At the WCRI Annual Issues & Research Conference, Dr. Richard Victor, former CEO of WCRI and currently a senior fellow with Sedgwick Institute, discussed his views of workers’ compensation in the future.
The workers’ compensation system was a compromise between labor and business designed to provide no-fault benefits in an environment that gave exclusive remedy protections to employers. Over the years, there have been ebbs and flows to the system in an effort to maintain balance. There is a constant struggle to balance benefits to workers with the costs of the system paid by employers.
In the past, when the workers’ compensation system got out of balance, it was due to actions from those within the system. That is something the system could correct with regulatory change. However, right now, there are things happening outside of the workers’ compensation system that could significantly affect it and cause a rethinking of the grand bargain.
Emerging labor shortages
Retiring baby boomers will cause labor shortages in healthcare and the insurance industry, which will delay claims and medical care. This will ultimately increase claims costs.
In addition, a stronger economy is ultimately going to lead to a severe labor shortage. When you pair the aging workforce and people retiring with a growing job market, you end up with not enough qualified applicants to fill the positions. Employers have to relax their hiring standards. This leads to unqualified applicants being hired. These people will likely have higher accident rates.
Changes in the non-occupational health system
As workers see their out-of-pocket health insurance costs rise, it becomes more attractive to try to shift illness and injury episodes into the workers’ compensation system. Richard feels that this shifting will result in a 25% increase in workers’ compensation claims by 2030. With soft tissue injuries, it would be very easy for the worker to indicate the injury happened at work instead of at home. Disproving that would be very challenging for employers. Higher deductibles will greatly encourage workers to look for these cost-shifting possibilities.
Millions of workers losing health insurance
The number of uninsured workers is expected to decrease significantly as elements of the Affordable Care Act are repealed or weakened. These uninsured workers are also highly encouraged to shift their treatment into the workers’ compensation system. Richard estimates a 15% increase in workers’ compensation claims due to this.
The injury rates for the older workers is higher than for younger workers. As the U.S. workforce ages, we will see higher injury rates across the employee population.
Federal immigration policies and practices
Limiting the flow of immigrants into the U.S. at a time there is a labor shortage will only compound the problem. The only way to grow our workforce to keep up with the demand is with immigrants. All of the growth in the labor force going forward is projected to come from immigrants.
Roughly 15% of all healthcare workers in the U.S. are foreign-born. If we discourage immigration into this country, Richard feels it could cause a labor shortage in the healthcare industry.
It does not even take a change in policy to see a change in immigration flow. After the Brexit vote there was a significant reduction in European nurses registering to work in the U.K. This is even though there had yet to be a policy change in the country.
Taking all of the outside factors into consideration, Richard estimates a 55% increase in the number of workers’ compensation claims by the year 2030. When you add in medical inflation the costs of the workers’ compensation system could triple by 2030 with no change in indemnity benefit levels.
With this significant increase in costs, there will be questions about the continued viability of workers’ compensation. What is the solution? Are there viable options to traditional workers’ compensation? ERISA-style plans like the opt out in Texas have been widely criticized for providing inadequate protections for injured workers. Union carveout plans only apply to a very small sector of the workforce. Could we see workers’ compensation claims organizations become accountable to both employers and workers, with employees having the ability to choose which claims organization they want to use?
“Thank you for what you are doing for America; your successes have put India in very positive light and shown us what is possible in India,” Atal Bihari Vajpayee said to me in a one-on-one meeting during his visit to the White House in September 2000. He added that he would love to see Indian-American entrepreneurs return home to help build India’s nascent technology industry.
Bill Clinton and George W. Bush granted him his wish with their flawed immigration policies. The U.S. admitted hundreds of thousands of foreign students and engineers on temporary visas but did not have the fortitude to expand the numbers of green cards. The result was that the waiting time for permanent resident visas began to exceed 10 years for Indian and Chinese immigrants. Some began returning home.
Now, Donald Trump, with his constant tirades against immigrants, particularly from what he calls “s***hole countries,” is giving many countries the greatest gift of all: causing the trickle of returning talent to become a flood.
For India, the timing could not be better. With hundreds of millions of people now gaining access to the internet through inexpensive smartphones, India is about to experience a technology boom that will transform the country itself. And with the influx of capital and talent, it will be able to challenge Silicon Valley—just as China is doing.
This is the irony of America’s rising nativism and protectionism.
When I met Prime Minister Vajpayee, I was the CEO of a technology startup in North Carolina. Later, I became an academic and started researching why Silicon Valley was the most innovative place on this planet.
I learned that it was diversity and openness that gave Silicon Valley its global advantage; foreign-born people were dominating its entrepreneurial ecosystem and fueling innovation and job growth. My research teams at Duke, the University of California at Berkeley, New York University and Harvard documented that, between 1995 and 2005, immigrants founded 52% of Silicon Valley’s technology companies. The founders came from almost every nation in the world: Australia to Zimbabwe. Immigrants also contributed to the majority of patents filed by leading U.S. companies in that period: 72% of the total at Qualcomm, 65% at Merck, 64% at General Electric and 60% at Cisco Systems. Surprisingly, 40% of the international patent applications filed by the U.S. government also had foreign-national authors.
Indians have achieved the most extraordinary success in Silicon Valley. They have founded more startups than the next four immigrant groups, from Britain, China, Taiwan and Japan, combined. Despite making up only 6% of the Valley’s population and 1% of the nation’s, Indians founded 16% of Silicon Valley startups and contributed to 14% of U.S. global patents.
At the same time, I also realized that protectionist demands by nativists were causing American political leaders to advocate immigration policies that were (and are) choking U.S. innovation and economic growth. The government would constantly expand the number of H1-B visas in response to the demands of businesses but never the number of green cards, which were limited to 140,000 for the so-called key employment categories. The result? The queues kept increasing. I estimate that today there are around 1.5 million skilled workers and their families stuck in immigration limbo, and that more than a third of these are Indians.
Meanwhile, I have witnessed a rapid change in the aspirations among international students. The norm would be for students from China and India to stay in the U.S. permanently because there were hardly any opportunities back home. This changed.
My engineering students began to seek short-term employment in the U.S. to gain experience after they graduated, but their ultimate goal was to return home to their families and friends. Human resource directors of companies in India and China increasingly reported that they were flooded with resumés from U.S. graduates.
For students, the prospect of returning home and working for a hot company such as Baidu, Alibaba, Paytm or Flipkart is far more enticing than working for an American company. You cannot blame them, especially given that delays in visa processing will lock them into a menial position for at least a decade during the most productive parts of their careers.
This has been an incredible boon for China. One measure of the globalization of innovation is the number of technology startups with post-money valuations of $1 billion or higher. These companies are commonly called “unicorns.” As recently as 2000, nearly all of these were in the U.S.; countries such as China and India could only dream of being home to a Google, Amazon or Facebook.
Now, according to South China Morning Post, China has 98 unicorns, which is 39% of the world’s 252 unicorns. In comparison, America has 106, or 42%, and India has 10 unicorns, or 4%. An analysis by the National Foundation for American Policy revealed that 51% of the unicorns in the U.S. have at least one immigrant founder. It is clear how shortsighted the U.S. government has been.
With the clouds of nativism circling the White House, things will only get worse. America’s share of successful technology startups will continue to shrink, and Silicon Valley will see competition like never before.
Immigration has become a toxic subject. In the U.S., President Trump is trying to ban or block the entry of refugees and of people from Mexico and parts of the Middle East. Other nations, from the U.K., France and Germany to Australia and Thailand, face political pressure to curb numbers of incomers.
Anger at the erosion of national competitiveness is the root of the rage in the U.S., in my view. Increasing financial inequity, changing racial and ethnic demographics and a widening knowledge gap between technology haves and have-nots are other factors. Immigrants and global trade have become the scapegoats.
Blaming foreigners is not new; it happens when people feel disenfranchised. Throughout U.S. history, each wave of immigrants has forced preceding generations to compete. Newcomers often achieve great success, and face resentment. Chinese engineers helped to build U.S. railways in the nineteenth century, but faced riots and even massacres because they were hired on cheap wages preferentially over whites. The Italian immigrants who came after them were blamed for everything from domestic radicalism to organized crime. Then it was the Poles, the Japanese and the Germans who faced abuse.
The U.S. has gained tremendously from foreign-born inventors. From Alexander Graham Bell, the Scot who invented the telephone, and Nikola Tesla, the Serbian who invented the laser and radio remote control, to Albert Einstein and the wave of scientists fleeing Nazi Germany, immigrants have made the U.S. the world’s leader in technology. Indian and Chinese entrepreneurs fueled the dot-com boom in the late 1990s. A South African, Elon Musk, founded Tesla Motors and the aerospace firm SpaceX.
But in the past decade, skilled immigration has stalled. Flaws in the U.S. visa system make it hard for well-educated and experienced immigrants to stay. Rather than set up companies and create employment in the U.S., foreign-born scientists and engineers have been returning home, taking their ideas and inventions with them. As a result, innovation has become global and the technology playing field has leveled across the world (seego.nature.com/2kmqmjq).
Now, as dark clouds of nativism swirl around Capitol Hill, the country’s leaders face an important choice. They can play the populism card, close the doors and watch U.S. global competitiveness fall — or they can welcome the world’s best and brightest to boost innovation and create jobs. Technology will advance with or without the U.S. The nation needs to decide whether it wants the innovators on its side. Other countries seeking to limit immigration should ask themselves the same question.
Today, internet companies in China, such as Alibaba, Baidu and Tencent, are among the most innovative and valuable in the world. Facebook has mimicked features of their products; Apple has been accused of copying Chinese innovations in the iPhone 7; and search engine Baidu’s artificial-intelligence system is more advanced than Siri. Chinese scientists will soon lead the pack on applying CRISPR–Cas9 gene-editing technology (see, for instance,Nature539, 479; 2016). India has sent an orbiter to Mars and launched a record-breaking 104 satellites from a single rocket. Its new platform for digital currencies, India Stack, may allow its financial system to leapfrog that of the West. Chilean scientists have built cheap technologies that sanitize water by temporarily changing it into a plasma phase. South Korea has built autonomous cars that it aims to have on its roads before the Pyeongchang Winter Olympic Games in 2018.
One measure of globalization is the number of “unicorns,” technology startup firms valued at $1 billion or more. As recently as 2000, nearly all of these were in the U.S.; other countries could only dream of creating a Google, Amazon or Facebook. By February 2017, of the 213 unicorns in the world, China had given birth to 55 and India 10. The U.S. is home to only 110 (Global Entrepreneurship); half of those have at least one immigrant founder. The U.S. share of unicorns is shrinking, and Silicon Valley is facing unprecedented competition.
Gone are the days when, owing to the high costs of the core technologies, U.S. and European research labs held a monopoly on large-scale innovations. Whereas early generations of supercomputers cost tens of millions of dollars, today’s smartphones, which outperform them, cost as little as $30. Sensors, artificial intelligence, robotics, genomics and 3D-printing technologies are globally available and inexpensive. Anyone, anywhere, can use these to build world-changing products. Government-built walls of visas and travel restrictions are no barriers to innovation, only to economic growth.
The contributions of immigrants to tech companies are well-documented. In 1999, regional economist AnnaLee Saxenian at the University of California, Berkeley, foundthat Chinese and Indian executives were at the helm of 24% of the businesses started in Silicon Valley between 1980 and 1998. That proportion doubled the following decade. My research team worked with her to show that between 1995 and 2005, foreign-born innovators founded 52% of technology companies in Silicon Valley and 25% nationwide. We also showed that immigrants generated $52 billion in revenue and employed 450,000 workers in 2005. They filed the majority of patents at technology companies such as Qualcomm (72%) and Cisco (60%), and more than 40% of U.S. government-filed international patent applications had foreign authors.
Then things changed. A backlog of applications built up for employment-based visas that allow permanent residency (green cards). With sociologist Guillermina Jasso of New York University, we analyzed this backlog. As of Oct.1, 2006, there were almost half a million applicants (more than one million when family members were included). Because only about 120,000 visas are available each year, getting a green card can take a decade. We forecast that this wait would increasingly frustrate highly skilled workers, leading to a reverse brain drain.
Indeed, by 2012, my team found that immigrant entrepreneurship had stalled. The proportion of companies founded by immigrants fell nationwide to 24% and in Silicon Valley to 44%. We believe from anecdotal evidence that highly skilled workers are returning to their home countries in even larger numbers today.
Canadian-born chemist Michelle Zatlyn co-founded the US Internet company CloudFlare.
These are the people who set up the unicorns in countries such as China and India. Each of those companies has one or more U.S. returnees in senior leadership positions, and restrictive U.S. immigration policies put them there.
Two decades ago, it was the norm for students who came to the U.S. from China and India to want to stay. No longer. On graduating from engineering courses, most overseas students say that they will work for a short time to gain experience, then return home. Human-resource directors of companies in India and China tell me that they are flooded with CVs from students from U.S. universities. Working for an exciting start-up such as Baidu or Alibaba is more enticing than being locked into a menial U.S. position for a decade awaiting your green card.
When I visit technology centers in China and India, and increasingly in places such as Mexico City or Santiago in Chile, I see a beehive of startup activity. As well as social-media and Internet applications, overseas entrepreneurs are designing wearable medical devices, robots, drone-based delivery systems, microsatellites and agricultural-automation systems. They are building self-driving cars, solar technologies and 3D-printing systems to solve global problems.
Meanwhile, the U.S. visa backlog is climbing. I estimate that there are more than 1.5 million skilled workers in immigration limbo in the U.S. today. Each one is a lost opportunity and a waste of talent.
Everyone loses. The precarious position of foreign-national staff leaves them open to mistreatment by their employers. Rules prevent employees from changing jobs while waiting for their green cards — even to other jobs in the same company. H-1B visas for temporary stays allow employers to replace U.S. workers with people who are paid less than they should be, given their skills. This is one of Silicon Valley’s darkest secrets — and it is why tech companies lobby for more H-1B visas rather than more green cards.Skilled people become frustrated as their careers stagnate. The jobs that would have been created in startups go overseas.
Unless it changes its immigration outlook, the U.S. will forgo economic benefits and jobs in a misguided effort to protect both. It will have to watch as the rest of the world leaps ahead. It doesn’t have to be this way.
The U.S. needs to expand the number of permanent-resident visas and clear the backlog. These people are already working in the country legally and have the experience and skills needed. Retaining them will boost the economy. Accelerated granting of permanent residency could be contingent on buying a house, making investments or starting companies that create jobs. Imagine the benefits of 10,000 new technology startups.
“The U.S. needs to decide whether it wants the innovators on its side.”
We need to make it easy for entrepreneurs abroad to bring startup firms to the U.S. One solution is to provide a “startup visa” as a path to permanent residency. This would perhaps be valid for five years, with an upgrade to permanent residency dependent on the firm’s employment of U.S. workers. The Kauffman Foundation in Kansas City, MO, has estimated that such a visa would create 1.6 million jobs within 10 years and boost the U.S. economy by $224 billion a year.
The solution to the mistreatment of foreign workers is easy: untether the H-1B visa from the employer. Let people change jobs, and let the market decide what their salaries should be. This would remove the financial incentives for companies to replace Americans with cheaper foreign workers and would encourage them to hire the best talent.
By becoming the best place in the world for entrepreneurs to study and work in, the U.S. could again be in the driving seat of technology innovation. Then we can share the resulting prosperity in a more equitable way to mitigate the anger of the electorate.
On June 23, 2016, the U.K. population will vote on whether to stay a part of the E.U.’s 28 countries or to leave. It’s a once-in-a-generation decision, and it is likely to dominate U.K. press for the next six months. But what impact would a British exit, or “Brexit.” have on the insurance industry?
A report by Euler Hermes, a consultancy backed by Allianz, indicates this exit would include:
Massive loss of U.K. exports, which could take 10 years to recover
A heavy hit to financial services
London’s loss of its supremacy as a financial center
The likelihood that trade barriers would be imposed by continental Europe
Global insurers would inevitably be affected. Zurich Financial Services says it is “monitoring developments carefully.” The AXA chief executive described the situation as the U.K. “playing Russian roulette” and predicted a severe negative impact on London. Moody’s says the U.K.’s credit rating would be hurt.
Despite the recent challenges of Solvency 2, the argument that there will be less regulation if the U.K. leaves the E.U. doesn’t hold weight with Lloyd’s of London, whose Chief Risk Officer Sean McGovern recently said, “None of the alternatives will be as beneficial for the London market as the current relationship.”
Companies are already indicating they will need to make stockholders aware of the consequences of leaving—if only to avoid directors and officers (D&O) claims down the line. Because most annual reports are published only months before the vote, there’s likely to be a swell of activity; social media analytics measuring citizen sentiment will have a field day.
In October 2015, U.S. administrator Michael Froman ruled out a separate trade deal with the U.K. in the event that it leaves the European Union. He said, “We have no free trade agreement with the U.K., so it would be subject to the same tariffs—and other trade-related measures—as China, or Brazil or India.”
At face value, staying in the E.U. seems like an obvious choice, especially as the U.K. population—like the insurance industry—is risk averse and often reluctant to change. But there are other issues at play here, especially those regarding the emotional response.
Some are suggesting that London would be at greater risk of terrorism if the U.K. remains part of the E.U. Others are concerned about the immigration issue and the effect of the Euro crisis. Others simply argue that that the U.K—which has the fifth-largest economy in the world, is the fourth-greatest military power, is a leading member of the G7, has more Nobel Prizes than any other European country and is one of only five permanent members on the U.N. Security Council—is entitled to greater autonomy to make its own decisions and should not be constrained by politicians who are not elected by U.K. citizens.
“After all,” say those in favor of an “out” vote, “isn’t the current safety and prosperity enjoyed by the U.S., Australia, India, Canada and others founded on the principles of democratic self-government created by those who were once prepared to take matters into their own hands?”
Luckily, even with an “out” vote, the exiting process won’t happen overnight. There will be processes to follow, some of which could take years. It’ll give plenty of time for insurers and intermediaries, (not just those in the U.K. or Europe) to think carefully about the consequences on their businesses, the economy and their customers.
Here are some issues that would have to be considered:
As London reduces its influence and there is a brain drain, where might the power shift to, physically, and will some of the big broking houses move house (again)? Where will the new powerhouse occur? Singapore or Shanghai?
If there are new trade tariffs, how will this affect the flow of global business? According to U.K. government data, in 2011, the U.S. exported $3.5 billion of insurance services to the E.U.—that’s nearly $1 in every $4 in global insurance services exports.
How might an economic squeeze in the U.K. over the next decade affect consumer behavior in terms of buying both property and life insurance, and will this lead to further consolidation of an already saturated marketplace?
There is a basic insurance principle used to establish negligence that dates back more than 100 years. It refers to the “man on the Clapham Omnibus,” a hypothetical character epitomizing the “common man,” who is described as reasonably educated and intelligent but nondescript and against which a defendant’s conduct is measured.
So, on June 23, 2016, everyone in the U.K. over the age of 18 will get to vote regardless of their expertise on the topic. On that day. it will not just be a matter for the entire U.K. population but for the “man on the Clapham Omnibus.” At this moment, we can only speculate whether his head will rule his heart, or vice versa.
One of the most powerful technologies for spying on cyber criminals lurking in the Dark Net comes from a St. Louis-based startup, Norse Corp.
Founded in 2010 by its chief technology officer, Tommy Stiansen, Norse has assembled a global network, called IPViking, composed of sensors that appear on the Internet as vulnerable computing devices. These “honeypots” appear to be everything from routers and servers, to laptops and mobile devices, to Internet-connected web cams, office equipment and medical devices.
When an intruder tries to take control of a Norse honeypot, Norse grabs the attacker’s IP address and begins an intensive counterintelligence routine. The IP address is fed into web crawlers that scour Dark Net bulletin boards and chat rooms for snippets of discussions tied to that IP address.
Analysts correlate the findings, and then IPViking displays the results on a global map revealing the attacking organization’s name and Internet address, the target’s city and service being attacked and the most popular target countries and origin countries.
Stiansen grew up tinkering with computers on a Norwegian farm, which led him to a career designing air-traffic control and telecom-billing systems. After immigrating to the U.S. in 2004, Stiansen began thinking about a way to gain a real-time, bird’s-eye view of the inner recesses of the Dark Net. The result was IPViking, which now has millions of honeypots dispersed through 167 data centers in 47 countries.
Norse recently completed a major upgrade to IPViking, which has led to some stunning findings. Stiansen explains:
3C: Can you tell us about your most recent milestone?
Stiansen: We have managed to do a tenfold (increase) to where we can now apply millions of rules in our appliance.
3C: So more rules allow you to do what?
Stiansen: It allows us to have a lot more threat data and apply a lot more intelligence to a customer’s traffic. We can start applying more dynamic data. Our end goal is to apply full counterintelligence onto traffic. Meaning when we see a traffic flow coming through our appliance we will be able to see the street address, the domain, the email address used to register this domain. We can see who a packet is going to, and the relationship between the sender and receiver, all kinds of counterintelligence behind actual traffic, not just for blocking but for visualization.
3C: That level of detail was not available earlier?
Stiansen: Nope. This is something we’ve pioneered. This is our platform that we built so we can enable this (detailed view) to actually happen.
3C: So what have you discovered?
Stiansen: We’re learning that traffic and attacks coming out of China isn’t really China. It’s actually other nations using China’s infrastructure to do the attacks. It’s not just one country, it’s the top 10 cyber countries out there using other countries’ infrastructure.
3C: So is China getting a bad rap?
3C: Who’s responsible? Russia? The U.S.? North Korea?
3C: What else are you seeing?
Stiansen: We’re also seeing how hackers from certain communities are joining together more and more. The hacking world is becoming smaller and smaller. Iranian hackers are working with Turkish hackers. Pakistani and Indian hackers, they’re working together. Indonesia hackers and Iranian hackers are working together.
3C: Odd combinations.
Stiansen: It’s weird to see these mixes because there’s no affiliation, there’s no friendship between the countries on a state level. But the hacker groups are combining together. The borders between hackers have been lifted.
3C: What’s driving them to partner, is it money or ideology?
Stiansen: All of the above. That’s the thing, the people who have similar ideologies find each other on social media and start communicating with each other. And the people with the financial means and shared goals meet each other, that’s the evolution. And when they do that, they become really powerful.