RISKY BUSINESS
CFOs in Asia who skimp on employee compensation insurance are asking for trouble. 
By Lynne Curry

When construction worker Lai Chi Pon fell off of the make-shift scaffolding at Hong Kong's Ocean Terminal, Toto Steel & Iron Works and Toto's subcontractor, Yeung Hau, landed in court. The reasons: Toto disputed Lai's claim that the company's insurance should cover him. Meanwhile, Yeung faced prosecution for not carrying any insurance.

In the complex legal proceedings that followed, a Hong Kong court criticized both Toto Steel & Iron and subcontractor Yeung for failing to provide a safe working environment. Lawyers for Toto Steel, however, argued that Lai was not one of the construction company's employees and therefore was not entitled to coverage under the company's plan. The court agreed. But the Hong Kong judiciary concluded that Lai was indeed in Yeung's employ, and therefore ordered the subcontractor to pay damages to the injured worker. But Lai, who suffered paralysis in both legs from the fall, never collected from Yeung. His former boss died during the course of the seven-year-long case. Nevertheless, the court ordered the Employees Compensation Assistance Fund Board to pay Lai HK$14 million (US$1.8 million) for his injuries.

The Ocean Terminal case should have risk managers in Asia worried. While employees in the region have traditionally steered clear of suing their employers, the number of worker lawsuits is on the rise. What's more, it appears judges and legislators - once fairly indifferent to worker lawsuits - are now taking these cases very seriously. Compensation has increased substantially over the past few years. In Hong Kong, for example, the maximum allowable compensation for a permanently incapacitated employee was US$70,000 in 1993. Last year, that number had jumped to US$227,732. And recently, an Indonesian court jailed an executive at a worker placement agency for three months for failing to insure his employees, among other infractions.

Clearly, employers who don't provide any coverage for their employees are playing with fire. But finance managers who do not routinely monitor their company's employee insurance coverage run the risk of being woefully under-covered. That could seriously hamstring that company's ability to pay an injured employee's medical and rehabilitation expenses. And getting a worker back on the job as quickly and smoothly as possible should be the top priority for any finance manager.

You Pay, They Don't

To avoid snags, experts say CFOs should work hand in hand with corporate risk managers and insurers to continually assess a company's employee insurance policies. Surprisingly, while most countries in the region require a minimum amount of coverage for workers, an increasing number of finance managers are offering more than the mandated amount. These finance manages say going the extra yard in insuring workers actually makes for better employee relations. "It's getting popular to have personal accident insurance that gives you wide coverage," acknowledges Yeo Tek Ling, finance director of Advanced Packaging Technology, a Malaysian food product packager. "It's economical and an additional incentive to employees."

Of course, figuring out which - and how much - insurance to buy depends a lot on a company's business, as well as its risk appetitite. What's more, picking out the right policy can be tricky stuff. CFOs in Asia must weigh a number of factors when choosing employee coverage. These include the rising rate of employee accidents in many fields, increased pressure from CEOs to cut costs by using contract and part-time laborers, and the continued reluctance of many employees to use required safety equipment. Those inside the insurance industry agree that these complications make choosing the right policy a difficult matter. "The most important issue to consider is not the premium," says Patrick Lau, general manager Blue Cross (Asia-Pacific) Insurance, a subsidiary of US-based Aetna Insurance Group. "It should be the coverage of the policy. No matter what the premium, if the company buys the wrong cover, then the cheaper premium will be irrelevant, because the insurance company won't pay."

The good news, though, is that premiums for employees' compensation insurance, which are based on wages, continue to slide. According to Trowbridge Consulting, an actuarial group, insurance rates fell 14 percent last year in Hong Kong alone. That kind of drop-off in premiums has led to a tough time for insurers in the region. In Hong Kong, for example, total premiums collected by local insurance companies dropped 16 percent. Meanwhile, payouts resulting from employee compensation claims continue to soar. No surprise, then, that some insurance companies in the region seem to be examining claims and corporate policies with a magnifying glass these days.

To avoid a nasty confrontation with a carrier, CFOs need to focus in on the fine print of a company's policy. Insurance industry executives stress that policies should cover all employees, including part-time staff. Insurers also say CFOs need to be sure to declare necessary information about all employees. This includes pro-viding details about cleaning service workers or other kinds of subcontractors who are not permanently employed by a company. A common problem occurs when inspectors for medium-sized construction or manufacturing companies visit a site and, because of a worker shortage, are asked to install a piece of equipment. The result? Often, an injured inspector - and an insurance company unwilling to pay on the policy.

Out on a Ledge

Indeed, the lax approach to worker safety in many parts of Asia makes designing a workers' compensation policy that much harder. For instance, CFOs and corporate risk managers must determine whether the safety provisions set forth in a prospective policy will be strictly observed by company employees. If not, industry analysts advise, finance managers should reword or omit them. Failing to do this could result in a insurer's refusal to pay a claim. "If an accident happens when a worker is cleaning the windows and he is not wearing the safety harness, an insurance company will say the loss is not covered," Lau says. And these kinds of catastrophic accidents are on the rise. In Hong Kong, industrial injuries in the construction sector jumped 5.5 percent last year, despite the worst property slump in more than a decade.

Of course, few finance managers have to worry about employees falling out of windows. For most CFOs, risks are slightly more pedestrian. "Travel insurance is a must," says Kim Wa Yu, finance manager for Raychem Hong Kong, a subsidiary of US-based Raychem Corporation, an industrial and car engine component manufacturer. "It is key for all sales and management staff." Kim says he buys Asian coverage for his managers and costlier international coverage for senior executives. But Flora Ma, finance director of Fuji Photo Products, who also covers her employees while on the road, demands more than a service which settles a claim quickly. "We look at how the insurance company can help when employees have an accident in China," she says. "It's not just money. We see what other support the company can offer, whether the company can provide 24-hour support."

Indeed, CFOs are simply finding that government-mandated schemes don't begin to meet their needs. Increasingly, medium-sized to larger companies now routinely buy more insurance than the skimpy amounts generally mandated by governments. Singapore's plan, for example, only covers employees earning less than S$1,600 (US$935) a month. Royson Wong, financial controller at Trans-Link Express Pte, a Singapore-based distribution company, buys extra medical and hospitalization insurance for his senior employees who earn more than the state limit. He also looks for insurers who provide add-on services as well as cover. "We look at the total coverage. We don't look at individual policies as such," says Wong. "Cost is important, service is important (and so is) the length of time it takes to process a claim."

Social Insecurity

In Malaysia, companies are obliged to join the Social Security Organization (SOCSO), which provides insurance for employees who earn up to 2000 ringgit (US$935) per month limit. Benefits are paid on a 2,000 ringgit basis even if the employee is earning a five-figure income. Cheak Yew Kun, finance manager for Machinery and Industrial Supplies, a car components maker in Kuala Lumpur, offers medical and accident insurance beyond the SOCSO requirement for his 300 employees. Cheak looks for one insurance provider to cover all his needs. "It is a question of bargaining power. It is more cost-efficient to have one insurance company." Indonesian companies are also beginning to provide more insurance than the state requires, in part because dealing with Aftek, the state-owned insurance group, can be cumbersome. "Aftek can take a long time to settle claims and (its) employees often ask for money to speed up the process," one insurance broker admits.

Erwin Budiarto, controller of Santana Petroleum Equipment, an oil production equipment maker, gets around these problems by buying additional insurance for his employees."We compare the premiums and go with who offers the greater benefits," he says. Sompongse Tantiseri, the finance director of United Standard Terminal Public Co., a warehouse operator in Bangkok, also provides more coverage than the government mandates. This includes a separate health plan to cover sick and injured employees. He selects its policy based on the charge per person.

As Sompongse and other CFOs know, the question they now face is not whether to insure employees but how much employee compensation coverage is enough. In labor-intensive Asia where safety guidelines are not always followed, CFOs need to exercise caution in choosing the right kind of coverage for their employees and expanding coverage where necessary. The alternative, unfortunately, could be an expansion of the legal department.

Lynne Curry is a business writer based in Hong Kong