Hazed and confused

Air pollution is becoming an extremely concerning issue in Asia. Regardless of the causes – small cooking fires, industrial output, land clearing or power generation – the problem is there for us all to see.

This year, haze from fires in Indonesia badly affected Singapore and Malaysia. The city of Harbin, in north-east China, ground to a halt as air pollution contaminants reached levels more than 50 times the concentration recommended by the World Health Organization.

Both individual and corporate health costs will increase unless pollution levels decrease. The costs to business, in terms of lost days and orders, are potentially huge.

For the Asian insurance industry, air pollution is a pressing issue; one that is only going to become more prominent. Although pollution is being addressed at national levels, the resulting disruption to business should be raised with clients and discussed among serious regional providers.

The Singapore government recently announced the creation of an Association of Southeast Asian Nations (ASEAN) haze-monitoring system, which beautifully demonstrates how regional governments can address the seasonal issue of air pollution. These types of proactive measures are a significant step in the right direction. The regional business community should applaud the measures taken by all 10 ASEAN members.

However, regional businesses must now also come to the table – both in terms of prevention of the root causes, and in how they prepare for future pollution-related disruptions to their operations.

Haze insurance?

Traditional insurance generally excludes weather risks. Globally it is possible to buy weather insurance cover, but this is complicated and generally only for very large American crop producers. Haze insurance would be an unlikely solution for businesses looking to minimise their risk profile in countries such as Singapore and Malaysia.

From the 2013 south-east Asian haze season – the worst in years – we learned a number of key things related to prolonged haze and air pollution, and its possible impact on business. No doubt the issues were the same, or worse, for businesses operating in north-east China. The most obvious issue was that the haze forced people to stay at home as a result of government warnings or individual cases of illness. As a result, many companies were forced to question how they would cope with reduced staff numbers.

Reflecting on the 2013 situation is a useful business continuity exercise. How would we cope if we only had half our staff? Who are the ‘business critical’ members of staff? How long would it be before our business suffers? How do we fulfil customer orders or contracts? Likewise, how would prolonged haze affect our local suppliers? How would this situation affect customer demand?

All businesses should ask themselves the following questions, even if they were not directly impacted by haze. Could they cope if one of their key suppliers suddenly shut down for a week, or two weeks? At which stage would/should they call their insurer?

People costs

What are the ‘people costs’ for a haze-affected business? On the employee side, businesses need to assess if their current health insurance programme copes with increased staff illness. In 2013, this took the form of GP and specialist visits owing to respiratory problems. If companies self-insure, and there is a large spike in GP visits and claims, could a company’s cash flow cover the increased costs?

In terms of business continuity, companies can only put a few preventative measures in place. For example, a supply of good quality face masks in the office stock reduces the risk of panic buying when the haze becomes an immediate issue.

What are the commercial costs for a business, and where would the support come from? At a macro level, if environmental factors impact a country’s economy for a number of weeks or months, what would a government need to do to support business? This response, undoubtedly, would be government-specific.

In Singapore, for example, the national civil defence apparatus would probably come to the fore. Indeed, there are probably few countries as able or as financially well prepared as Singapore to handle this sort of business disruption.

Areas where state support would make the biggest difference include cash flow and debt support. Although a national business interruption fund or measure could be established, the reality is the authorities are most likely already prepared for a major disruptive event of this type.

Business continuity

From an insurance industry point of view, there are a number of downstream air pollution risks that should also be addressed by clients. The issues for each business will, of course, be unique. That said, there are business continuity issues which all companies need to address – crucial IT systems still need to be maintained, and key staff still need to be available. Communication strategies need to be implemented.

For those involved in crucial infrastructure and utilities, the maintenance of assets still needs to be undertaken. If certain equipment and services were to fail, the owners of these systems would find themselves under considerable public and government pressure. These costs can be hard to quantify and businesses need to ensure they are covered for the unexpected.

Like it or not, the problem of air pollution, and the disruptions it causes, is some way off being solved. However, one thing that can be guaranteed is the increasing need for blame to be attributed. This was a feature of the 2013 South-East Asian air pollution season. The public’s attention moved from where the fires were located, to who was setting them, and finally to who was actually paying for the land clearance. For many companies this was an uncomfortable trend.

Certain sectors will bear the brunt of the blame for either the cause of pollution-related events, or the inability to respond to a crisis of this nature effectively. For these companies, the risks associated with air pollution involve issues of liability, increased regulation, brand damage, legal action and, in the worst case scenario, being completely shut down.