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Risk Insider: Chris Johnson

Disaster Resilience Varies in Asia. Risk Managers Must Know the Difference or Suffer the Consequences

By: | August 9, 2018 • 4 min read
Chris Johnson is executive vice president at FM Global. He oversees operations outside of the Americas and AFM, a division that specializes in mid-market property insurance. In 2017, Johnson assumed legal responsibility for FM Global’s newly formed Luxembourg-headquartered subsidiary, FM Insurance Europe, S.A., which delivers coverage throughout the EU. He can be reached at [email protected]

As the Asia Pacific region continues to position itself as the world’s manufacturing hub, the riddle for risk managers is: “How do we adjust our mindset and expectations about risk management in one of the oldest parts of the world where the appreciation for risk can be vastly different from Western economies?”

According to the World Bank, Asia Pacific countries are responsible for two-fifths of global economic growth. Yet, at the same time, 70 percent of the world’s natural disasters happen in the region, including earthquakes, tsunamis and floods.

Still, despite the potential for severe disruption across business operations and global supply chains from a wide variety of factors, including political, economic and natural disasters, global companies continue to target the Asia Pacific region for expansion. The region presents a considerable opportunity to lower input costs and access potentially lucrative markets.

The result is a challenge for risk managers who struggle when seeking Western-style risk management in a region that includes culturally, politically and economically diverse countries. The list includes China, India, Japan, Indonesia, Singapore, Korea, Vietnam, Malaysia, Thailand, Papua New Guinea, Myanmar, the Philippines and more.

The Philippines is repeatedly hit with cyclones in the same places, and yet construction continues in these areas. Why do these practices continue? Why don’t these countries simply put strict building codes and standards in place to ensure property is well protected?

There are no uniform building codes or standards, and the appetite for risk mitigation varies by country.

In fact, the FM Global Resilience Index, which ranks nearly 130 countries according to the resilience of their business environments to disruption, shows a wide disparity among the ranking of countries in the Asia Pacific region. While Australia, Japan and New Zealand all rank highly for overall disaster resilience, others such as Myanmar, Thailand and Vietnam are not as resilient.

In many of these countries natural hazard exposure is high, and manufacturing facilities and other key business operations continue to be built in areas more susceptible to wind and flood damage. Thailand, for example, has been hit with severe floods time after time, and yet the landscape stays much the same.

The Philippines is repeatedly hit with cyclones in the same places, and yet construction continues in these areas. Why do these practices continue? Why don’t these countries simply put strict building codes and standards in place to ensure property is well protected?

Culture Diversity Changes Risk Approach

To understand why some countries in the Asia Pacific region are more receptive to risk management than others, one must acknowledge that those attitudes, in large part, are drawn from the unique culture and experiences of each country. Some are communist, some have a Buddhist philosophy, some are wealthy; many are not.

Some cultures believe natural disasters are beyond their ability to prevent and are going to happen no matter what. In other cases, if a country has limited economic means and its people have a short life-span, one must understand they likely don’t have the wealth to undertake certain risk management measures commonplace in other parts of the world.

Yet risk managers can and have learned a great deal about risk management best practices from the region as well. Singapore, as an island nation, is entirely reliant on electric power generation to drive its world-leading financial center. It has some of the most advanced risk management programs in place to make sure the lights stay on.

Japan, with a long history of earthquakes, has some of the most rigorous programs in place to ensure its buildings can withstand the shaking of the earth. The Forbidden City in China developed some of the earliest fire protection programs known to man.

Finding Ways to Promote Disaster Resilience

So in a region with vastly different experiences, how can risk managers bridge the gap of disaster resilience?

First, given the disparate appetite for risk management in the Asia Pacific region, insurance and risk management professionals may need to help their business partners understand and visualize just how bad things can get (in an effort to change behavior) and how the majority of loss can be prevented.

That’s what my company is hoping to provide to visitors of the new Singapore-based learning center, the FM Global Centre, which is slated to open in 2019.

The Asia Pacific region is like a multicultural diamond. While some facets may be brighter than others, nonetheless it is a prized gem.

Secondly, especially in those cultures that believe disasters can’t be prevented, the risk management community has an opportunity to help the less informed understand the ramifications of a disaster, ways to mitigate the impact and the benefits of disaster resilience. Sometimes the ramifications of risk beyond one’s personal experience can be hard to imagine.

The bottom line is that these countries cannot be lumped together in terms of their proclivity or appetite for rigorous risk management programs that are more commonplace in the West.

The Asia Pacific region is like a multicultural diamond. While some facets may be brighter than others, nonetheless it is a prized gem. Like diamonds, no two are alike and each have different qualities that need to be considered.

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]