Business managers taking exposure to floods more seriously
Business managers in the Pearl River Delta are thinking more about their exposure to natural catastrophes such as floods.
Business managers in the Pearl River Delta are thinking more about their exposure to natural catastrophes such as floods.
Lloyd's chairman John Nelson said this was partly a result of government pressure because it was pushing mainland enterprises to use more insurance to relieve the state of the burden of rebuilding economies after disasters strike.
"There has not been a history of insurance in China … it's all event-driven, with the government being the provider of insurance of last resort," Nelson said. "But as businesses grow and [the economy is] commercialised and industrialised … we are seeing insurance penetration rates rising, encouraged by the government because otherwise it's a burden on the economy and the people."
Kegan Chan, a Hong Kong-based consultant with insurance broker Marsh Risk, advises companies in Hong Kong and the mainland, with a lot of focus on the Pearl River Delta.
Chan said delta companies were doing more planning for natural disasters, partly because of the influence of foreign firms that had set up joint ventures in the region and had imported their global business-continuity plans.
They might involve simple steps, like putting the most expensive factory equipment on the second floor or above, and installing gates on doorways that could block water. The most effective step at the government level was to build good drainage.
Chan said firms should draw up comprehensive, yet simple, steps employees could take in response to disaster, and then test those plans regularly.
Manufacturers could draft plans for production even if their main factory was shut down by fire or flood, he said. They might involve a reciprocal arrangement to use the equipment of a competitor, or suppliers.
"We will look at the operation's resilience, whether there is any machinery at other sites," he said. "A lot of these places have alternate locations. There is redundancy."
A production shutdown can be massively damaging for profits, particularly given that many companies are critical links in global supply chains. When one firm shuts down, a well co-ordinated global ecosystem of production may well grind to a halt.
However, Chan said the most sensitive aspect of disaster planning was faced by those companies in the delta with massive workforces, with employees typically living on site in worker dormitories.
The plant had a responsibility to feed and house those workers and any failure to do so, perhaps because of a massive flooding, could lead to deaths that would be blamed on the firm.
"The entities that have a high concentration of labour are taking on more awareness of [natural catastrophe risk]," he said. "Those that have dorms on site that feed and house their local staff, they are the ones that approach us directly, because they are concerned about site interruption."