all changed. Now there are significantly increased disclosure requirements, companies have to account on the income statement for the cost in the year of issue and there is a far greater appreciation of direct and indirect costs, all of which have altered the way in which companies approach share option schemes.
Some brokers, putting their actuarial experience and data to work, provide valuable insight into factors like employees’ behaviour, and are able to place a more accurate value on a company’s share option liability by taking into account aspects like irrational behaviour and early exercise of options. Simply put: they overlay mathematical calculations, based on actuarial statistics, with human behaviour patterns.
And it’s not only listed companies that can benefit from this expertise: though non-listed companies have less flexibility in terms of granting equity to employees, brokers with these skills can help them set up innovative structures like ‘phantom’ share schemes and other long term incentive plans for key employees. The broker’s ability to model the expected cost of the scheme during its design phase results in an accurate assessment of the impact on the company’s financial position.
Guardrisk says brokers can also help companies with the design of broad-based economic empowerment share schemes; to calculate and provide for their post retirement obligations to employees; and, with the management of expatriate staff, including formulation of expatriate management policies, interaction with people on the ground and the provision of international benefits.
And it’s not just in the HR arena that brokers’ actuarial skills can be applied: more and more they find themselves assisting clients with issues as diverse as capital project evaluation, mining rehabilitation, and mergers and acquisitions.
 

Copyright © Insurance Times and Investments® Vol:19.6 1st December, 2006
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