India has the highest rate of medical inflation, says Towers Watson

According to a report by Towers Watson on employee benefit trends in 2015, Indian HR leaders find employee benefits the most effective tool to attract and retain employees.

However, the big challenge that most Indian companies are facing is that less than 20 per cent of the employees actually value the benefits they offer. And Towers Watson's prescription is to make benefits more tangible - more in line with what people want - to have a better engaged employee and better return on investment.

In a conversation with BT's Ajita Shashidhar, Cecil Hemingway, Managing Director Global Health and Group Benefits, Tower Watson, and Andrew Heard, APAC Head for Benefits, talk about how employee benefit is becoming an increasingly important component of an employee's compensation package in India.

Excerpts:

Q- You have recently acquired Metis Insurance (which specialises largely in offering employee benefits) in India. Can you give us details of this acquisition?

A- Cecil Hemingway: Our clients have been telling us for the last 7-8 years that they are having a hard time getting the quality of advice in India that they were getting from us from the UK or the US. We have fantastic data around benefit, we would help a client design a benefit programme in India, but we couldn't implement it because we didn't have the regulatory approval to work with the insurance industry. In the past it was fine because at the business level the number wasn't big enough for the clients to care. They would just tell us they would hire a local broker and do their own thing, but as the number got bigger and issues got more complicated, they would tell us they would need help from Towers Watson in India. In a nutshell, our clients started yelling at us because they weren't getting the services from us in India. So, at the end of 2012, we made a strategic decision to systematically globalise our health and group benefits business, so that the clients' needs are met.

The acquisition was 100 per cent client driven. Our clients are the world's 1,000 largest companies. We only work with very large businesses and our clients demanded us to create the capability.

A- Andrew Heard: Our clients were globalising, they really were looking for new growth markets and Asia was the most obvious growth market. They were expecting a consistent service. They wanted to understand what they were spending on, what their risks were and they wanted to work with one organisation that could help them all over the world. In India, Metis had built a very good brand and a strong team. They had clients in India who were globalising as well. A lot of Indian companies were going offshore, some of them very large and successful. Metis was looking for a partner that could help them with their clients who were globalising. It was a good fit.

Q- What kind of challenges do companies in India face when it comes to employee benefits?

A- Heard: India has the highest rate of medical inflation in the world. Medical inflation was running higher than the salary increases, higher than the general inflation. When you look at what's going on here, it's a concerning trend. Our research shows that the key three elements impacting employee growth is stress, lack of physical activities and obesity. Looking at all these together, you know why India is called the diabetes capital of the world. Many of the diseases affecting employees are lifestyle diseases. So, companies here are looking for help as to how to improve the lifestyle of the employee, how to bring down their medical costs and premiums, and have better performance with their insurers. We have always been interested in productivity of employees, how having a highly engaged productive employee improves the profitability of the organisation. This is a natural extension of what we are offering here.

More than 50 per cent of organisations in India are spending more than 25 per cent of their benefit in the health space. It is a big corporate expense. When we think about what's going on here, certain things are quite unique to India. You have got parental cover, parents are living longer, medical treatment is getting more complex, pharmaceuticals are getting more costly and lifestyle diseases are becoming more prevalent. So, there are a lot of things that continue to drive the spend up, unless organisations have a specific role or strategy and good governance of their spend. What's worse is even though the benefits spend is big in India, what our clients tell us is that 1/5th of the employees really value the spend. You have got a warning bell on how costs are going up, you have companies striving to get a better return on their dollar but less than 20 per cent of their employees valuing the spends the organisation has made. It's an area where companies in India are particularly looking for some help.

Q- How is India different from other markets?

A- Heard: Asia is a market where benefits are a large part of the employee proposition. In other markets such as Australia for example, health is something that an individual has to manage. They have to take their own insurance and if you look at what's going on in the US, the change in regulation is more trending towards individual responsibility. Companies still have a very paternalistic view here. The No. 1 most valued benefit in India is health benefit and you can understand why. You have parental cover sitting there, you have your family covered under the policy and I think India is going to be faced with the same challenges as the other countries - how do we contain these costs and keep them at a reasonable level, how do we help the employees stay well, how do we help them undertake lifestyle changes to maintain their health.

Q- Are Indian companies really investing in employee well-being?

A- Heard: There is bio-metric testing being done, you see health risk assessments being done, you see intervention programmes. Companies are taking it seriously. I was pleasantly surprised how many clients are actually doing things in this space. What I was disappointed about was that they tended to be adhoc, didn't see a good use of data. You need a well articulated strategy to manage your identified risks.

A- Hemingway: I do think there is an angle that would really work in India. What we have seen in the US is that most successful wellness programmes were driven by senior leadership as a way to show that leadership really cares about them, and in a paternalistic society like India my guess is that it would work. If I were to predict, probably Indian companies would easily grab on to the idea that wellness is an easy way to concretely demonstrate to their boys that they care about them.