Tag Archives: agriculture

The Real Story on Transportation

The progress of mankind has relied heavily on technology advancement in two key areas: transportation and communications. Communications technologies, for moving information from one place to another and presenting that information to people in new and different ways, have been instrumental to the progress of civilization. Transportation technologies, for moving people and things from one place to another in faster, safer, and more comfortable ways, have been advancing since the invention of the wheel. This blog will reflect on the latter, looking into the next decade and exploring some big implications for the insurance industry.

Driverless vehicles have been grabbing the headlines now for a few years. That’s understandable since most of us can relate to driving a car and are forming opinions on what we think about the move to autonomous vehicles. However, the effort by the major tech companies and auto manufacturers to develop and test these capabilities in cars is only one part of a much larger story – one that will greatly affect every person, business, and industry. And just as significant is the progress being made with many other types of vehicles that operate on land, sea, or in the air. Add in the evolution toward a smart transportation infrastructure, and the ingredients for massive transformation are ready and waiting. Much of what is happening in this realm seems like science fiction, but is likely to be common in ten years. Consider how much can happen in that time frame. Just ten years ago (in 2006), the iPhone had not even been introduced. There were no mobile apps. Now, we can’t imagine what life would be like without our mobile devices.

See also: Connected Vehicles Can Improve Claims  

Some of the other developments that are worth following include live trials of autonomous buses and taxis; the platooning of autonomous trucks; autonomous cargo ships, submarines, and drones; and autonomous commercial vehicles used in mining and agriculture. And don’t forget flying cars. This technology is actually gaining attention and funding. Add in the Hyperloop concept (the testing of which is now underway), supersonic air travel, and other means of high-tech transportation, and it is not difficult to imagine the kind of world we see in Star Trek, Star Wars, or other popular science fiction.

The advancement of autonomous vehicles of all sorts will be accompanied by progress in vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) technologies that allow moving vehicles to communicate with each other and their surroundings to ensure the smooth and safe flow of traffic, wherever it may be. So what does this all mean for insurance? Well, it does not take a rocket scientist to understand that virtually every type of property/casualty insurance will be affected in fundamental ways. Some of these scenarios have already been touted in the press and considered by industry strategists, but the implications may be even more far reaching than most realize. Consider implications in just three areas:

  • Workforce Mobility: Information and communications technologies have already created an accelerating trend away from the central office model. New transportation technologies will result in a reduced need for workers to be clustered in major centers. Rapid transportation options will allow those farther away to travel where they need to be, and the tech for working remotely will continue to foster the work-anywhere trend.
  • Manufacturing and Distribution: Opposing factors will likely disrupt the manufacturing and distribution models of the last century. The ability to transport goods much more rapidly and safely at low cost via autonomous transportation networks may lead to giant, centralized factories. On the other hand, 3D printing and the desire for custom items without waiting may favor local manufacturing with a different kind of short distance transport dominating.
  • Agriculture: Automated machinery is already common in agricultural production today. The move to more fully-autonomous tractors, combines, and other vehicles will further change the industry. When sensors, biotechnology, vertical farming techniques, and other tech are considered, the very nature of the farm is likely to be substantially different ten years from now.

The list goes on, and it’s pretty heady stuff. The implications for population distribution, energy, travel, education, and virtually every aspect of the economy are huge. In all of these areas, the patterns change, the companies change, individual’s behaviors change, and the risks change. Existing risks may be dramatically reduced, resulting in large decreases in premiums. On the other hand, new risks are emerging, and the opportunities to serve customers in new ways are there for insurers bold enough and agile enough to rethink their business for this new era.

See also: Are You Ready for the Next Disaster?  

For more on the implications of emerging tech for insurance, see SMA’s research report, The Top 10 Ways Emerging Tech Will Transform Insurance.

5 Workers Who May Be Exempt From WC

If you are hurt while working or have an illness caused by conditions at work, you may be entitled to workers’ compensation benefits. Workers’ compensation is a state-run insurance system created to compensate workers for injuries received in the workplace. Employers’ participation is mandatory under state law, and they are protected by the workers’ compensation program from being sued further by the injured employee.

To qualify for workers’ compensation benefits, you must meet the definition of “employee.” Let’s take a look at what that means.

Am I an Employee for Workers’ Compensation Purposes?

Any employee is entitled to receive workers’ compensation benefits. It doesn’t matter how long you have been employed or whether you are working part-time or seasonally. Regardless of these criteria, if you are an employee and injured on the job you will be eligible to receive workers’ compensation benefits.

There can be uncertainty, however, as to what it means to be an employee. By definition, an employee is a person hired for wages or a salary. An employee’s duties are typically dictated or controlled by the employer, and the employee receives any job training needed by the employer.

Independent contractors, freelance workers and consultants, on the other hand, operate more independently and are just required to deliver a job. The manner in which it is completed is not controlled by the company. These workers are not eligible for benefits under workers’ compensation laws.

Special Rules for Certain Workers

In some states, there are some special groups of workers who, although they may meet the definition of an employee, are not required to be covered under an employer’s workers’ compensation insurance. The criteria will vary by state, so it is best to consult with an experienced workers’ compensation attorney if you have doubts. Some of the groups that may be exempt from workers’ compensation coverage are:

Casual Labor – Casual labor is usually defined as work that is not in the usual course of business for the employer. For example, a company may hire someone to do some landscaping or carpentry, which does not directly promote the company’s main business.

Domestic Workers – Domestic workers are paid to help with domestic tasks such as cleaning.

Agricultural and Farm Workers – Agricultural workers perform physical labor and operate machinery on farms, ranches and other agricultural sites under the supervision of farm or ranch managers.

Undocumented Workers – Undocumented workers generally work for cash and are not asked to provide identification or evidence of legal status to the employer.

Leased or Temporary Workers – Leased or temporary workers are employed by a professional employer organization (PEO) and not the company they are working for. They usually work under a contract between the company that needs work and the PEO.

Workers’ compensation insurance is a helpful program to ensure that employees are suitably and promptly compensated for losses incurred when they are injured in the workplace. A person must, however, meet the legal definition of employee in the applicable state. If you have any questions whether you meet that criterion, consult with a workers’ compensation attorney to find out your rights.

Microinsurance Has Macro Future

“‘We’ll all be rooned,’ said Hanrahan….”

So goes the famous Australian bush poem by John O’Brien about the plight of farmers going from drought to flood to bush fire – one extreme weather situation after another. And though we are nearly 100 years on since that poem was written, we seem to be no further along in being able to predict weather with any certainty more than a few days into the future. In fact, extreme weather seems to be hitting more frequently and with greater ferocity because of the apparent effects of global climate change. The extended 2013 winter in Europe cost the economy there more than $7 billion – that is just from being cold for a month longer than usual.

Extreme weather events have dominated the headlines, especially where they impinge on highly developed insurance markets such as North America and Europe. But from the perspective of the impact on human lives, the greatest risk lies in Asia and Africa, where a vast majority of people depend upon subsistence farming and there is very little penetration of traditional financial services. A number of governments in the region, in partnership with semi-government, educational institutions and private organizations, have established a range of programs to foster the development of sustainable microfinance and microinsurance services for the most at-risk segments of their communities. In India alone, there are more than 700 million farmers and farm workers who struggle with extreme weather risk every season.

Building sustainable programs, now there’s the trick!

In one program in India that ran from the mid-’80s through to the end of the twentieth century, the cumulative premiums were $80 million, while the cumulative claims were $461 – hardly a sustainable proposition. In another program, a World Bank study showed that the microinsurance proposition was advantageous to farmers only in very extreme situations, so in most cases it was uneconomic for farmers to buy the insurance.

From 2001, the Indian government has ensured the growth of microinsurance through a regulatory framework set up as part of the entry of private insurers into the market. Popular products in the sector are weather index policies, where payouts occur if rainfall is below a trigger level, in a particular area. The premium for these types of policy have proven to be expensive, but, with government subsidies and an education program, awareness and acceptability of this kind of financial service have grown in communities in rural India. Governments in China, Bangladesh, Indonesia and the Philippines are following suit, by introducing their own agricultural insurance programs.

The major problem for insurers writing this kind of business is getting a good handle on the risk, to enable correct pricing. For the most part, insurers have to rely on historical data, which really only establishes a wide range of outcomes; with extreme weather trends continuing, insurers tend to be very conservative in risk pricing.

This is where big data and analytics come in.

In the commodities sector, at least one player has marketed reports that help predict the price of commodity futures. A case in point is the recent U.S. drought. By using National Oceanic and Atmospheric Administration (NOAA) and NASA remote Earth-sensing data, and coupling with advanced climate predictive analytics, the U.S. drought was predicted three months in advance of the U.S. government’s declaring drought. The model enabled the assessment of the weather impact on particular areas of the U.S., as well as the impact on the particular commodity crop grown in that area (corn), and, consequently, a prediction of the price of the commodity at harvest time based on the expected overall yield, with drought factored in.

Currently more than 15 petabytes of public data is produced annually that is global in nature, and the amount of data is set to increase to more 300 petabytes as more satellites come on line over the next few years. The computing power and technology to cope with huge data sets continues to improve each year with big data solutions.

These rich data sources and new technology solutions represent an unparalleled opportunity for governments and communities to turn microinsurance from a subsidized, unprofitable activity, to a sustainable model to spread economic stability and prosperity. By enabling the weather risk to be more accurately modeled, underwriters will be able to price policies on a more accessible basis.

Studies are showing that, where microinsurance is in operation, microfinancing is supported, as farmers can have certainty around being able to meet their loan commitments. These financial services are being used by farmers to improve their farms’ yield by investing in appropriate weather risk mitigation (irrigation, soil moisture conservation, etc) and productivity enhancements (planting automation, genetically modified seeds, fertilizers, improved pest control, etc). This virtuous cycle lifts this sector from depending on subsidies and government programs to being commercially viable and self sustaining. Definitely a win, win, win proposition.

Far from the pessimistic, doom-mongering of Hanrahan, I see a world more in line with Peter Diamandis’s vision as outlined in his book Abundance: The Future Is Better Than You Think.

I don’t know about you, but I for one would love the bragging rights to say my industry is helping to improve the lives of billions on planet Earth, while still making a commercially reasonable profit.

Hey, I wonder if it’s going to rain today?

Labor Dispute Drags at West Coast Ports: 3 Ways to Respond

With spring fast approaching, the continuing labor dispute at 29 West Coast ports could affect the ability of suppliers and retailers to stock seasonal merchandise. The backlog of ships at these ports — exacerbated in some instances by work slowdowns and closures — has delayed deliveries of agricultural and manufactured inputs and goods, depleted inventories and potentially harmed businesses across several industries.

This situation has resulted from a seven-month impasse between the International Longshore and Warehouse Union and the Pacific Maritime Association, which represents shipping lines and port terminal operators, following the expiration of their labor contract. The White House dispatched Labor Secretary Thomas Perez to San Francisco to reinvigorate negotiations, which resumed on Feb. 17. Previous talks had stalled over the process for arbitrating allegations of work slowdowns, discrimination and other issues.

The economic damage from port disruptions could be significant. According to the National Retail Federation, cargo moving through the 29 involved ports represents 12.5% of U.S. gross domestic product. In recent earnings calls, several publicly traded retailers have identified the labor impasse as a potential risk, noting the possible impact on seasonal merchandise. Food and beverage distributors, meanwhile, have reported that port delays have led to spoilage of perishables. And parts shortages attributed to congestion at West Coast ports have led some auto manufacturers to announce plans to halt or cut back production.

Although the reinvigorated talks have brought some hope for a quick resolution, retailers and other affected businesses should still consider taking steps to mitigate potential losses from continued disruptions and future work slowdowns, stoppages, or strikes. Specifically, you should:

  1. Diversify your supply chain. The work slowdowns and port closures, coupled with the potential for a strike, have led many businesses to diversify their ports of entry, turn to domestic suppliers or make raw material and finished product substitutions as necessary. Although such actions may bring financial and other costs, they may enable your company to remain competitive until the dispute is resolved. If you have identified alternate suppliers or workaround procedures, consider implementing those strategies and engaging additional or alternate resources now. If you have not identified such resources, now is the time to do so.
  2. Develop crisis management and business continuity strategies. If they are not already significant, the business implications for your organization may soon become so. Consider activating your crisis management and other business incident response teams. Your teams should think about the immediate impacts and workarounds from the current situation and forecast potential impacts should these interruptions continue or a strike occur, allowing a strategy to be developed and executed.
  3. Review your insurance coverage. Some insurance coverage — such as marine cargo and property damage policies with extensions for business interruption (BI) and contingent business interruption (CBI) — may only respond in the event of a strike or port disruption where there is also actual physical damage to insured cargo or property. Your organization should review whether it has or consider obtaining the following additional coverage options:
  • Voyage frustration endorsements to marine cargo policies, which can provide coverage for ground transportation costs and other extra expenses in the event that a shipment is diverted to an alternative port. Such endorsements do not typically provide indemnity for lost sales, contractual penalties or other financial losses.
  • “Seasonal merchantability” coverage, which can sometimes be added to marine cargo policies. This coverage provides indemnification for actual loss in sales as a result of a delay in arrival of goods but may not respond in the event of a strike and usually comes with a lengthy waiting period.
  • Trade disruption insurance (TDI), supply chain insurance and specialty BI insurance policies, which can protect against supply chain disruptions resulting from a variety of causes, including embargoes, acts of terrorism, windstorms and other natural catastrophes, supplier bankruptcy and other events.

For more information, read West Coast Port Disruptions: Insurance and Risk Management Implications.

Case for Reinventing Insurance in India

Since independence, all governments of India have committed to gradual rather than revolutionary means for spreading democratic and socialist principles (as attested notably by the preamble to the constitution of India). Independent India averted the revolutions (and most of the debates) that have shaped the role of the state in the western world for some 500 years. In recent history, India never had to face its Thomas Hobbes, Jean-Jacques Rousseau, John Stuart Mill, Georg Wilhelm Friedrich Hegel, Karl Marx, Beatrice and Sidney Webb, Franklin Delano Roosevelt or Margaret Thatcher, John Maynard Keynes or Milton Friedman. India was saved the horrors of the French, American, Russian, Turkish, Cultural (Chinese) or Iranian revolutions (to mention but a few). India was largely spared the two World Wars and most of the “…isms” (fascism, communism, Marxism, capitalism, etc.). For every political fad that swore by TINA (“There Is No Alternative”), India responded with its inimitable TATA (“There Are Thousands of Alternatives”). It had its gradual transition away from non-democratic practices (e.g., abolition of privy purses in 1971 and of debt bondage in 1976) to a welfare democracy. Even the embrace of the “Washington consensus” (a combination of open markets and prudent economic management) under the guidance of Manmohan Singh has not changed the essential nature of the state.

This “Fabian” model meant that the state was committed to provide welfare, not merely security, to the citizens, and that central government was in the main responsible for funding, producing, procuring, allocating and distributing most goods and services. This has been done in large measure through subsidies to public enterprises, producers of inputs, private-sector producers and consumers. The goods and services whose availability and price have been modified through subsidies include food, water, energy, financial services, labor, education, healthcare, fertilizers, information and media. As the public demanded more and more, the state promised more and more, sometimes through milestone measures (e.g., the largest debt waiver and debt relief program for farmers, in 2008) but mainly through quasi-permanent subsidies, which have led to a sizable fiscal deficit (almost 75% of the 2014-15 budget estimate, and 4.1% of GDP). The net cost of these handouts and subsidies is much higher than their nominal value, for three reasons: the interest payable to fund the deficit, the losses because of intermediation (e.g., it has been reported that for every kilogram of subsidized grains delivered to the poor, the government released 2.4 kg from the central pool) and the societal effects of enhanced inequity (an IMF working paper titled “The fiscal and welfare impacts of fuel subsidies in India” argued that the richest 10% of the households benefited from fuel subsidies seven times more than the poorest 10%).

This is why a policy of “less government” could have much scope by divesting ownership of public sector undertakings (PSUs) in manufacturing, services and distribution and reducing subsidies substantially. However, the existing system has created many winners that would presumably be motivated and suitably represented to protect their vested interests by militating for status quo. Additionally, certain social services must be improved considerably (mainly water-sanitation-health, financial protection, food security and education), but acting on those needs would lead to more rather than less government. Similarly, actions to remedy inequitable targeting and inefficient distribution of subsidies could bring “more governance” only if preceded by more government intervention and spending.

So, what is the road to “less government and more governance” that would both engage the many who today enjoy representation without taxation and protect future taxpayers from the financial and societal ramifications of today’s consumption? We submit the answer is in “localism.”

“Localism” means encouraging people to be involved in elaborating and governing local solutions, with only subsidiary support from government. Most of India’s population is rural and in the informal sector. For this vast majority, the world is local, and local is the measure for most things. It is a moot point to argue whether people wish to be in the informal sector (to be excluded from the framework through which the government collects taxes and imposes regulations) or whether they are victims of circumstances (of being de facto excluded from the practical measures through which the government delivers universal rights for all citizens). The essential point is that people belong to local groups through which they access benefits that are not otherwise available as public goods. Therefore, communities reinforce the norms and networks that enable individuals to act collectively, influence decisions of single community members on the economic and social engagements they can/must/must not enter into, who can/cannot do so and on how benefits are distributed. Compliance with consensus flows from members’ reliance on the community’s patterns of reciprocity. As the community reaches most everybody on a continuing basis, it can be mobilized to play a role in “more governance” of local activities and structures.

Experience from rural India and from other countries confirms that underserved rural communities have been able to operate community-based mutual-aid schemes that create welfare and distribute benefits, which are funded by resources of the members. Such collective action of groups, by groups and for group members is a major paradigm shift from the mentality of reliance on government handouts, decisions and entitlements. The change in mindset is from being dependent to being dependable; the change in the financial model is from relying on inflow of charity to relying on pooling of own funds, which are otherwise invisible and inaccessible, to obtain welfare gains. The argument in favor of empowering community-based mutual aid is not merely that it is more opportune, but that it is more legitimate. Recalling the words of Abraham Lincoln (a speech from 1854, quoted in G.S. Boritt, 2004: Lincoln and Democracy): “the objective of government is to do for a community of people whatever they need to have done but cannot do at all or cannot so well do for themselves in their separate and individual capacities.” If now the case is that communities of people can do for themselves what the government cannot so well do for them, is it not then self-explanatory that the government should do all it can to support such action at the local level? Moreover, the argument in favor of encouraging the proliferation of local action is consistent with the democratic system of India, where interest groups are well established.  In his book The Logic of Collective Action: Public Goods and the Theory of Groups (1965), M. Olson pointed out that small local groups can form more easily and function more effectively to advance their interests. Olson also asserted that it is easier for the government to support many small groups than few large ones, and by supporting community-based self-interest the state can also advance its interests more easily and less expensively. If the reason for seeking “less government” is to encourage more self-reliance and hard work and a decrease in dependence on acquired rights and corruption, then does it not follow that government should provide tangible support to encourage voluntary action? The pooling of part of people’s resources for the advancement of community-based welfare gains serves the interest of the members of such groups (who can take charge of rationing and of priority-setting relating to the use of their funds) and also of the government (which could leverage the community-based risk management by limiting its intervention to subsidiary coverage of only rare events).

The development of community-based health insurance in India as a mutual-aid activity, replacing entitlements or debt, is one of the most effective mechanisms for voluntary social change.

Just as after independence India abolished several homegrown systems based on inequality of rights (e.g., chaudhary, deshmukh, jagir, samanta and zamindar) and favored equality through democracy, so asset creation should take primacy over money lending (in all its forms, from village shark to microfinance and to banks), for the same reason. India also abolished bonded labor (which also involves interlinking debt and exploitative labor agreements), even if this practice is not yet dismantled completely, according to the International Labor Organization (ILO). And the infamous phenomenon of farmer suicides is also linked, at least in part, to debt: Farmers are held morally deficient for inability to repay loans, when in fact the reason for that insolvency is crop failure (occasioned by the inherent risks of agriculture: too much or too little rain, too hot or too cold climate, pests etc.). Many other countries developed crop insurance to protect both farmers and farming. In India, agricultural insurance is used mostly to securitize loans rather than farming (farmers must pay the premium when they borrow, but the payout goes to the lending bank).

Disconnecting crop insurance from borrowing and connecting it with “what a responsible adult does” to avert the risks of agriculture can bring about safer agriculture and more governance with less government. This change is best accomplished when embraced by local communities, not merely single individuals. When agriculture is a safer economic activity, more farmers are likely to continue farming (and thus provide food security). When crop insurance becomes an act of mutual aid, something everybody in our village does, it is easier to mobilize the community to also encourage asset creation, and better financial protection. The virtuous cycle of more community-based cooperation fosters multiple positive changes, including improved targeting of government support for financial protection, better advisory to farmers on how to improve their agricultural productivity and thus food security and enhanced equality. These are objectives that have never been achieved by debt/credit extension or debt relief, because such programs missed completely the opportunity to leverage the collective energy that, what the community can do together, none of its members can do alone.

Creation of such local asset pools may start with modest amounts, as many villagers are cash-poor, and will first want to gain trust that the new form of collective action will deliver welfare to many members of the group, not just to a few powerful or privileged persons. However, the accumulation of funds will grow over time, especially if such growth is stimulated by the government. The government can encourage such solidarity-based collective action by passing enabling regulations to recognize mutual and cooperative insurance schemes (as part of the revision of the insurance law). Indonesia has recently changed its insurance law to recognize mutual and cooperative insurance at par with commercial insurance, to facilitate the development of mutual micro-insurance in rural communities. The European experience has shown that today’s large financial institutions originated from exactly such community-based local initiatives. As these were allowed and supported to grow, they served as the basis for universalization of health insurance, agricultural insurance and natural catastrophe insurance. In some countries (e.g. Switzerland, France, the Netherlands, Belgium or South Africa) ,the local schemes have morphed into large private or cooperative insurance companies. The local origin of the activity was essential to ensure that local groups can define their local priorities (which enhance local willingness to pay) and operate their scheme with locally dependable persons (which enhances flow of information, notably through gossip, about the fair and equitable treatment of all members of the scheme).

Government support for community-based asset creation can provide the government with information that it does not have currently but that it needs to enhance governance and the government’s revenue side. The shift from remote governance to local governance relies on local trusted elites, a new kind of elite, different from the capitalist elite and the bureaucratic elite. The local elite needs to be given a good start (by imparting private sector methods for social sector activities, minus the profit-taking), and the government must still provide worst-case protection. But for the rest, government should encourage communities to devote their talents to create public goods, to fend for themselves, to concentrate on assuming responsibility for their own welfare.

This is so much better than the present situation, in which many people entertain huge, unrealistic expectations and contradictory demands from the government based on messages, disseminated for years, that welfare is a right; and when they receive welfare or debt/credit benefits, rather than being grateful, many people feel that their due has reached them too little and too late. Anchoring the support to local asset-building by community-based collective action enhances the notion that we can do more on our own and allows each local group to design and do itself some of the work that hitherto it waited for the government to do. Supporting “localism” means that welfare creation is the legitimate domain of each community, delivered bottom-up rather than entirely top-down, supported by the government rather than the exclusive responsibility of the state to each individual. Localism will enhance governance because communities, governing their own priorities and resources, are very good regulators of their local scheme, because they are responsible for doing, not debating, and their actions are transparent locally. This transition from external to community leadership entails transition to performance-related legitimacy and away from formal title or appointment. It can also be the transition from short-termism (with the next elections as implied statute-of-limitations) to the long-term, recognizing that to achieve universal access to financial services, or to health insurance, or to secured livelihoods, or to relevant agricultural insurance or better sanitation may take decades. Notwithstanding the patience needed to get results, localism can provide the platform for less government and more governance now.