INSIDE: Could we have been better prepared? Employee Benefits. All about building bridges page 18 PAGE 8. page 2. page 14. page 4

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1 C MPASS ONSULTANCY INSURANCE CEMPLOYEE BENEFITS RISK Issue # Insurance Risk Consultancy Employee Benefits Could we have been better prepared? What lessons does the Great East Japan earthquake of 2011 hold for us? PAGE 8 INSIDE: page 2 Why risk managers need to become change agents page 4 When a photocopier is more valued than a CEO page 14 Where is the Energy market headed? Employee Benefits All about building bridges page 18

2 In Asia. Since Insurance Brokers Risk Consultants Employee Benefits Specialists 2 Compass Issue #

3 CEMPLOYEE BENEFITS RISK contents C MPASS ONSULTANCY INSURANCE 8 Cover Story A year-and-a-half after the Great East Japan earthquake, the country is still recovering, and dealing with the plethora of issues relating to compensation, or the lack of it LEADERSHIP IN ACTION 6 Events The biggest challenge for every risk manager A slight change in approach can go a long way towards improving organisation-wide risk management practices. When your photocopier is deemed more valuable than your CEO Companies understand how important their key men are, but most of them fail to purchase cover for them. Where is the Energy market headed? The energy market environment is ever changing due to the volatile nature of this class of business globally. Energy markets in Asia are also especially competitive. JLT Indonesia sponsors Bank Danamon Indonesia (BDI) s health fair in Jakarta. JLT assembles global and Asia specialists for Power symposium in Thailand. Upcoming: The 2012 session of the Asia Risk Council. 7 Talent JLT Malaysia s new country manager. JLT Asia appoints Managing Director of Thistle Asia. 18 Building Bridges Keeping track of a range of diverse benefits programmes, managing internationally mobile employees, and communicating benefits consistently to all staff, across linguistic and cultural barriers, are huge challenges. 23 Flags on maps and global programmes Providing an efficient global insurance programme requires much more than having a broker office in each country. Issue # Compass 1

4 Risk MANAGEMENt The biggest challenge for every risk manager A slight change in approach can go a long way towards improving organisation-wide risk management practices. by Craig Paterson While everyone is capable of change, the drivers for change varies from individual to individual. Risk Management has been a hot topic in business for the last 20 years, yet when you ask risk managers globally how well they are doing, many will tell you that embedding their activities is the hardest task of all. In many ways this is understandable it is well known that people find change difficult and that without ongoing support, new practices and procedures quickly get forgotten and potential benefits go unrealised. In many ways embedding risk management activities is no different from any other change management project. The enablers tasked with delivering the change tend to focus on the activities to be undertaken, individual roles and responsibilities, timelines for delivery, and expected outcomes. However change is more than just a technical project it involves changing people s understanding. It goes beyond changing hearts and minds to addressing fears and concerns. At a fundamental level, it is the underlying cultural issues that determine if change can occur and, in turn, if risk management will achieve its objectives. So what does this mean? There are three areas that should be considered in any change activity: 2 Compass Issue #

5 The biggest challenge for every risk manager Risk MANAGEMENt Only you can change 1. Once an individual understands that they are responsible for changing themselves then change will occur. What is more important is people need to have the opportunity to determine how they change, rather than be told what to do. At the beginning then, by gaining real traction at the top, through sponsorship of the process by senior management that goes beyond s, policies or town hall meetings to actually living the change, the wheels of change will start to turn, which then leads us to the next phase in change. Creating a ripple effect 2. People want to be comforted that the change they need to make is one that senior managers themselves have embraced and are following. More than just a validation of the change, it is important for management at every level to resolve that if they can do it so can I a key element in leadership. In the initial stage, ripples do not have to be of tsunami size, but just significant enough to show willingness on the part of employees to be involved in the change, and to be engaged. influence change in every WAy you can 3. Change agents have to be resourceful they have to look for the space between the shapes, that is, they have to recognise that while everyone is capable of change, the drivers for change varies from individual to individual. By engaging them through multiple focal points, slowly but surely, the change agent should be able to eventually get everyone involved in the initiative. If you take a step back and remember the time you learned to drive practically nobody passes their driving test without lessons, and in fact the majority of individuals take numerous lessons, practising under the care of family/friends as well as taking more than one test before they eventually pass. If you applied that learning method to embedding change, then what a change agent needs to do is to focus on many different activities to engage and embed new behaviours. So where does this leave us in relation to embedding risk management activities into large, complex, global organisations? Definitely in no easy position; however, by focusing on people, their needs, and how change can develop, the opportunity to succeed will increase. After all, while we are creatures of habit, let us not short sell our ability to get comfortable with new behaviours. A recent example of this is the work being undertaken by JLT for a major client in Asia. The operating company had been tasked with putting in place a Business Continuity Programme. As this is one of many initiatives they have to deal with, the operating company is focusing on timelines, deliverables and outcomes, whereas the holding company has realised that embedding will only come through training, education, support and engagement. We have been working with both parties to develop a change awareness programme that focuses on three parts of the operating company: (1) senior managers through training and education programmes, live simulations, and linking outcomes to personal performance measures; (2) the delivery team through user guides, performance dashboards and communication plans, whilst (3) for all staff, there is a mobile application competition, a web-based portal, and online certified training sessions. By tackling the three levels of the operating company simultaneously, the opportunity exists to both drive the delivery of the project and in addition to engage colleagues dynamically, thereby increasing the chances for long-term success. Change is more than just a technical project. At a fundamental level, it is the underlying cultural issues that determine if change can occur and, in turn, if risk management will achieve its objectives. ENQUIRIES: Craig Paterson Director, Risk Consulting JLT Specialty Asia DID: Craig_Paterson@jltasia.com Issue # Compass 3

6 Personal life When your photocopier is deemed more valuable than your CEO Companies understand how important their key men are, but most of them fail to purchase cover for them. by Jonathan Linstow Key person insurance ensures the stability and profitability of the business, by insuring against short run capacity and the possibility of losing key employees. Different organisations hold different views on what assets mean. Ask any accountant and they will probably tell you that assets = liabilities + owners equity. Many business owners adopt the view that assets = customers + more customers + even more customers. However, should we not take assets to mean anything that is of value? From small firms to large companies, almost every business undertakes some form of insurance of their physical assets such as manufacturing facilities, plants, machinery, stock inventories, and office premises, helping to mitigate potential financial losses that arise from natural and manmade disasters. So, this begs the question, why is it that 27% of companies have office equipment protection but only 13% have key man insurance of any kind? In other words, while companies understand how important their key 4 Compass Issue #

7 When your photocopier is deemed more valuable than your CEO Personal life 27% of companies have office equipment protection but only 13% have key man insurance of any kind. men are, their behaviour suggests that they deem their office equipment to be more important. How it works: Employee Business Premiums Death Benefit Insurance Company The business decides to purchase key person insurance; the more common way to do this is to purchase cover at a rate that is five to 10 times the employee s annual compensation. Another is to determine the amount which the key person contributes to business earnings and then make an estimate. The business then becomes the owner and the beneficiary of the policy insuring the key employee s life. Upon the death of the employee, the employer collects the proceeds and uses the cash as management sees fit. Who should be regarded a key person? Very few companies cover themselves against the loss of their most important assets, the key executives of the company i.e. the person(s) at the helm who provide financial and strategic direction to their businesses, as well as individuals who hold special relationships with clients or contacts in other words, individuals whose presence in the business is integral to its continued success. The key to determining if an executive is a key person rests in asking a few key questions: Will the business be seriously impaired without him/her? Does he or she have unique skills that would be very hard to obtain in the industry? Does he or she have a special role or relationship with regard to a few key, large accounts? Will his or her absence from the company affect its stability in any way? What are the risks? Several facts illustrate the risks quite readily: In a scenario with four key male employees, there is a 29% chance that one of them will die before retirement and a 68% chance one will suffer a critical illness. 70% of entrepreneur-owned businesses do not survive their founder. 65% of companies in a recent survey felt that the death of a senior employee would have severe impact upon their business, while 57% felt that if a key employee were to be off work due to health reasons for half a year, their business would be seriously affected. However, just under a fifth of senior employees had actually purchased cover. The above illustrate the likelihood of health risks faced by a company s key men, and despite understanding the risk and potential financial losses, they do nothing to purchase cover for them; while more often they continue to protect their photocopier. When is key person insurance warranted? What kind of business should have key man protection as part of their overall risk and insurance programme? Large corporations have many stakeholders who contribute to the stability of the business; smaller companies rely even more on their key managers the business can easily fail without them. In the unfortunate event that the key person really does succumb to illness or injury and is unable to perform his duties, the business can use the payout from the policy for the following: 1. maintain the daily operations of the business; 2. assure stakeholders of business stability by having a smooth transition, using the money to find a suitable replacement; 3. ensure that customers continue to be satisfied with products and services; 4. protect goodwill and supplement profits suffered from the event. The bottom line Taking up key person insurance cover makes perfect sense for businesses whatever the scale; it ensures the stability and profitability of the business, by insuring against short run capacity and the possibility of losing key employees. It is a costeffective method of protecting your business as well as its stakeholders. Most companies purchase cover for their office equipment. It is ironical that they do not purchase cover for their key talent, the company s most valuable asset. ENQUIRIES: Jonathan Linstow Divisional Director, Global and Consulting Jardine Lloyd Thompson Limited DID: Jonathan_Linstow@jltasia.com Issue # Compass 5

8 Leadership in Action Events JLT promotes wellness at Bank Danamon Indonesia JLT s focus has always been to encourage a holistic approach to health and wellness in its employee benefits programmes. In line with this, our Indonesian office sponsored Bank Danamon Indonesia (BDI) s health fair on 12 July 2012 in Jakarta. The event was held in conjunction with the bank s 56th anniversary. JLT Indonesia helped organise the whole event, and arranged for participation by various doctors and specialists from a hospital, a clinic, pharmacies, and a laboratory. The half-day event also included health talks, a blood pressure checkup, blood sugar test, body mass index test, and health insurance consultation. It was attended by more than 700 BDI employees. In an address he delivered to BDI employees, JLT Indonesia s chief operating officer, Phil Corrigan, elaborated on some of the main features and rationale behind the bank s corporate wellness initiative. BDI also used the event to recognise the contributions of loyal employees awards were handed out to employees who had served for 10, 15, 20, and 30 years. Besides Jakarta, the BDI health fair was held in 6 other cities (Bandung, Surabaya, Makassar, Balikpapan, Medan and Semarang). This is the third year that BDI has been a part of JLT s benefits programme. More than 125,000 of Bank Danamon s employees across Indonesia are insured through the programme. JLT assembles global and Asia specialists for Power symposium in Thailand JLT brought together its specialists from across Asia to host an Insurance & Risk Management Symposium for the Power Generation sector in Bangkok on 4 July The event was attended by 50 representatives from major power and energy companies in Thailand. The panel of speakers/topics addressed included: The risk landscape, post the 2011 floods in Thailand by Andrew Minnitt, Managing Director of JLT in Thailand Project delays and the insurance solutions available by Stephen Boddington, Managing Director of Construction at JLT Specialty Asia Renewable energy projects and claims, an insurers perspective by Jatin Sharma, Head of Offshore Underwriting at GCube Underwriting Limited, London Quantifying your company s risk appetite and understanding the implications by Craig Paterson, Director of Risk Consulting at JLT Specialty Asia Contingent business interruption exposures, understanding the risks and guarding against them by Richard Burridge, Managing Director of Energy at JLT Specialty Asia The insurance market s view of risk assessment and how this affects terms by David Phipp, Technical Lines Manager at Ace Insurance, Singapore. Managing Director of JLT Thailand, Andrew Minnitt, said: There is no doubt that we will move from strength to strength within the sector as a result of initiatives such as this. JLT s focus has always been to enhance sector-specific knowledge so that insurance buyers and risk managers are best equipped to make the right decisions. 6 Compass Issue #

9 Leadership in Action Asia Risk Council to discuss future of risk management in Asia The 2012 session of the Asia Risk Council will be held in Hong Kong in October and is expected to attract participation from more than 80 risk managers and professionals from around the region. This is the sixth consecutive session, with attendance continuing to grow every year, and the number of industries represented expanding. The ARC sessions are highly interactive events with delegates immersed in real life situations and role plays. The emphasis of the event is to share knowledge and experience between delegates and to cultivate an interest in best practices within the Asia risk community. The event will be held over two days and cover a number of topics, two of which include: 1. The Risk Manager Challenge participants will be split into groups and asked to develop an insurance and risk programme for a theme park. Prizes will be awarded to the winning proposal/presentation. 2. A session on risk tolerance and appetite participants will be spilt into groups and asked to determine their risk appetite (how much risk the group is prepared to take) for a budget airline in Asia. Findings will be presented, and a lively and energetic discussion is expected, if previous ARC sessions are any indication. This is a valuable forum for risk managers and if you would like to learn more about the event or request a place for one of your clients or prospects, please contact your JLT account manager. Michael Leong Talent JLT Asia appoints Malaysia country manager Michael Leong, an insurance practitioner with more than three decades of experience, has been appointed Chief Executive Officer of JLT Malaysia, subject to approval from Bank Negara Malaysia. Michael has held various senior positions over the years in underwriting and insurance broking. His last appointment was CEO of Insfield Insurance Brokers. He is actively involved in the insurance industry, through his involvement as an executive committee member of the Malaysian Insurance and Takaful Brokers Association, alongside outgoing country manager Alex Low, who chairs the Association. David Chan Managing Director, Thistle Asia David Chan has been appointed Managing Director of Thistle in Asia. Thistle was created to distribute and manage non-brokered insurance products and facilities to the consumer and middle market sectors. Throughout the last 17 years, David has been responsible for developing and managing personal lines and SME commercial portfolios in Australia and Asia. His responsibilities have included strategy formulation and execution, portfolio management and sales. David was most recently the Head of Personal Lines with Guild Insurance Ltd in Australia. In this capacity, he was responsible for starting up the company s personal lines division, strategy formulation and execution, new products and pricing, distribution channels and websites. Prior to Guild Insurance, he was with Ace Asia Pacific as their Regional Personal Lines Manager, in which capacity he oversaw the personal lines insurance business across the Asia Pacific in particular, Singapore, Malaysia, Taiwan, and Australia. He was also with Lumley General Insurance Ltd in Australia, and Hong Leong Assurance Berhad in Malaysia. Issue # Compass 7

10 Natural Catastrophes Could we have been better prepared? A year-and-a-half after the Great East Japan earthquake, the country is still recovering, and dealing with the plethora of issues relating to compensation, or the lack of it. by G. Randall Wada and Yoshikimi Kawanami When sorrows come, they come not in single spies. But in battalions! Shakespeare s Hamlet could well have been describing the Great East Japan Earthquake of March 11, Like a row of dominos, the orderly structure that pervaded a society unravelled on that day as an earthquake ushered in a tsunami, which in turn triggered a nuclear incident, and the combined effect of this triple whammy was to bring the entire country to a virtual standstill. While earthquakes are a normal part of life in Japan, this one was no 8 Compass Issue #

11 Could we have been better prepared? Natural Catastrophes Step 1: Understand your exposures so you can clearly present your risk. Table 1: The Great East Japan earthquake a breakdown of the costs (as of 2 May 2012) (1) Human costs Deaths: Missing: 3,057 15,858 (Figure does not include elderly people who have died in the refugee camps.) Injured: 6,077 ordinary tremor. It measured 9.0 on the Richter scale and the tsunami that came shortly rose to a height of up to 43 metres. Oil and other flammable chemicals spilled as storage tanks and boats were overturned. The floating oil in the seas became a cauldron for blazing fires. Reactors 1, 2, 3 and 4 of the Fukushima Daiichi Nuclear Power Plant were severely damaged, as none had foreseen the waves to rise so high (a classic study on black swans) triggering a massive radiation leak. Tokyo Bay, situated about 220 kilometres from the seismic centre, was affected by widespread soil liquefaction, causing serious damages to houses, office buildings, roads and utilities. Understanding the losses Almost 16,000 people died from the calamity, with more than 3,000 people still unaccounted for. Total damages are estimated to be in the region of JPY16.9 trillion. There is also the yet-tobe resolved matter of some 25 million tonnes of rubble, including material contaminated by radioactivity. The Japanese government has estimated total revival to take at least 30 years or as long as 50 years, and costing as much as JPY23 trillion. Many thousands of people are also being relocated. While the world has witnessed nuclear accidents before, the Fukushima nuclear incident holds the dubious honour of being the first triggered by a natural disaster. (2) Damage to buildings and houses Completely destroyed: 129,500 Partially destroyed: 256,324 Totally and half burnt: 281 Inundation above floor level*: Inundation under floor level*: 20,434 15,513 Partially damaged: 703,411 *Floor levels of Japanese houses are typically around centimetres from the ground. (3) Damage to fishery business Fishing boats: 21,000 Fishing ports: 319 Processing facilities: Totally destroyed Partially destroyed Inundated Damage to aquaculture facilities: (4) Costs to enterprises Bankrupted companies: 644 Extraordinary losses suffered by listed companies: Destroyed by fire, either totally or partially: JPY91.9 million JPY925 billion 1,356 (38.2% of all listed companies.). It should be noted that although the Tohoku area of Japan is not the domicile of many of Japan s largest corporations, their direct property damage was relatively modest. However, a vast number of these companies experienced material financial losses resulting from disruptions to their supply chains. Within the 30 kilometre no-go zone that was established, over 2,200 enterprises, with overall sales of over JPY550 billion, had to effectively close. Issue # Compass 9

12 Could we have been better prepared? Natural Catastrophes Table 2: Extraordinary losses recorded in the accounts of listed companies Company Tokyo Electric Power Co. Ltd. Tohoku Electric Power Co. Ltd. Extraordinary loss (JPY million) Details of major damages/ costs 2,096,432 Fukushima Daiichi Nuclear Power Plant 173,124 Onagawa nuclear generation plant stopped operation, Sendai thermal power plant and Shin Sendai thermal power plant were damaged and sales dropped. JX Holdings Co., Ltd. 137,124 Sendai oil refinery and Kashima oil refinery were damaged. Sumitomo Metal Industries Ltd. Nippon Paper Co., Ltd. Group East Japan Railway Company Renesas Electronics Corporation 74,361 Equipment at Kashima iron mill were damaged. 71,175 Ishinomaki, Iwanuma, and Nakoso factories were heavily damaged. 70,967 Costs to resume railway operations. 62,229 Eight factories ceased operations. Naka factory (manufacturer of car navigation systems) was heavily damaged. Nissan Motor Co., Ltd. 60,7313 2,300 cars were damaged by the tsunami. The 77 Bank Ltd. 50,687 Various buildings located at the coast were completely or partly destroyed. JFE Holdings Co., Ltd. 41,359 AEON Co., Ltd. 30,459 Mitsubishi Chemical Holdings Corp. Shin-Etsu Chemical Co., Ltd. Nippon Steel Corporation 29,005 26,344 23,720 Japan Tobacco Inc. 23,616 Sales offices, distribution centres, factories and materials plants were damaged. Sources: Tokyo Shoko Research Ltd. ( ), the Nikkei and Tokyo Shimbun. Response from the Japanese compensation system Cover for private residences Japan is earthquake country. However, compared with other ordinary risks, the frequency of earthquakes is quite small. In addition, earthquake exposures are often limited to specific areas and the insurance community generally believes that the law of large numbers* does not apply to earthquake risks, and are therefore less insurable. Furthermore, houses in Japan are mainly constructed from wood, and when an earthquake occurs, the resulting fire causes enormous losses. As such, since early times, Japanese insurance companies have excluded earthquake risk from their fire insurance policies. *Law of large numbers in insurance: A statistical axiom that states that the larger the number of exposure units independently exposed to loss, the greater the probability that actual loss experience will equal expected loss experience. In some instances, insurers can virtually eliminate their risk of loss by securing a large enough number of units in an insured group. IRMI.com website. Current regulations pertaining to earthquake coverage are as follows: a. Earthquake cover shall be automatically included in the fire insurance for dwelling houses and household equipments at additional premiums. (It is possible to exclude Step 2: Create a clear broking plan and marketing strategy. 10 Compass Issue #

13 Could we have been better prepared? Natural Catastrophes JPY104,000 mil JPY691,000 mil JPY6,200,000 mil JPY293,500 mil JPY104,000 mil JPY5,418,500 mil JPY293,500 mil JPY90,500 mil Reinsurance written by the government Reinsurance written by the local insurers earthquake cover.) Standalone earthquake insurance is not allowed. b. Coverable assets include residential properties as well as its contents. c. Earthquake insurance covers assets lost to fire, damaged, buried, washed away or destroyed by volcanic eruptions. d. Insured amounts shall be within 30 to 50 percent of the fire insurance, Japanese insurance companies underwrite earthquake risks according to the zone in which the insurable company is located (see page 12). Zone 5 includes the capital city of Tokyo and is the largest industrial area in Japan. Zone 5 is famous for devastating earthquakes over several centuries i.e. the Genroku Earthquake of 1703 (Magnitude 8.1) and the Kanto earthquake of 1923 (Magnitude 7.9). with limits of JPY50 million for Thanks to its notorious reputation, dwelling houses and JPY10 million the demands of various enterprises for household items. for earthquake cover in Zone 5 e. Premium rates will be calculated are quite large. Practically each by the Non-Life Insurance Rating insurance company has exhausted its Organisation of Japan. capacity and from the viewpoint of f. Claim amounts are dependent upon accumulation of risks, this also creates the degree to which the house or problems in respect of reinsurance household items are damaged. capacity reserved capacity for new g. Limit of total payment per earthquake risk is coverable, but only occurrence is JPY6.2 trillion. at a premium price. h. Reinsurance scheme. The Kansai district (Zone 8) is Cover for enterprises Earthquake risks faced by corporations are written by commercial non-life insurance companies. There is no government backed pool or reinsurance to support this risk. Currently, Japan has 24 domestic and 17 foreign insurance companies with licenses to operate. Many of these insurance companies will underwrite earthquake risks, but depending upon their overall financial position, they must reinsure another industrial area that was regarded to be relatively safe until January 17, 1995, when the massive Hanshin Awaji Earthquake occurred. Many earthquake disaster event models predict a high likelihood of a major earthquake in Zone 6, the Nagoya area, home of Toyota. Coincidentally, the zones with the highest concentration of industrial values, Zone 5, 6, and 8, are also the areas with the highest earthquake risks. a substantial portion of earthquake Earthquake insurance policies risks written by them with the global essentially provide coverage for reinsurance market. property damage. Capacity for loss 1923 Kanto earthquake a defining moment in insurance history 1923 was the year that the big one hit Tokyo. It measured 7.9 on the Richter Scale, causing massive losses. The casualties included over 100,000 dead and missing, over 200,000 homes damaged by the earthquake and over 200,000 homes savaged by the fires following the earthquake. Losses were estimated at over JPY5 billion, which was more than three times the national budget of JPY1.5 billion then. The estimated total amount of damage to the insured homes was JPY1.6 billion while the total assets of the entire Japanese insurance industry was only JPY200 million. The fact that the earthquake and the fire following it excluded perils (and therefore technically there was no coverage), created a huge social issue. The insurance industry covered for the postearthquake fires on an ex-gratia basis, borrowing money from the government. It wasn t until 1950 that the insurance industry paid back the last of the borrowed money. In 1966 the government sought to deal with the issue by passing several acts which established the current system of earthquake insurance for dwelling houses and households, backed by a government reinsurance scheme. Issue # Compass 11

14 Could we have been better prepared? Natural Catastrophes EARTHQUAKE ZONES 12 Okinawa 11 Kagoshima 9 Yamaguichi 10 Kyùshù Matsue Kòchi Shikoku Kanazawa 8 7 Otsui Honshù 6 Hokkaidò Niigata 4 5 Shizuoka Sapporo 2 Tokyo Aomori 3 Sendai Step 3: Access the global insurance market. 1 Seismic Zone Perfecture Main City 1 Hokkaido Sapporo Akita Aomori Nigata Yamagata Fukushima Iwate Miyagi Gunma Ibaraki Saitama Tochigi Chiba Kanagawa Tokyo Aichi Gifu Mie Nagano Shizuoka Yamanashi Fukui Ishikawa Toyama Hyogo Kyoto Nara Osaka Shiga Wakayama Hiroshima Okayama Shimane Tottori Yamaguchi Ehime Kagawa Kochi Tokushima Fukuoka Kagoshima Kumamoto Miyazaki Nagasaki Oita Saga Okinawa Akita Aomori Nigata Yamagata Fukushima Marioka Sendai Maebashi Mito Saitama Utsunomiya Chiba Yokohama Tokyo Nagoya Gifu Tsu Nagano Shizuoka Kofu Fukui Kanazawa Toyama Kobe Kyoto Nara Osaka Otsu Wakayama Hiroshima Okayama Matsue Tottori Yamaguchi Matsuyama Takamatsu Kochi Tokushima Fukuoka Kagoshima Kumamoto Miyazaki Nagasaki Oita Saga Okinawa of profit or business interruption is comparatively scarce in the market. As a result of the Great East Japan Earthquake of March 11, 2011, many enterprises suffered contingent losses including losses caused by disruptions to supply chains. It is believed that demand for cover for loss of profit or business interruption and loss caused by damage to supply chains will rise and become an increasingly important issue. It is clear that most enterprises including the largest industrial corporations are not adequately covered for this risk. It is clear that securing adequate earthquake risk coverage for both Property damage and Business Interruption is not a simple and straightforward process. There are many variables which must be managed in order to secure adequate coverage and each client s situation is different. There are a few important basic steps which apply to all clients. The first step is to understand your exposures. This includes having solid asset evaluations. It is equally important to identify and truly understand one s business interruption potential and supply chain disruption quantum. In order to clearly present your risk, professionally prepared engineering reports on physical assets are crucial. For larger value assets it is important to perform various analyses regarding earthquake event modelling and the creation of a probable maximum loss scenario. These types of technical analyses are prepared on both a location basis as well as a portfolio basis. The second step is to develop a clear broking plan and marketing strategy, based on the premise that you are seriously and aggressively selling your risk to the insurance market. To the best extent possible you must quantify your risk. The third step is to access the global insurance market. An approach must be established for the domestic market as well as the global market. Assembling adequate and cost effective catastrophe insurance capacity requires adroitly utilising the risk appetite and worldwide capabilities of both domestic licensed underwriters as well as global carriers who can supply capacity through corporate facultative reinsurance. Executing the strategy to secure optimal earthquake covers requires a comprehensive understanding not 12 Compass Issue #

15 Could we have been better prepared? Natural Catastrophes only of the global insurer s appetite, but also of their underwriting process. In all cases, the underwriting information must be reinforced by full and proactive disclosures. Despite the rather high catastrophic loss possibility, the high level of value accumulation and limited capacity, an adequate and financially viable earthquake insurance programme can still be achieved if the correct approach is taken. Japan s nuclear damage compensation system Nuclear Damage Liability Facilitation Fund Minister of Education, Culture, Sports, Science and Technology Relief Funding (Grants, Investments & Loans) Amount of Measures for Compensation JPY120,000 mil Appointment Nuclear Damage Liability Strife Examination Board NUCLEAR DAMAGE COMPENSATION SYSTEM Amount of Damage (unlimited) Approval of the Measures for Nuclear Damage Liability Guide to judge scope of nuclear damage, etc. Mediation to achieve amicable settlement Nuclear Operator assumes compensation for all loss and damage (Unlimited Liability) (+ Provisions for Government assistance exist when it is recognised to be necessary) Private Insurance Contract (Nuclear Damage Liability Insurance Contract) General Accident Earthquake, Volcanic Eruption, Tsunami» Operator is not liable Measures taken by the Goverment (Measures necessary for the support of claimants, both financial and other, and to limit damages.) Commotions and extraordinarily great natural disaster Nuclear Operator (Strict Liability and Concentration of Liability to the Nuclear Operator) Compensation Claimants Goverment Compensation Contract (Contract for Indemnification of Nuclear Damage Compensation) Measures The Nuclear Compensation Act in Japan provides for the following: 1. The Act imposes unlimited strict liability on the nuclear operator: i.e. disaster victims do not need to prove the guilt of the operator. 2. Nuclear damage liability is solely concentrated on the nuclear operator. 3. The nuclear operator is required to undertake insurance, to be in a position to compensate for damages quickly and absolutely. 4. If a nuclear damage that exceeds the amount of compensation provided for by the Act occurs, the government should provide the necessary assistance to the nuclear operator. Maximum compensation amounts vary, depending on the type of nuclear reactor. In the event of a nuclear damage that does not fall under the scope of a grave natural disaster of exceptional character, private insurance companies are liable for compensation amounts of up to JPY120 billion. Japanese insurance companies have established an atomic energy insurance pool to provide coverage and help support compensation. The government acts as a further backstop for compensation through financial, budgetary provision and tax measures, etc. The 1960 Paris Convention on Third Party Liability in the Field of Nuclear Energy (OECD) and 1963 Vienna Convention on Civil Liability for Nuclear Damage (IAEA) provide exclusion to the operator if the incident is deemed to be of a grave natural disaster of exceptional character. Similarly, the Japanese Act on Compensation for Nuclear Damage excludes the nuclear operator from liability for damage if the event is deemed to be of a grave natural disaster of exceptional character. A grave natural disaster of exceptional character is generally understood to include events such as unprecedented great earthquakes, exceptional volcanic eruptions and unparalleled wind and flood disasters. An earthquake more than three times the magnitude of the massive Kanto Earthquake (of magnitude 7.9) would be regarded as a natural disaster of exceptional character. Consequently, the Great East Japan Earthquake (Magnitude 9.0) has not been treated as a grave natural disaster of exceptional character by the government. In spite of the existence of legislation regarding compensation, final settlement will take a long time because the current state of the nuclear reactor with regard to meltdown chances cannot be ascertained, due to extremely high radioactivity. Serious questions remain regarding the time needed to get the reactors under a reasonable level of control as well as the subsequent cleanup. It will be a long time before people s lives return to close to normalcy. The Great East Japan Earthquake has the infamous distinction of being ranked among the big ones. Unfortunately an earthquake of this magnitude is predicted to happen again within the next 60 years. Hopefully we will be better prepared for the next big one. ENQUIRIES: G. Randall Wada Chief Executive Officer JLT Holdings Japan Co., Ltd. DID: Randall_Wada@jltasia.com Yoshikimi Kawanami Chief of Staff JLT Risk Services Japan Limited DID: Yoshikimi_Kawanami@jltasia.com Issue # Compass 13

16 Energy Where is the Energy market headed? The energy market environment is ever changing due to the volatile nature of this class of business globally. Energy markets in Asia are also especially competitive. by George Nassaouati Lloyd s Singapore was set up in 1999 through initial representation by the Catlin and Watkins Syndicates. The main driver for these syndicates to establish underwriting teams in the region was the need to service their clients through a local channel to deliver timely service without waiting for London to open for business. This was followed a few years later through the setup of the only Asia based Lloyd s Syndicate AMS (Asia Marine Syndicate) who were not represented in London. AMS was created to underwrite regional business following the development of Catlin and Watkins Asia syndicates, who were now underwriting business successfully and in excess of their original aspirations and business plans. In 2006, Chaucer Syndicate in London hired a key energy underwriter and decided to set up a sister syndicate in Lloyd s Singapore to capture Asian energy business, which was growing significantly, in tandem with the developing Asian economies. This move was based on the Lloyd s of 14 Compass Issue #

17 Where is the Energy market headed? Energy London drive to develop Lloyd s platforms across the world to diversify their portfolio and capture business via a more cost-effective formula. Growing competition JLT remains the broker with the largest and most experienced energy team in Singapore, helping local and international energy companies achieve optimum global risk financing solutions through a local channel. Lloyd s in London had been suffering from heavy competition, with the company markets moving their operations to tax havens, which enabled these companies to provide cheaper products and solutions. With China and India rapidly growing, and Lloyd s Singapore already in place, syndicates quickly followed the Chaucer drive, to either penetrate the Asia energy market and/or relocate energy class underwriters to underwrite this business from Singapore. Watkins already had an active energy underwriter and Catlin quickly hired a key energy underwriter to enable them to compete with the likes of Chaucer and Watkins. Between 2006 and this present day, 18 Lloyd s syndicates have been established in Asia, along with all the key company markets. The only two major syndicates that are not currently represented are Hiscox and Brit, who continue to write Asia business through their London operations. The majority of these new sister syndicates were set up in the main as small operations focusing on Energy related businesses, which later grew to cater to Marine/Cargo/Hull/P&I all perceived as natural derivatives to Energy. The Asia markets developed faster than expected and it has become clear that possible concerns in respect of the market s longevity (based on previous experience following the rise and fall of the French and Norwegian markets) are wide off the mark. Today, a number of these syndicates have grown into large entities underwriting multiple classes of insurance/ reinsurance businesses, with specialist underwriters employed for this task. As an example, Catlin grew from a 15-man operation The Asia markets developed faster than expected and it has become clear that possible concerns in respect of the market s longevity are wide off the mark. to a company of 100, with plans to further expand and open additional offices in other countries across Asia. Pioneering role The broking industry has always been well represented in Asia, especially within Singapore and Hong Kong, though Energy was not always a focus. In fact JLT was the only qualified broker in Singapore with a technical Energy team (especially Upstream) serving and placing business until 2005, when other brokers decided to mobilise their energy experts into the city state. The drive behind the Monetary Authority of Singapore s decision to allow tax efficiency on Marine and Energy business and the drastic move for Lloyd s syndicate to set up in Singapore, reassured brokers of the future of this market and the need to heavily invest in resourcing. JLT was already ahead of the game however, and today remains the broker with the largest and most experienced energy team in Singapore, helping local and international energy companies achieve optimum global risk financing solutions through a local channel. Today s energy market environment is ever changing due to the volatile nature of this class of business globally. Energy markets in Asia have always been more competitive than their London counterparts, mainly due to lower overheads, local focus, and the tax efficiency offered by the MAS. Some London energy markets (particularly those not represented in the region) however realised that the Asian energy market was starting to take business away from them, and decided to revise their rating model, so that they can at Issue # Compass 15

18 Where is the Energy market headed? Energy times provide more competitive terms than their counterparts in this region. Although there is no official Lloyd s setup in the Middle-East, many Lloyd s syndicates went into joint venture agreements with local Middle-Eastern insurers to underwrite Middle-Eastern and African business from Dubai (UAE) and Manama (Bahrain). The border between the Asia and Middle-East energy markets has always been flexible as Asian markets have always led or supported Middle-East and Africa-based business and vice versa. Price war In the last few years, Middle-East markets have developed into key lead markets and have started competing against London and Asian markets through lower prices. This ignited a price war between London, Asia, and Middle-East markets, In view of the number of Asian risks declining due to the entire region cooling down economically, competition is significantly increasing, resulting in lower prices and wider coverage to clients in the region. with London having an edge in this battle in view of their vast resources, experience, past reserves, and leverage. Asian markets, however, are responding promptly to London s approach and are revising their model to enable them to compete not only on price but also in terms of their solutions, services and leveraging their experience in the region. JLT Energy is a key player in supporting markets around the world and where possible to drive local business in local countries where feasible. While many companies are price-sensitive, our experience working with them has taught them to appreciate a better local service and placement, which allows for a better response time and partnership approach. JLT Energy Singapore ensures that our clients receive immediate attention from energy markets in the region for their requirements and risk financing solutions, especially through a prompt claims management service. Our goal is not only to provide a highly commercial and service driven client approach, but to challenge markets to settle claims as promptly as possible easing the cash flow challenges of our clients through our expert placement/claims energy team. Our objective is to deliver a global service through local channels. Asian energy markets are currently faced with a dilemma, as they need to generate stable and continuous growth to sustain their optimistic business plans. Energy market conditions are not improving as the long expected energy market hardening has not materialised. In view of the number of Asian risks declining due to the entire region cooling down economically, competition is significantly increasing. This competition is translating into lower prices and wider coverage to clients in the region. We are ready to capitalise on this competition and help you achieve an optimum balance between price and coverage. ENQUIRIES: George Nassaouati Managing Director, Energy (Construction) JLT Specialty Asia DID: George_Nassaouati@jltasia.com 16 Compass Issue #

19 Asia s largest energy broking team We are brokers to some of the largest oil and gas producers in Asia. In 2009 and 2010, JLT generated more energy premium into the Lloyd s insurance market than any other company. JLT is at the forefront of developing risk solutions for emerging trends in the energy sector. Leveraging our understanding of the industry, presence in the energy market and innovative ability, we design and deliver creative and cost-effective solutions to our clients. We provide a range of insurance and risk management services to clients involved in exploration and production in this sector. For more information, please contact: Richard Burridge George Nassaouati Managing Director Managing Director Asia Energy Energy (Construction) T: T: E: Richard_Burridge@jltasia.com E: George_Nassaouati@jltasia.com Julian Ling Regional Director Energy (Power/Onshore Oil & Gas) T: E: Julian_Ling@jltasia.com Issue # Compass 17

20 Employee BENEfits Building Keeping track of a range of diverse benefits programmes, managing internationally mobile employees, and communicating benefits consistently to all staff, across linguistic and cultural barriers, are huge challenges. by Peter Whittington Developing, maintaining and communicating the features of a costeffective, attractive and consistent employee benefits programme is challenging for any employer but especially so for international companies. Legislation differs from country to country, there are different traditional approaches to benefit provision, and many local providers of insurance and services to manage. Last but not least, there are cultural and language differences to manage. Building a following Whilst a globalised approach to benefits is desirable for consistency and cost-efficiency, it is not always supported by international solutions that are workable in each country. Having said this, there are steps that can be taken to improve 18 Compass Issue #

21 Employee BENEfits Bridges consistency and take full advantage of a company s overall size and presence. These include specialist regional plans, multinational pooling and flexible benefits programmes. In addition, through the development of a consistent look and feel for the employer s benefits delivery platforms, along with common renewal dates and standard service levels across territories, codified in formal agreements with suppliers, greater value can be obtained from the company s benefits proposition to employees. Keeping track of a range of diverse benefits programmes, managing internationally mobile employees, and communicating benefits consistently to all staff, across linguistic and cultural barriers, are huge challenges. Many international companies miss out on the efficiencies delivered by a global or regional strategy, and risk under or over insuring benefits in certain countries. Even worse, the absence of benchmarking information to ensure that benefits stack up to competitors offerings, Bridges brings together a client s regional or global benefits programmes into a single portal. Issue # Compass 19

22 Building Bridges Employee BENEfits could have an adverse effect on talent recruitment and retention. Even if the programme is well designed and appropriate, a failure to communicate its features clearly to all staff can reduce its success. Communication material must be up-todate and complete, and be abreast of changing fiscal and legislative requirements. Not communicating the correct level of cover to the employee could result in misunderstandings and worse, uninsured liabilities. Building an international proposition To help our clients address these numerous challenges, JLT Asia has developed Bridges a multinational service proposition that is delivered via an internet based platform to employers and employees. Bridges brings together a client s regional or global benefits programmes into a single portal, providing online access to benefits details and data for all stakeholders, configured to meet their specific needs. It encompasses a range of system capabilities, accessed through a single benefits information portal, and protected by passwords, giving each user access to information appropriate to his/her role. Building resilience in an economic crisis During growth years, Bridges provides, at minimum: when the war for talent was fierce, healthcare was viewed as a means to attract and retain staff, as well as to be a socially responsible employer. However, as the financial crisis hit home and medical inflation soared, this obligation to employees is being put to the test. Employers with online access to corporate benefits plan information, including: Details of benefits plans offered to all staff, profiled by country or location, staff level, and/or department all accessible to the client s regional decision makers from a single platform (local decision makers can be given access to regional details, or just their own country, as required). A portal through which to communicate, and access information from JLT, insurers and other providers, and make that available to the client and employees. Claims reports from insurers, and utilisation analyses conducted by JLT experts. A corporate health & wellness portal, including important information to aid in developing a bespoke programme for the client. Available benchmarking information. JLT service level agreements at regional and/or local levels. Employees with password controlled online access, to their benefit details, including: Full benefits booklet including details of cover and provider contacts. All information can be delivered in the local language (and/or English). Bridges can handle any character sets e.g. Chinese, Japanese, Arabic etc. Full content management, whereby JLT takes responsibility for updating the benefits information. Access to online offerings of insurers (if available from the insurer), e.g. claims submission and tracking. Access to the health and wellness portal including a fitness calculator, along with advice from JLT Asia s medical doctors on staff. 20 Compass Issue #