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Risk Insider: Jon Hall

A Rising Tide

By: | June 22, 2017 • 3 min read
Jonathan W. Hall is chief operating officer at FM Global. He oversees FM Global’s insurance operations and insurance staff functions, as well as the FM Global Resilience Index, a data driven resource that ranks the business resilience of 130 countries and regions. He can be reached at [email protected]

Earthquakes. Tropical cyclones. Snow. Flooding. Of all the natural hazards, studies show that flood is the most expensive. According to a report published by Aon Benfield in 2016, flooding was the costliest overall peril for the fourth consecutive year, at $62 billion.

Our world’s climate is changing, and some weather patterns are shifting. Due to the rise in world population, a rise in value at risk, increasing vulnerability due to globalization, and the rapid development of emerging markets which are less resilient, property loss from natural catastrophes has been, and will continue to be, ever more costly.

Many businesses are questioning if they’re doing enough to prepare for and adapt to these catastrophes. But just how should businesses plan to stem the rising tide? Of all the natural disaster losses, flood loss can be both the most predictable and the most preventable, so armed with clear information, businesses can take action to protect their value.

The most obvious action is to locate far from low-lying river, coastal or other flood-prone areas. If that isn’t possible, however, there are some proactive steps businesses can take to reduce their risk of potential flood damage and business interruption.

Among the preparations businesses can take to reduce the impact of flood is permanently moving all electrical, computer and telecommunications equipment safely out of low-lying interior and outside areas to settings above the flood level.

Flood preparation and awareness are key. Facilities located within high-hazard flood zones will eventually experience major flooding. In addition, FM Global has always recommended that clients not build in moderate-hazard (500-year flood-exposed) areas. In fact, in many areas around the world, building codes and regulations now call for critical infrastructure occupancies, such as utilities, emergency services, schools and hospitals, to build higher or protect against the 500-year flood level.

Nearly one in 10 commercial facilities are already located within a flood zone, and the best loss prevention practice for these properties is unremitting vigilance. While there is no way to prevent a flood from occurring, businesses can enhance their resilience by preparing for whatever precipitation extremes could occur. This can’t happen, however, without a contingency plan. Without a plan, buildings, machinery, data centers, transportation networks, supply chains, employees and customers are all at risk.

Facilities at risk for flooding must prepare well in advance to keep water out of business-critical areas to limit downtime and service interruptions. Smart businesses have a clear plan for what they will do when flooding is imminent, including choosing the best location for their flood barriers, sealing walls and floors, and providing flood pumps and other mitigation equipment that will help maintain business continuity.

Among the preparations businesses can take to reduce the impact of flood is permanently moving all electrical, computer and telecommunications equipment safely out of low-lying interior and outside areas to settings above the flood level.

FM Global’s recently released interactive Global Flood Map presents business executives with a powerful strategic planning tool, and risk managers with a way to address potential flood exposure around the world. Built using hydrology and hydraulic science, the Global Flood Map considers, among other factors, essential information like rainfall, evaporation, snowmelt and terrain. A version of the map is available for use by businesses and the public at no cost.

The map can help users determine whether their business locations reside in a potential flood zone by simply typing in physical addresses. The map identifies potential 100 year flood zones — highlighted in pink — and potential 500-year flood zones highlighted in yellow. The term 100-year flood exposure can be misleading. Over the 30-year life of a facility (or a risk manager’s career), there is a one in four chance your facility will flood if it is located in a 100-year flood zone, and a one in six chance if it is located in a 500-year zone.

Knowing their unique flood risk helps prepare businesses to implement the best solutions for when a disaster strikes, and gives them the opportunity to stem the rising tide.

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Workers' Comp

Do You Have Employees or Gig Workers?

The number of gig economy workers is growing in the U.S. But their classification as contractors leaves many without workers’ comp, unemployment protection or other benefits.
By: and | July 30, 2018 • 5 min read

A growing number of Americans earn their living in the gig economy without employer-provided benefits and protections such as workers’ compensation.

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With the proliferation of on-demand services powered by digital platforms, questions surrounding who does and does not actually work in the gig economy continue to vex stakeholders. Courts and legislators are being asked to decide what constitutes an employee and what constitutes an independent contractor, or gig worker.

The issues are how the worker is paid and who controls the work process, said Bobby Bollinger, a North Carolina attorney specializing in workers’ compensation law with a client roster in the trucking industry.

The common law test, he said, the same one the IRS uses, considers “whose tools and whose materials are used. Whether the employer is telling the worker how to do the job on a minute-to-minute basis. Whether the worker is paid by the hour or by the job. Whether he’s free to work for someone else.”

Legal challenges have occurred, starting with lawsuits against transportation network companies (TNCs) like Uber and Lyft. Several court cases in recent years have come down on the side of allowing such companies to continue classifying drivers as independent contractors.

Those decisions are significant for TNCs, because the gig model relies on the lower labor cost of independent contractors. Classification as an employee adds at least 30 percent to labor costs.

The issues lie with how a worker is paid and who controls the work process. — Bobby Bollinger, a North Carolina attorney

However, a March 2018 California Supreme Court ruling in a case involving delivery drivers for Dynamex went the other way. The Dynamex decision places heavy emphasis on whether the worker is performing a core function of the business.

Under the Dynamex court’s standard, an electrician called to fix a wiring problem at an Uber office would be considered a general contractor. But a driver providing rides to customers would be part of the company’s central mission and therefore an employee.

Despite the California ruling, a Philadelphia court a month later declined to follow suit, ruling that Uber’s limousine drivers are independent contractors, not employees. So a definitive answer remains elusive.

A Legislative Movement

Misclassification of workers as independent contractors introduces risks to both employers and workers, said Matt Zender, vice president, workers’ compensation product manager, AmTrust.

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered.”

Misclassifying workers opens a “Pandora’s box” for employers, said Richard R. Meneghello, partner, Fisher Phillips.

Issues include tax liabilities, claims for minimum wage and overtime violations, workers’ comp benefits, civil labor law rights and wrongful termination suits.

The motive for companies seeking the contractor definition is clear: They don’t have to pay for benefits, said Meneghello. “But from a legal perspective, it’s not so easy to turn the workforce into contractors.”

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered in the eyes of the state.” — Matt Zender, vice president, workers’ compensation product manager, AmTrust

It’s about to get easier, however. In 2016, Handy — which is being sued in five states for misclassification of workers — drafted a N.Y. bill to establish a program where gig-economy companies would pay 2.5 percent of workers’ income into individual health savings accounts, yet would classify them as independent contractors.

Unions and worker advocacy groups argue the program would rob workers of rights and protections. So Handy moved on to eight other states where it would be more likely to win.

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So far, the Handy bills have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah and Indiana. A similar bill was also introduced in Alabama.

The bills’ language says all workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control schedules, prohibit them from working elsewhere and meets other criteria. Two bills exclude transportation network companies such as Uber.

These laws could have far-reaching consequences. Traditional service companies will struggle to compete with start-ups paying minimal labor costs.

Opponents warn that the Handy bills are so broad that a service company need only launch an app for customers to contract services, and they’d be free to re-classify their employees as independent contractors — leaving workers without social security, health insurance or the protections of unemployment insurance or workers’ comp.

That could destabilize social safety nets as well as shrink available workers’ comp premiums.

A New Classification

Independent contractors need to buy their own insurance, including workers’ compensation. But many don’t, said Hart Brown, executive vice president, COO, Firestorm. They may not realize that in the case of an accident, their personal car and health insurance won’t engage, Brown said.

Matt Zender, vice president, workers’ compensation product manager, AmTrust

Workers’ compensation for gig workers can be hard to find. Some state-sponsored funds provide self-employed contractors’ coverage.  Policies can be expensive though in some high-risk occupations, such as roofing, said Bollinger.

The gig system, where a worker does several different jobs for several different companies, breaks down without portable benefits, said Brown. Portable benefits would follow workers from one workplace engagement to another.

What a portable benefits program would look like is unclear, he said, but some combination of employers, independent contractors and intermediaries (such as a digital platform business or staffing agency) would contribute to the program based on a percentage of each transaction.

There is movement toward portable benefits legislation. The Aspen Institute proposed portable benefits where companies contribute to workers’ benefits based on how much an employee works for them. Uber and SEI together proposed a portable benefits bill to the Washington State Legislature.

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Senator Mark Warner (D. VA) introduced the Portable Benefits for Independent Workers Pilot Program Act for the study of portable benefits, and Congresswoman Suzan DelBene (D. WA) introduced a House companion bill.

Meneghello is skeptical of portable benefits as a long-term solution. “They’re a good first step,” he said, “but they paper over the problem. We need a new category of workers.”

A portable benefits model would open opportunities for the growing Insurtech market. Brad Smith, CEO, Intuit, estimates the gig economy to be about 34 percent of the workforce in 2018, growing to 43 percent by 2020.

The insurance industry reinvented itself from a risk transfer mechanism to a risk management mechanism, Brown said, and now it’s reinventing itself again as risk educator to a new hybrid market. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected] Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]