The Insurance Couch Podcast - Employee benefits: Why activation matters more than cost (1/3)

Speaker A: Hi everyone. Welcome back to another episode of the Insurance Coach. Um, as usual, I'm here with my lovely co host Ollie, um, or Olive, um, as I see again. Um, Ollie, how are you today?

Speaker B: I'm fine, thank you. The olive is only in Zoom, which, which is what we use to record this. I don't know why this is because I, I think I don't have a Zoom M account or don't activate the Zoom account, whatever. But yes, feeling. Feeling good. Although Zoom calls me Olive.

Speaker A: Yeah. Yeah. Um, so today we're going to talk about um, employee benefit programs. Um, and um, as. And Ollie will allude to that, um, in the intro a little bit more. But obviously they are very different per uh. Let's, let's for simplification per country because um, they basically um, always complement uh, something of the kind of social, um, fabric social network, um, that is already existent. And so in some countries, um, they are meaningful and others there's very supplementary. Um. But we wanted to kind of take uh, Germany as we are very, um, we understand the market and um, it does um, outline let's say the kind of larger, uh, four elements that usually go into employee benefit, uh, programs. Um, Ollie, over to you.

Speaker B: Um, yes, and I mean I remember when we started discussing that topic, Nick is it was actually about um, where we started discussing the employee activation in employee benefit programs that employees pay for themselves. I think you guys must have listened to it eight or ten weeks ago by now because we have a lot of. We had a lot of topics in between. But that's when we first started about hey, activating employees is also necessary in employee benefit programs where the employer pays all or majority or some of the bill to insurers. Um, that's a different form of activation and we'll come back to that, um, in every program we talk about. But that's actually when you started discussing this. Um, so what we cover today, or maybe even in the coming of episodes, not sure if we're going to finish today, is employee benefits programs that are fully or in major parts paid for by the employer. Ah, not the employee.

Speaker A: Okay. And the way is. And that's interesting. So the other program with voluntary was um. We. We focus predominantly on activating in terms of paying for it. Now we're talking activating in terms of using it. Yes, because um, unless we use them, the um, whatever assumed benefits of offering an employee benefits program from the cfo. And we'll focus on the cfo, um element in this conversation, not because the HR element isn't relevant. But ultimately, if it doesn't trickle down at some form of numbers, it's, you know, it's, it's. Um, we, we wanted to kind of simplify it. Um, so if people don't use the program that you've decided that if they were to use, it would be helpful for you, um, as a cfo to, to attract, to retain or to motivate, um, um, um, or, you know, keep the, keep, keep, keep people healthy. Let's, let's keep that into motivating or productive. Let's call it productivity. Um, then it's also kind of pointless.

Speaker B: Absolutely. And that's exactly the point. As a corporation or as a cfo, as Nick said, you know, if you have a cost, you're typically the benefit for it. Right. In order to decide a cost. Right. And so in your opinion, the benefit must be bigger than the cost. And that's where activation comes in. The benefit of any employee benefit program that the employer pays for is usage, as Nick said. Um, so, you know, we must activate usage, which is uncomfortable for insurance companies because we used to activate for sales or for purchase, not for usage. We actually try to avoid usage in terms of claims. Um, so this is different for insurance companies and very uncomfortable. It feels very uncomfortable, I can tell you from my own perspective. Um, and it's also different for employers, um, because again, it's not a voluntary thing where you activate people to buy a household because you give them some discount or so it's to activate people to use the product. And that typically means handing claims other than in corporate pension. That's basically what you do, right? Uh, it feels a bit awkward from both sides, more awkward from insurance companies, but that's basically what it comes down to in terms of activation. Um, so general perspective, um, you know, employee benefit programs paid for by the employer are typically there because there's some gap in the Social Security systems of a country. No Social Security system is perfect, not even Cuba's. Um, and so there's always gaps. Um, in Germany, that's why we use the country as an example. Those gaps have widened in the last, let's say 25, 30 years or so where insurance, social, uh, security programs have been cut back. Um, many other countries have experienced the same. Um, so this is what we're dealing with. It's a Social Security gap or an insurance gap, a protection gap, basically. Again, we're not talking about mandatory programs such as, um, employer based corporate pension, uh, in Switzerland, which is mandatory. That's not a thing we talk about because you don't need to activate anybody. It's mandatory. Right? I have it. Everybody in Switzerland has it. So that's not what we talk about. We're talking about voluntary programs that might pose uh, possess a benefit for the employer that's larger than the cost and, and then you need to activate people. So that's where we come from. Um, basically we talk about four schemes today, um, or in the next episodes. Not sure how long it will take. Um, and those are our four favorite voluntary employee benefit schemes for Germany. I think they can be transferred to other countries as well. But again I work in the uae so Social Security system in UAE is very different from Germany. So it's not a one to one. Um, um, translation you can do in other countries but there might be some hints for other countries as well. Um, but that's basically what we talk about today. Um. Nick, anything before we kick off?

Speaker A: No. And then I'll say something. So probably yes, as we're kind of going through uh, these topics again we'll try to put a CFO lens um, into it. And that's basically kind of from a company perspective. And with that in mind, um, try to bring a bridge, um, what that means for brokers because most of these programs are sold via brokers, um, and not directly um, by the insurer or their agents. Although that probably happens on smaller tickets as well. But you know I have kind of like commercial uh, brokers uh, in mind. But what does that mean for you as a, um, as the product provider or the sales channel ultimately, um, in kind of keeping these things um, smooth and relevant for your customers. Um, so we're trying to kind of discuss these things as usual. We're not saying that we have the answer but hopefully we um, can um, open up some streams of thought and discussions and um, get everyone a little bit further. Um, and usually trying to think about it a little bit more holistically and whenever um. And we've actually had this discussion um, offline before, before talking this as well is basically to say uh, what I'll try to do is open up whenever you'll say yeah, but that is their job. That is to see if. For someone else to figure out. But if that is someone else's cognitive insurance is about what we've discussed previously. It's about reducing cognitive load. So whenever you push that cognitive load on whoever's deciding on the product, you'll lose a trick. Because if someone comes along and reduces that cognitive load. And it's the same thing. Yes, it's a CFO The CFO has lots and lots of other priorities. Um, they will never be an insurance expert in all of the nuances of these complex programs. So um, just keep that in mind. That'll be a red thread through this uh, conversation. Is reducing cognitive load for someone who needs to decide for your insurance product or service is probably more if not at least equal, if not more relevant than the product itself.

Speaker B: I agree. And luckily as a cfo, you don't need to be in the nitty gritty details, but what you need to understand is the cost and the benefit of every employee benefit program. Not only the insurance programs but also your, I don't know, bicycle.

Speaker A: The opportunity costs. Yeah, the alternatives.

Speaker B: Right. Um, so that's what you need to do. Um, and that's, I think what brokers should be able to give to you. Not sure they do it today, but you know, they should be.

Speaker A: Yep.

Speaker B: So let's start with corporate pension. Probably the most used, uh, um, um, corporate benefit or employee benefits scheme. Um, let's start with a bit of an overview because it's an English speaking podcast. So not everybody will be super familiar with the German, um, legislation and Social Security system in terms of corporate pension. And then we go into a discussion about, you know, is that, is that a good idea or a bad idea and how, how should you potentially implement it as a, as a corporate. So as many countries, Germany relies on a pay as you go state pension system. Um, which means Germany relies heavily on the relation, the balance between the uh, number of working population versus number of retired people. Now for a long time I think this system is, I don't know, more than 100 years old, Nick, in Germany, or even more, I'm not sure. Uh, so for a long time Germany had a good balance between, let's say birth rate and longevity, life expectancy. Right. Um, so the number of years that the state pension would pay was offset, um, occasionally by the birth rate. So younger people coming along and paying into the pay as you go system. As many countries in, uh, Germany as well, birth rates had come down at the same time life expectancy grew. And so the system is under enormous pressure.

Speaker A: Probably also cost. Right? Not just life expectancy. There's probably, I don't know, I would probably the cost per life is probably also, you know, inflation or something. So it's not just the longevity of something lower, people paying in, people taking out for longer, but what they are basically uh, required to take out is longer. Always. That doesn't, no, that doesn't matter mathematically.

Speaker B: Sorry, that's the beauty of the pay as you go system. As the salaries increase with inflation, the corporate pension increase as well. So that's actually one of the beauties of a pay as you go system. I'm not per se against pay as you go systems. I think they have a clear niche or they have a clear position in uh, retention planning. That's the beauty of it. Um, the disadvantage obviously is if birth rates go down and life expectancy increases, that's going to kill your system or at least uh, endanger it. And so what happens in most countries, same in Germany, is the pay as you go system gets worse, right? It needs to be changed. It gets worse. What typically means is working people pay more into the system, retired people get less out of the system and the retirement age increases. That's the three main levers for improving a pay as you go system. All of the three happen in Germany as well as in many other countries because that's basically the only three levers you can pull which when your pay as you go system is under pressure. And so same thing happens in Germany which means the protection gap widens in terms of um, pension, um, state pension insurance. And the protection gap is basically typically calculated as what's your income at retirement age versus your income, last income as a working person. We all agree that you typically don't need it one to one because you don't need close and travel to work, that kind of stuff. But you typically need 80%. That's a, that's a rough, that's a rough uh, estimate of your last income in order to have a good or as good retirement age as you had before as a working person. And that, that gap or that, that, that cannot be fulfilled by the German pay as you go system anymore. So you know, employee benefits, corporate pension systems is one, one uh, way to close or help closing that protection gap in terms of, of uh, of retirement age. Um, in Germany the corporate pension is voluntary. Different from Switzerland, it is mandatory that every employer over 10 employees I think is offering it to their employees. And when an employee decides to exchange some of his or her gross salary into pension protection, then the employer has to pay 15% on top of it. So if I decide to exchange €100 from my gross salary into uh, pension protection, then my employer needs to Pay, must pay €15. That's somewhat mandatory, but it's not mandatory that I do it. It's not, it's not even an opt out system yet, but Nick will come to that later. Um, so that's basically the Rule, Um, and a lot of employers, my opinion, have chosen that this is a pure cost factor. They've decided that the benefit of corporate pension is smaller than any cost they put into it. Um, you know, the minimum 15% that can obviously be topped up. And so most employers I'm aware of, um, and I'm talking small, medium sized enterprises, um, the large corporates are typically aware of the benefits and they market it very, very strongly with their employees. So we typically have, Nick, I think you said we have about 80% of people in large corporates that have the corporate pension insurance. But in small and medium sized corporate, we only have 20% of employees at the same time. So the small and medium sized companies for whatever reason have decided for themselves that the benefits do not outweigh the cost of the corporate pension system so that they're not marketing it, um, actively and they're basically given the basic 15%. When I was a small employer in Germany, I didn't really think about it and so I gave the basic 15% which is basically leading to almost 0% of your employee base using it. Um, but that's the thing. If you want to make this a winning factor for yourself as a company, my personal opinion is you need to pay much more than 15%. I think Nick, you will be talking about 50% on top, I'll be more talking about 100% on top. So I decide to put in 100, my employer puts in another 100 or so. That's the sort of pension schemes I know that tend to keep people with their employers, um, which we'll talk about later. But some of my very risk averse friends and family members to stay with their current employer. Although the work environment might not be the best, let's say, um, because they have such strong pension systems, um, you know, my, my friends tend to be 50 years old, uh, or bit older. And so they Sometimes they started 30 years ago with their current employer. Pension systems back then were even more attractive partially than they are today. And so they basically, you know, do their last 15, 20 years or so with the employer because they say, you know, it's such a strong pension system. You know, if I switch employers, you know, I start new and the pension system is not as strong. So it can be a mean of keeping people with you, although otherwise without that pension system they would probably be leaving you. So that's a, that's for the cfo, I guess, a benefit because replacing some, losing somebody and replacing this somebody is always an expense. Um, and that's, that's something a good, a good CFO must, must weigh against each other, I guess.

Speaker A: So, uh, what I. Go ahead.

Speaker B: So, you know, Quintus, for me, the result is if you don't believe that the benefits of a corporate pension scheme outweighs the cost, then you do exactly what you do today. You stick to the 15% minimum. You don't market it with your employee, you don't activate any employee because for you it's just a cost. So, you know, you basically avoid employees using this scheme. But if you think you can make the benefits outweigh your costs by keeping people longer or recruiting people easier, that's, um, typically two of the two levers. Then you need to be much more generous than 15%, be it 50%, as Nick will tell you, or 100%, as I believe you need to be much more generous and you need to market the shit out of it. And you need to activate your employees to use your scheme. Um, and, you know, good thing Nick will talk about it, um, that Germany has just introduced an opt out system which will make it much easier for you to activate employees because opting out is always harder than opting in. Um, and so for those of you guys that believe that the benefits can outweigh the cost, um, there's just been additional lever for you in Germany, um, in terms of, uh, legislation. But that's basically what you need to decide as a cfo, right? Is it positive? Yes or no? It's almost a black white decision in my opinion. If you don't think it's positive, stick to the bare minimum. Don't market it, don't activate. If you think m benefits outweigh cost, then go above, go way above the minimum. Um, market it, activate your employees. Um, that's basically the 01 decision.

Speaker A: So, so I think that. And it's a simplified frame, but you know, the way I'm thinking about it is, um, does it help me with attracting employees? Does it help me with employee productivity?

Speaker B: Yes.

Speaker A: Um, and does it help me with employee retention? That's probably, that's the three. So I would say, um, and then obviously, um, compared to all of the other benefits that I have and my, and my, and my cost, um, now I think there is some really interesting, uh, so if we kind of go through this, I would say there is some really interesting data on, um, on attracting. So one thing is depending on the, depending on the tax benefit, you know, how much of it is tax exempt and your kind of tax brackets, um, a benefit, a net benefit of one of These programs uh, you know can be substantially higher you know between 2 to 3x depending on um just the kind of gross figure of something. And so basically you just get a lot more bang for your buck on Total Comp. Um we know this olive like in startup land because you have a lot of kind of vesting and um a big discussion was always on total Comp and to kind of compare uh whatever is a vesting schedule with your um safe salary. Um but, but this is um actually a similar thing to um on the total comp basis um that you can get um, more bang for your buck M and I would also say um that it is very interesting um and I think a um data that I've gotten it's um anecdotal data from credit card programs where people basically say it's very interesting more benefits. You want. You want a card with more benefits so you want an employer with more benefits. But when you've actually asked you don't even remember the benefits. So the whole m a lot seems like good. And then you kind of forget. And it's just to note that in complex programs people are not rational because we minimize. We actually don't optimize for homo um economicus. Um we optimize for cognitive load. Um that's actually what we do. Um so I would say on that one um we have very good um and there's very good data. Um so that's number one. The second thing that I thought um. Um that I that I did some, some research on was um would be. Would someone even be willing to have um a lower pay on the kind of net benefit for them even if it doesn't isn't that tech supported? And there the evidence is a little bit like it's kind of the same and maybe 20%. So again some people are um, they kind of value the package better than no no. I just want to have the pure pay and then kind of kind of pay for it. So there's some kind of weaker evidence there and it's just to say um both of these metrics indicate that for attracting it works. I think we agree for productivity doesn't have an impact your pension um now on leaving and we've had that discussion um and you've indicated it um so if you ask people, both HR managers and people they will give them um a some significant um support to say yeah I'm staying because of the. I'm um staying because of the pension. If you're actually looking what people do rather than asking what they will do or why they've done something. The evidence is a little bit weaker to be honest. Um, but again it's um, um it, it's almost um, more relevant. What, it's almost more relevant to say that they think that they'll, that they'll stay because they think that this is the case rather than who actually left. So I would say the psychological elements is actually uh, more, more more relevant here. Um and so on that basis it seems that um, a pension program in and of itself um, fulfilled some CFO criteria um as it's also usually heavily tax subsidized. Um so yeah, I think that's from a CFO perspective it's a plus. Now we obviously need to go through how does this rank with different programs and you know, all of it which we're not going to do in this episode. Now the interesting thing, if I go to the broker, I don't know whether that is. Maybe they do. Right. Um, I'm curious, um, how. So what the broker should focus on is I believe um, making sure that they have some really strong advice of how HR presents these benefits. Um, when talking to potential um, employees I um, think that is really uh one of the kind of main things. Um and they should also consider how to support activation not for productivity gains but someone who's not in the pension is not going to benefit from the kind of stickiness factor. Um, um there is and I wonder how many brokers do that um because they'll say this is not it, I'm an insurance broker. But I think that is a perfect reason why someone needs to own the entire chain. And I will argue that in the advent of um, AI, um you can actually structure much broader, much more targeted advisory programs that would otherwise allow you just require you a very heavy and expensive bench of experts. Um, and I would absolutely advise ah, a broker to kind of think about this and as the insurer, um, yeah I think the insurer it moves downstream. It's basically to say because a lot of brokers will not have the capabilities of expanding their reach so the big ones will kind of do these things, you know Marsh, Aon, Willis, etc. But there's a lot of kind of medium sized brokers um, as all the consolidators know that they kind of would bring together. So as an insurer I think other than just a product provider, I think especially for tier two, Tier two, whatever Tier three brokers, um, helping them in pushing that additional advice forward, um, as a differentiator on pure commission and product basis is also something that I would consider.

Speaker B: I agree. Let's get back to a couple of points. Um, I think you rightly said for um, attraction of um, new employees you don't need usage. Does that mean Nick that we actually. For attraction of new employees. If that's the main benefit that you get out of this, you don't actually need activation. You just need the marketing of offering a lot of things like, like as I said a credit card but you don't really need activation.

Speaker A: Yes.

Speaker B: Okay. Okay. So.

Speaker A: But you need it for retention.

Speaker B: Yeah. Yeah. Okay. For retention you do need it. Um, and there, I mean I have, I have anecdotal evidence of course of some of my customers as a broker where especially the older age, very risk averse people stay with their typically very large employer Deutsche bank or what know Big alliance or so and not go to a smaller competitor which they think doesn't offer the same corporate pension. We're talking 45, 50 plus um and we're talking very risk averse people. So it's not, it's not a huge segment I guess of employees um, but talking about a certain segment and the question I think we raised before recording this Nick is are ah, these the one, are these the employees you want to keep as a, as a large corporate. Because it's simply we're talking about large corporate employees. We're not talking about one SME employee switching to another SME employee. We're talking about people working for Deutsche bank and choosing to go to a much smaller bank or much smaller startup or whatever.

Speaker A: So if I had to advise a CFO on a very simplified basis I would say focus all on retention, uh, all on, on. On um attracting. Don't, don't worry too much about retention because I would also say um, that um, say risk aversion versus risk seeking. I think there is a, you have a um, pre selection bias um because that's what corporates pre select versus smaller companies by itself. I would also say that most people make shit up um, why they are doing certain things when they're left with uncertainty. I think your friend might say yeah this is this pension. But we both know that from most pensions you can actually just freeze that pension in and you're not really losing the benefit of that pension. So I believe there's a um. I don't trust people to make um. To be honest with themselves at a large scale of um. I think they're rationalizing. It's just something that sounds good, sounds rational. Um, but they're probably just afraid at least to a certain effect. And so I find that retention element, especially with um, with pensions as it doesn't also lead to productivity much weaker, much harder. That is actually what makes it super expensive as well. And so um, if I wanted to get the best bang for my buck as a cfo, I um, would focus a lot on attraction. Um, but basically I wouldn't hinder retention, you know, activate like actually using it. But I wouldn't try to focus uh, too much effort um, on it. But again I would want to see the whole realm of, of these benefits and um, whether I feel that I don't know, work from home policy, um, is I know like Akita daycare. I mean I think that's just like so many really relevant um, aspects and all of it comes with also you know, the broker not wanting to insource the complexity of the employer of managing all of these benefits and then the employer not wanting to insource the, the, the, the private to um, to, to business reality of, of the employees. Um and it's always when someone wants to push down complexity to, to other people whilst they still want to have a certain change in behavior, I would just say be aware um, you might be losing a trick here.

Speaker B: I agree. And to make it more complex for the cfo, um, because you said daycare, it's also targeting different age groups. So daycare is attractive for I don't know, 30 to 45 year olds or so to stay.

Speaker A: Absolutely.

Speaker B: Corporate pension is attractive for 50, 55 year olds plus X to stay with you. So it's not even either or it's like you can do both and target different age groups. So depending on what you want, you know, it adds, it adds complexity. I personally am a believer in retention through corporate pensions and so I would very much like to see brokers or insurance companies give me as a cfo, give me that numbers. Right? How, how does a company A, without a corporate pension scheme or just with a mandatory thing, right. Compared to a corporate B, similar size, similar industry, similar whatever with a very attractive corporate pension. How do the, the retentions differ between the two, especially in the age groups of 55 plus or so. And nobody gives me that numbers, Nick, which is actually a shame because people should be broke. Big brokers should be able to give me that numbers. Right?

Speaker A: No, I mean and to be honest, and it can be indicative numbers. I mean we all know, you know, both of us have been on the consulting thing, we do these bullshit benchmarks, um, and they, they are widely off target but they still, you need something, because otherwise it's like he said, she said. And so at the very least, um, you know, do the work of researching what some data is there, collecting all of these things and putting everything into a financial decision model. And then the CFO can decide whether they feel, um, you know, for pensions, you know, what is your, um, what is your age bracket? It's just reduce the. At least model it out for them and then say, listen, this is some benchmark figures, by the way. This is American data. So probably you need to adjust it. Um, and that is what normal consultants do. But again, I think what AI allows you to do as a, let's say product service provider who does consultative selling is you can just expand the quality of consultative selling much, um, wider, um, because you, um, you can reap the. You know, you set it up once and now you can actually customize it as well. And I think that is where, you know, when I mean by AI, I mean, you know, run it through the various research things, put these things together, do some fact checking, build a model, build a standard model, then adjust the model based on some publicly available data. So, and, you know, like, I can do this with my Claude and whatever Perplexity subscription. If you give me a day, I can literally build you this thing in a day I. By myself. And yet all these big companies can't. Because. And I think it's. I think it's a mindset thing. It's to say, no, no, no, this is not. This is. This is not us. Um, and yeah, I think it's just kind of putting these things in place, um, in one place where someone can kind of go, okay, now I can see the decision. And then you can still decide if you kind of go. I'm not saying, um, if you feel that, you know, if all of Your benefits rank 26 to 55 or something, um, I get it. Then rank those benefits in that, you know, you can, you can still, um, reduce, you know, put some other benefits out, um, and decide our benefits are so shit m that we don't want them to. To be aware of that. Fair enough. Make that kind of decision, but at least be. Be aware of those things.

Speaker B: I agree, I agree. And I think one more word on activation. If activation is your thing because you believe in retention like I do, then, you know, we can actually go back, uh, to eight or ten weeks ago when we talked about employee activation. Employee activation is not an email sent by HR or a, uh, hangout at the corporate, at the blackboard in the entrance or so it's about people to people. It's about the people you look up to and that are yet close enough to you so that you accept advice from them. Or so that's what I've learned in my past as a employer, somewhat larger employer. So in some points you need to find a way to the employees at the shop floor. Basically it's up to, I'd say up to 500 employees. It can be you as the owner, founder, whatever. Um, bigger than that it typically needs a middle layer like the boss that you secretly admire or that you at least accept as a, as a trusted person. So it's still a people business. It's not an anonymous email from an HR person or as we've also.

Speaker A: And it kind of comes full circle about you know your, about better advisors, better introducers or you redesign the system from opt in to opt out. Um, which you, which um. I believe you can in Germany. You might not be able in every country. Um but there is a certain kind of nudging element even on the onboarding to say uh, by the way uh, we assume you know even if you can't just force them. This is like in the online. We just assume that that is the case. You know you, you, you, you, you and give people potentially a structure the product that they can easily quit. But say listen, we'll assume that you want to stop paying if you change your mind at any time you can kind of get out. So to make it easier and the default setting um now how much I think if we as you said if you want to make the product really good uh or not. I'm a little bit more cynical about that. I don't think that most people um, know without having spending some really um quality lifetime figuring out um how investments and pensions and things work and comparing them. I just don't think that most people really know um the difference between a um you know low cost ETF on building, building your thing versus a um tax. Tax supported safe thing. Um especially as people have a different value on kind of safety versus performance. Um so I would be cynical about that and um, probably start with the lowest percentage. Um I think you can get a um very high that you can kind of get away with but um, potentially offering people if they um, if they actively ask or something a second tier. So I wouldn't um. It's a little bit with options right. You would assume that everyone is better motivated with option. But that's not true. You know you want everyone maybe a little bit but you'll have. Some people will just be triggered much more differently with that level of, um, um, compensation. And that has a lot to do with their character, their financial position, lots and lots of other things. So I would be careful, um, to not, um, you know, um, what do we like, like pearls for pigs. Um, it's a German pound for desire. Um, and it's just a. You basically want to. This is a psychological. It's both a financial and psychological game that we're playing. And ultimately what you're trying to do as a CFO with, um. With um, scarce resources, you're trying to get the best people and. And retain them, but you have scarce resources. So you need to um, cater to what psychologically works, not, uh, what people say that works. I'll give you another example. That was. That was, um. And it goes into other benefits. And it was. I remember from, um, one of my first employers, they had the choice about. It was, I don't know, 100 years or something. 50 years of whether they'll invited um, all of the people to Mallorca for two or three days or give everyone a bonus for €500 or a thousand. Because it's actually really expensive. It's probably like a thousand. It's like really expensive getting every. Everyone else, like getting everyone to Mallorca probably, uh, cost you like a grand, a grand and a half per person, if that. You know, if you'd asked, would you want to spend a m. Weekend with your colleagues on mallorca or get one and a half grand, guess what? 90%, 80% of people would take the money. But if you now kind of look back of what was actually people forget the bonus. But people still. This was before I, uh, joined the company, still had this memory of this event. And that was to me a realization or a reminder of, um. Of course you need to listen to people, but you also need to be aware that, um, it's different what people say than what they do. And it's not because they're lying. It's just that we're not. We're not perfect predictors of. Of what we'll do in the future. Um, and that is why I think this is so interesting and so multifaceted. Um, and I don't think that the um, brokers or the insurers who ultimately have an interest of making their products work into a, uh, tight, uh, schedule and cognitively very easy, uh, process for the CFO that they're even doing close to what they should be doing, and they're focusing on all the Wrong things.

Speaker B: Let's come to the second scheme. Um, I guess that's going to do it for today then. Um, and we leave the other two schemes for the next in two weeks. Second scheme uh, we've listed is corporate disability. Um again disability insurance compensates for the lost income if you're not able to work anymore, um, although you should be working because you're not yet retired. Um, up until I think the end of the 90s it was 99 or so. Germany had a very comprehensive um, state run um, disability insurance system. It was a Social Security system paid for through taxes more or less. Um, it was very comprehensive, it was a good system but very expensive obviously. Right. So at the end of the 90s, around the end of the 90s or so, um, Germany decided to kind of pull out of the you know, full service disability, Social Security system, disability system, um, and reduce the benefits for disabled people at the same time. We introduced private insurance products Allianz and general, everybody introduced them where you could cover the gap as ah, an employee. Um, it was typically, it was designed for us employees basically paying the bill and um, insuring ourselves for the gap. Um, now 25 years later the gap is still large. I um, think Nikhil have some numbers. It's still large. I think 20 to 25% of all German employees have bought a protection for the gap. Um, and so that means that a large portion of the German employees are not insured against uh, disability and will receive the basic payments from the state which I'm not even sure how high they are but it's very hard to live off them I guess. Um, so that's the situation. Um, about um, 25% of all German employees will end up in disability at some point of their career, some very early in their career, which is very unfortunate, most of them very late. Um, but yeah, you know the most important reason for becoming disabled and not being able to work anymore is psychological reasons. Um, they've overtaken every other reason being it cancer or back pain or whatever. Um, by far in the last two decades or so. And not uh, only the most important reason, it's also the fastest growing reason

Speaker A: is that, but that is different per uh, um, type of work. Right. So that is probably because of the shift of more white collar work versus blue collar work. I would say there's probably still physical ailments over psychological ailments for you know, physically very demanding work.

Speaker B: Agree.

Speaker A: Okay, yeah, agree.

Speaker B: That's the case. So the shift of work has contributed to the shift of reasons to become disabled. And not being able to work. Um, agree, agree. Um, so again, you know there's a, there's a big gap. 25% of all people will need it at some point in time. Again, if you, you become disabled at age 63, um, and your pension, pension age is 67, that's a four year gap. You might be able to cover it yourself. But if you become disabled at age of 50 or so because you know, psychological reasons, that's a very long, 17 years is a very long time to cover because you have, you haven't got any income and your pension will only kick in at age 67 or so in Germany. Right, so that's the gap. Um, again one way to close this gap is the corporate disability insurance. Um, the way Germany has decided to go is the retail, the private disability insurance which hasn't worked really well in the last 25 years I'd say. Um, so maybe corporate disability is the way to go forward. Um, and especially there's a big reason for that because as a bit larger company, let's say 10 employees and more, you will be able to sell a portfolio, a group of customers to an insurance company. And the insurance company will therefore typically don't do medical questions to the employees. Um, there's going to be two or three medical questions or so, but that's about it. And so a lot of people that are not even able to get private coverage because they have preconditions will be able to get into a corporate um, disability program because they're part of a portfolio or they're part of a group of people. Um, typically in Germany there are two forms of those. Uh, corporate disability insurance. One, corporate disability insurance. That one form is building old age, um, provisions, meaning they basically ask the same price from you as an employee throughout your life. Um, at the beginning you pay more because your risk is lower. Um, toward the middle of your, of your life you pay less because the risk is higher and the payments are higher. And towards the end of your employee life you pay again more because then the years to be covered are not, are very small. And so it's again it's cheap for the insurance company. Um, these schemes can be, and that's a big advantage. These schemes can be continued by each employee once he or she leaves the company. Corporate that has paid for it so far, that's a big benefit for the employee after they leave. Question is, do you want them to leave and pose them with a benefit after leave. The other scheme is basically a, well the pay as you go scheme. It's basically a PNC insurance. Um, it's not a life insurance. It doesn't, um, build any old age provisions. You pay for one year and next year you have another price. The price typically, um, is depending on the age structure of your employee base and the job structure of your employee base. Again, the more blue collar workers are the different price for more white collar workers. So that's. And the insurance will give you a price every year. So you can decide every year do I continue or do I not? Um, no old age provisions. So which, which means that every employee that leaves your corporation cannot. There's not an option for the employee to continue the insurance. The nice thing about disability insurance compared to pension, uh, insurance is it typically hits people, employees, very unexpected. They're typically in the middle of their life. They have a good working relationship with many of their colleagues. So word of mouth spreads fast. If I, as a corporate, enable one of my employees who's become disabled and cannot work anymore to live a decent life, um, I think that's something that word of mouth carries to, to the active employee base. So the, And I know you're not, you're not a fan of it, Nick, but the retention aspect, in my opinion, is stronger than in a corporate pension where, you know, this is a very planned event. If you're 67, you turn 67, you retire. Very planned event. Anybody who hasn't, you know, made provisions for that, for that event that is very planable is basically. Yeah, it's, it's not, it's not really. You don't pity them, right? But if somebody becomes disabled middle of their life, they probably still have kids to raise or so pay for school or whatever. Uh, this is some serious event. It's unplanned, it's an accident, typically. Um, and so this is a stronger value proposition for other employees that see, hey, my former employee colleague sitting next to me, my good friend, uh, is still having a good life, although being disabled because our combined company paid it for them. Um, so I think that has a stronger aspect on the retention. Therefore, I am clearly in favor of the second scheme where the employee cannot continue it because you want the scheme to be, you know, to be, to be exclusive to you. So only as long as you stay with my company, you get the benefits of that scheme. Um, in addition, this is 20 to 40% cheaper without the old end commission. So, you know, it reduces the cost for the cfo and at the same time, in my opinion, it increases the benefit in terms of if you leave the company, you're just not getting that benefit anymore. There's no way for you to continue it by yourself. Um, so that for me is my favorite product design in terms of corporate, um, um, disability insurance. Again, you as a CFO need to make the decision is the benefit outweighing the cost? I personally think they are. Um, so I'd always do it. But um, again, your opinion, and Nick will come with another couple of uh, data points why it should or should not be an important thing for you.

Speaker A: Yeah. So I think, um, first of all, I agree 100% on product design that um, um, you should only offer a benefit, um, that is left, um, that they lose when they leave. If you want to kind of play the retention game, um, plus it is even if it weakens some of the kind of attraction piece potentially. Um, but you know that, um. Let's. I would, I would, I would argue the same thing because I think the bigger problem, um, is that it's just going to have lower immediate cash for uh, the sales organization likely. Um, because you know, it's, it's. It's shorter. But I think again, um, in a, In a, In a kind of competitive market, um, you should find, um. So as an insurer, I would, I would offer both. I would say, listen, you decide. I have both products, the sales organization and the CFO needs then to kind of hash that out. Um, with the cfo, I would say on the retention, this seems to be something. First of all, I would say to me, there's basically kind of like two types of disability benefits. One is, um, what you've mentioned. Someone simply cannot work and it's just a good thing we've taken care of our colleagues. But there's the other element about preventative measures that kind of then come because now someone has an additional benefit and expertise of how to both prevent certain disability things to begin with. And that's the, that's one of the nice things of insurance. You make risk a cost factor. Um, and now you have someone, you know, like, um. Like. Like, uh, uh, property insurance, um, who designed the first, uh. Uh, fire brigade.

Speaker B: Right.

Speaker A: It's exactly, it's. It's exactly that element. Plus then you have intervention. Um, when something happens on the psychological front, you have one. But also people can be, um, can have an accident and then potentially get. Get. Um, you know, there's partial disability in there as well. So I think I, um, think I would kind of have these three elements in. In mind which would then have a certain impact on productivity, which pensions don't. Um, and on the attraction element, I think it is predominantly attractive for blue collar where basically disability programs are not achievable. And I do believe if you have a, um, total lack of talent in that space, um, and then um, people get the benefit, um, you'll educate people about the benefit and if they then leave and another employer doesn't, and if they'll, if you just nudge them proactively about, by the way, we encourage you to have a private, we'll even allow you, um, we have maybe some special benefits if you leave. Um, because what you want is you want people to understand the market price of the benefit at some point, um, which is so much higher to. They can't even get it. Because if all of a sudden the disability insurance is what like 70% of their take home pay, then they'll value, then they'll value that. So I would even suggest that um, in as part of that awareness program, um, that that you'll do that you encourage that you share information about how costly these things were. These things really are. Because if people don't know what something is worth, um, then they don't value that. But yeah, I think it's a, I think it's a great benefit.

Speaker B: In my experience, one of the biggest resistance you need to overcome especially with young people is they just don't believe the 25% number. Right. If you ask them, you know, how do you think, you know how probably is it that you become disabled, you personally, they say 0%. Right? No, no way I'm becoming disabled. Maybe 1% or so. And so it's very hard to sell this to young people. And I'm now talking B2C even harder for employers to raise the awareness that the uh, 1% figure isn't the right figure. Statistically it's 25. Right. Um, and you raise that with 18 year olds or 16 year olds or 22 year olds or so that for me in my personal experience as an advisor, insurance advisor is the uh, hardest thing to overcome in this disability insurance scheme.

Speaker A: Yeah, no, and again we're not saying that um, we're not all of a sudden um, thinking that this is not hard to do. I, I do think it is for um, if, if you're hiring for, let's say you know, mid of life, uh, workforce, um, they might have experienced that. Um, and um, especially with blue collar work, that is something um, that they'll just have anecdotal experience with. Um, and so they'll find that that is more relevant. Um, and then again I think when the CFO case needs to be, I think there is a productivity case to be done. And then on the retention element, yeah, I would go for the PNC program rather than the Life program, um, simply because it's kind of cheaper for you because you're not actually paying, um, the entire, um, sales effort up front for all of the employees that then continue once they're not, um, part of your organization. Um, yeah, it's a good one.

Speaker B: I think that's number two. I think we saved number three and four for the next episode. Right. So let's end it here. I think, uh, uh, we still have two schemes to go then. A lot of, uh. So what's for insurers and brokers and employers and employees? So, uh, let's save that, uh, in two weeks.

Speaker A: Awesome. Thank you very much.

Speaker B: Ciao. Um.