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Q1 2012

P3 SUPPLIER BEWARE: BUYER DEFAULT ON THE RISEP8 LESSONS FROM NATURAL CATASTROPHES P13 CONTAINING COSTS AND EMPLOYEE LOYALTY

ASIA DIRECTORS’ SERIES

In this Issue:

Asia Directors’ Series 2

3 Marsh

PUBLISHER’S NOTE

Welcome to Marsh’s Asia Directors’ Series. This is a new and exciting quarterly

publication for board members and executive teams of companies in Asia who

are interested in the latest thinking and developments in managing risks.

Given the economic volatility and string of natural disasters in Asia last year, risk

and risk management has quickly become a boardroom topic across Asia. The

Asia Directors’ Series offers insight and practical solutions help your companies

succeed in today’s volatile business environment.

In the first edition for 2012, we take an in-depth look into:

The rising prospect of buyer default for Asian suppliers, as insolvencies

increase especially in the Eurozone;

Lessons from the natural catastrophes in Asia Pacific during 2012, including

business interruption insurance, supply chain risk management and business

continuity management;

How companies can contain the rising cost of employee healthcare while at

the same time continue to attract and retain talent through creative

employee benefits programs

To do your jobs effectively, you need to keep informed and stay ahead of the

curve. We hope that the Asia Directors’ Series will help you do just that.

Alan Cheah

Region Head - Asia


TOP STORY

SUPPLIER BEWARE:BUYER DEFAULT ON THE RISE

As economic turmoil continues to effect

global economies, Asian suppliers are

increasingly concerned about the

creditworthiness of their international

trading partners.

With forecasts pointing to rising

corporate insolvencies in 2012, the risk

of trade credit default is substantially

increasing.

The ability for suppliers to effectively

manage this risk is separating the

winners from the losers.

GROWING CONCERN:

WILL CUSTOMERS PAY?

Asia is the engine for much of the world’s manufacturing

output. As the supply environment becomes

increasingly competitive, suppliers are accepting credit

risk from a wider variety of international customers.

The ability for trading partners to pay – and the payment

terms on which they transact – is critical for companies

in the region. Failure to receive payment, or the impact

of slow payment cycles, can severely curtail the cash

flow of a business, which in turn limits their ability to

pursue other business opportunities.

While the risk of non-payment from customers is

fundamental to doing business for virtually all

companies, the current global economic worries,

particularly in Europe, are a cause for dramatically

escalated concern about buyer default risks.

And rightly so. A survey released in January 2012 by

credit insurance specialists The Coface Group, indicated

a sharp rise in non-payments in 2011. Coface recorded

a 19% rise in payment incidents worldwide during the

year, with a particularly marked increase of 28% for

companies in the Euro zone.

This growing risk is causing many Asian suppliers to

reassess their trade credit risk management strategies

to ensure they have the most appropriate protection

against buyer default.

SITUATION SLOW TO RECOVER

As the effects of the global financial crisis continue to

bite, forecasts predict 2012 will see world economic

growth slowing, country risk rising and an uptick in

corporate insolvencies. This is a recipe sure to continue

the trend of non-payment by customers.

Credit insurer Euler Hermes predicts world economic

growth will slow to 2.7% in 2012, down from 3% in

2011. The Euro zone will record sluggish growth of

0.3% and its member states will experience periods of

recession, while the United States will enjoy a fragile

period of grace with 1.8% growth.

At the end of 2011, close to 60% of the countries in the

Euler Hermes panel of more than 240 countries and

territories posted levels of risk considered as significant

or high, and the trend is for risk to increase. European

5 Marsh

countries which have been severely weakened by the

present crisis are topping the list. Euler Hermes also

expects corporate insolvencies in 2012 to increase by

12% in Europe, and 3% worldwide.

HOW ARE BUSINESSES MINIMISING THE

RISK?

Businesses which extend trade credit to buyers are

essentially allowing their customers to buy now and pay

later. The inherent level of risk involved needs to be

examined, understood and provisions made to ensure

that risk is minimised.

Marsh’s Trade Credit and Political Risk Leader – Asia,

Richard Green, said establishing credit risk governance

procedures and adequate insurance solutions had

become a priority for many businesses.

“Managing the complex credit arrangements required

to sell products through the global financial crisis has

put credit risk back on the agenda for many directors,”

Mr Green said.

“Many suppliers, which have historically lacked the

basic systems, processes and insurance required to

actively manage credit risk, are now looking for more

robust solutions.

“This process is made more challenging by factors in the

current external environment – buyer defaults are on the

rise, many customers have no internationally recognised

credit rating, and there’s a widening variation in

sovereign and sector risk profiles. At the same time,

many suppliers across Asia lack a strong internal credit

risk culture,” he said.

Mr Green said the key areas suppliers could focus on to

minimise trade credit risk include developing:

An internal credit rating system for customers and

credit limits to be used as the main control point in the

sales process;

A standard credit risk process and assessment tools

for all marketing and sales personnel;

A portfolio view of credit risk, reviewed regularly by a

senior executive team; and

An appropriate trade credit insurance solution.

“A good credit risk management strategy should result

in the implementation of a system that encourages the

measured and controlled risk necessary to sell target

volumes at healthy prices. The challenge is to produce a

reliable picture of the credit risk position of each

customer that is consistent and comparable,” Mr Green

said

“Developing a good credit culture by embedding credit

risk awareness and processes throughout the sales and

finance functions is also an important step to avoid

conflict between the two.

“One of the most important and fundamental risk

management elements that companies are increasingly

turning to is trade credit insurance. In fact, Marsh has

seen an increase of at least 20% in the number of

companies across Asia seeking insurance to protect

themselves from the risk of default by their trading

partners,” Mr Green said.

FLIGHT TO TRADE CREDIT INSURANCE

In the last quarter of 2011, the number of companies in

Singapore seeking trade credit insurance rose 30%

compared to the same period a year earlier, according to

Marsh. Hong Kong saw a 20% increase, and rises have

been recorded by other key Asian trading nations.

Mr Green said that while this increase is encouraging, a

concerning number of businesses, particularly small to

medium sized enterprises (SMEs), still do not have trade

credit insurance.

“Most companies would not think of doing business

without buying insurance to protect themselves against

potential losses of property, investments and inventory.


But there are many companies which fail to exercise the

same diligence in protecting their account receivables,”

Mr Green said.

“Most often these are small to medium sized businesses

– the companies most at risk of cash flow issues

resulting from buyer default owing to reduced balance

sheet strength and flexibility,” he said.

The results of a SME Development Survey by

International Enterprise Singapore in 2010 found that

an astounding 96% of Singapore SMEs did not purchase

trade credit insurance. In addition, 45% said they did

not see the necessity in having it for their business.

In response, International Enterprise Singapore initiated

the Trade Credit Insurance Scheme to educate

Singapore SMEs on the benefits of trade credit

insurance as a risk management and financing tool, and

encourage Singapore companies to use trade credit

insurance by providing a premium subsidy to eligible

companies.

Mr Green said Singapore’s scheme had contributed to a

significant reduction in trade credit risk exposure for

many businesses.

“The scheme in Singapore has worked well to influence

smaller businesses to consider options for obtaining

adequate protection. The additional boost of a premium

subsidy, and the customised approaches which have

been developed, like that offered through Marsh’s trade

credit facility, has combined to drive up the number of

SME’s choosing to protect their revenue streams,” Mr

Green said.

“These developments have been particularly welcomed

by smaller businesses, as the trade credit insurance

market tightens in response to the poor macro-

economic conditions in Europe,” he said.

PRACTICE SAFE SALES

Trade credit insurance can help protect companies from

the harmful effects of buyer insolvency or slow payment

due to bankruptcy, natural disasters, civil unrests and

other exposures.

Mr Green said that beyond the peace of mind offered by

this protection, businesses with trade credit insurance

benefited from other positive flow- on effects.

“Having trade credit insurance means businesses can

confidently extend more credit to creditworthy

customers while reducing the risk of non-payment,

thereby promoting safe sales expansion. They also have

better chances of bank financing through increased

borrowing capacity,” he said.

“And from a buyer’s perspective, it is better to transact

with a supplier on an open account basis rather than

have to provide a letter of credit or a bank guarantee.

Trade credit insurance allows suppliers to offer

unsecured payment terms without taking on increased

risk.”

A trade credit policy can cover an insured for up to 90%

of the loss. Foreign exchange transfer risk, where the

buyer is unable to make payment in contract currency

due to the imposition of local currency controls, is also

covered. Some political risks, such as import/export

license cancellation or embargo, can be included in a

trade credit policy. It can also protect against domestic

insolvencies, or mitigate the risk of a client failing to pay

in a timely fashion.

Trade credit policies can be structured on a single- or

multiple-buyer basis, covering domestic sales, foreign

sales, or all sales combined. Most trade credit programs

insure short-term (less than 180-day payment terms)

trade receivables and are structured on a multiple-buyer

format, insuring a broad spectrum of risk.

DON’T RISK BUYER DEFAULT

In response to sharp drops in global export demand,

and even with the euphoria of an impending economic

recovery, it is important for suppliers to avoid the

temptation to increase market share by offering more

attractive credit terms and loosening financial controls.

7 Marsh

Research by The Coface Group has found large number

of companies across Asia, in particular China and India,

have sought to gain an advantage by offering longer

credit terms to customers, or significantly increasing

their sales of open accounts. These riskier forms of

credit only serve to expose businesses to a greater risk

of payment defaults, especially if the economic recovery

slows down or stalls.

Companies must balance their fight for market share

with more cautious attitudes towards managing risk. An

investment in establishing credit risk governance

procedures and adequate insurance solutions is a vital

part of a business’ overall risk management approach.

Specialist advice is available to help businesses choose

the most effective trade credit insurance solution. In

recruiting expert external advice, businesses can

redirect their resources towards growing sales and

achieving operational efficiencies, instead of worrying

about the potential for default and chasing overdue

debts.

Through effective risk management, today’s global

suppliers can benefit from the enormous rewards of

being part of the great Asian manufacturing engine.

Marsh’s Trade Credit and Political Risk Practice

specialises in developing solutions tailored to

clients’ specific credit exposures. We maintain an

extensive international network of credit

insurance offices so clients have ready access to

local experts. Our knowledge of international

markets enables us to advise on the type of cover

most suitable for a particular situation. Within

Asia, Marsh has trade credit expertise in

Singapore, Indonesia, Malaysia, Thailand, India,

Hong Kong, China, Korea, Japan, Taiwan and

Philippines. Marsh also works extensively with the

underwriters to expand market capacity and

develop improved trade credit products.

For more information, please contact Richard

Green, Marsh’s Trade Credit and Political Risk

Leader for Asia on [email protected].

9 Marsh

AFTER THE STORM:SUPPLY CHAIN LESSONS FROM 2011’S CATASTROPHES IN ASIA

Asia’s manufacturing output is among

the largest in the world, with its supply

chains delivering products and services

to market better, faster, and cheaper

than ever before.

Yet the natural catastrophes of the past

18 months have exposed significant

gaps in supply chain resilience.

This issue is quickly gaining C-suite and board-level

attention, as businesses look to ensure they are can

bounce back quickly in the face of the next big

disruption.

Asia is booming with manufacturing activities and

opportunities. Fierce competition to get the most out of

the market has driven innovative supply chain strategies

which are boosting capacity, cost competitiveness, and

speed to market. ‘Just in time’ manufacturing, single

sourcing, and off-shoring have created a lean, fast

moving, and constantly evolving flow of global trade.

At the same time, however, greater reliance on

interdependencies, connectivity and synchronisation of

multiple supply chains means that organisations

operating in today’s global marketplace are exposed to a

host of increasingly complex and interrelated supply

chain risks.

Organisations are more vulnerable than ever to the

impact of a disruptive event. In fact, many executives

around the world now cite supply chain risk, more than

any other, as having the greatest potential to disrupt

their revenue drivers.

In the past 18 months alone, a number of natural

catastrophes have provided a stark illustration of their

debilitating effect on international supply chains.

Flooding across Thailand in the second half of 2011

severely disrupted the country’s manufacturing

operations, forcing the closure of at least seven major

industrial estates and more than 14,000 businesses,

suspending the production of cars, electronics and

other goods. The related economic losses have been

estimated at in excess of US$45.7 billion.

Much greater disruption and economic losses of up to

US$235 billion resulted from the earthquake, tsunami

and nuclear catastrophe in Japan in March 2011. Many

key ports were damaged or closed; the global supply of

semiconductor equipment and materials was severely

disrupted; and automakers Toyota, Nissan, Honda,

Mitsubishi and Suzuki suspended production, with the

closure of around 22 plants in the area.

In Australia, severe flooding in 2011 forced the

shutdown of Dalrymple Bay, a critical terminal within the

largest fuel export harbour in the world. With China and

Japan’s heavy industry and manufacturing supply chains

dependent on the coal exports from that terminal, this

single point of supply chain failure put at risk the

production of automobiles, medical equipment,

consumer electronics, heavy machinery and consumer

products.

It is not only natural perils presenting challenges to

supply chains. With operations scattered globally,

companies face a host of perils: terrorism, pandemics,

geo-political and social upheaval, cyber-attacks,

demand variability, diminishing natural resources and

supplier failure all pose increasing risks.


SHINING THE LIGHT ON BUSINESS

RESILIENCE

Research from Gartner shows 80% of organisations

which experience a major emergency or crisis go out of

business.

Research also shows that 92% of organisations without

a business continuity plan do not survive after major

event – 40% never re-open; 40% re-open but fail within

18 months; and 12% reopen but fail within five years.

Mr Moey Park Moon, Marsh Risk Consulting Leader –

Asia, said these stark statistics demonstrate the

increasing importance for organisations to re-evaluate

their business resilience strategies.

“Business disruption is becoming an assumed operating

reality. That means more and more organisations are

looking to gain a better understanding of the critical

interdependencies and supply chain risks along the way

to ensure they are appropriately managing or

transferring their risks,” Mr Moey said.

“No two organisations are the same. Each requires a

solution tailored to its unique supply chain risk

management needs that will ensure the supplier

relationships they rely on will still be there when

needed. They need solutions that are intelligent, agile,

resilient and economically viable.

“With discipline, analytics and decision modelling,

organisations can gain control of their supply chains and

become more resilient in the face of the next

disruption,” he said.

START WITH AN ASSESSMENT OF YOUR

RISKS

An understanding of the ever-changing key risk

exposures in the supply chain is a vital first step in

defining an organisation’s options for recovery and

making sound business and financial decisions about

supply chain risk management strategies.

External risk assessment consultants, such as Marsh

Risk Consulting, are often relied upon for this process,

giving organisation the benefit of industry-specific

expertise, processes and advice. Generally, a risk

analysis will include:

A comprehensive review of the organisation’s

exposures with value segmentation exercises to select

the key product or service for supply chain risk

identification;

A detailed map of the suppliers, supplies, distributors,

and services that comprise the critical,

interdependent resources of your supply chain;

Identification of single points of failure, triggers, and

current mitigation strategies with a financial

quantification of the impact of disruptions to

suppliers, supplies, and services; and

Prioritisation of supply chain risks so that customised

mitigation and transfer options can be efficiently

allocated.

Mr Moey said the information gained through this

process helps an organisation better understand

potentially critical failure points along it supply chain.

“By identifying what is most critical to a business – such

as a brand, product or service, illuminating

dependencies and sometimes hidden

interdependencies, and the most significant potential

points of failure in a supply chain, organisations are

better able to allocate risk management capital and

management attention,” he said.

“That means they can resource appropriately to achieve

adaptive and resilient supply chains, putting them in a

better position to respond to sudden disruptions.”

Information gained through this process can also

improve competitive advantage and reduce costs.

“Supply chain resiliency analytics can enable an

organisation to model return on risk investments. It

helps answer questions – should we have one versus

two distribution or manufacturing centers? Should we

have one, few, or many alternate suppliers for a specific

component?” Mr Moey said.

11 Marsh

“It can also aide the modelling of resiliency return on

investment on fill rates and the distribution of inventory

across the network and safety stock levels. This helps

decisions, such as does the financial benefit from

inventory diversification exceed the carrying costs of an

additional distribution center?

“In doing so, analytics can identify lower cost options,

while giving an organisation greater insight into

suppliers’ risks. It helps an organisation improve its

competitive position; lowers supplier risk and costs; and

leads to greater supplier resiliency including the ability

to detect and response more quickly to critical risks,” Mr

Moey said.

BUSINESS CONTINUITY PLANNING:

PREPAREDNESS IS ESSENTIAL

The insights gained through a risk analysis will directly

influence an organisation’s business continuity plan.

Every business should have a robust and holistic plan to

secure its long term viability.

Fundamental elements of that

plan must be strategies to

mitigate risk, preserve the

health and safety of

employees, transfer risk and

ensure business continuity.

A recent survey of CEOs on

Supply Chain management by

Forrester showed that only

24% were confident they could

transfer production from one

plant to another. Such a high

reliance on a single point

indicates vulnerability in the

case of a major disruption. See

Figure 1.

Business continuity planning involves developing – and

constantly testing and evolving – a practical plan for

how a business can prepare for, respond to and recover

as quickly as possible after an incident or crisis. While it

is almost impossible to predict every kind of incident

that could threaten a business, every business can

prepare for a range of incidents.

By working with business continuity experts, companies

can better understand the risks they face and better

prepare themselves to prevent, control and mitigate

them, however unlikely they might seem. See Figure 2.

TRANSFERRING RISK – WHAT ARE THE

INSURANCE OPTIONS?

The final element of a holistic supply chain risk

management program is insurance. Expert risk analysis

can help to make qualified decisions about the right

insurance cover structure and price.

Depending on the needs of an organisation, risk

managers often look to business interruption insurance,

contingent business interruption insurance and more

recently supply chain insurance products.

With Preparedness

Business Advantage

Speed of Recovery

WithoutPreparedness

Revenue

With PreparednessWithout Preparedness

Time

Negative impact

Preparedness reduces

the negative impact

and speeds recovery

results, reputation and

key relationships

Negative impact

Crisisevent

Figure 1

Figure 2

Forrester research survey

Supply Chain Management

interview with CEOs


Business interruption insurance covers the loss of

income that a business suffers after a disaster while its

facility is being rebuilt. It typically covers the profits that

would have been earned; operating expenses and other

costs still being incurred by the property; and some

policies cover the extra expenses for moving to, and

operating from, a temporary location and

reimbursement for reasonable expenses that allow the

business to continue operation while the property is

being repaired.

Contingent business interruption insurance reimburses

a business for lost profits resulting from an interruption

of business at the premises of a customer or supplier.

The cause of the interruption must be from a covered

peril and must result in physical damage that inhibits

the third party from being able to supply or receive the

insured’s goods.

Supply chain insurance products, although similar to

contingent business interruption, are broader. In

addition to cover for physical damage to a supplier or

customer, supply chain insurance products also offer

businesses protection against both physical and non

physical interruptions to their business, such as strikes,

riots, ingress/egress and pandemics or any peril that

interrupts a company’s supply chain. This type of policy

is often considered by companies with complex logistics

or those that rely heavily on select suppliers/vendors.

Mr Moey said that in addition to selecting the most

appropriate policy, it is also vital for organisations to

ensure they have enough insurance coverage.

“Carrying too little insurance can have serious

consequences in times of potential disaster,” he said.

“Quite often, underinsurance only becomes apparent

when it is too late, and the consequences can be

unexpected and severe. While a number of factors can

contribute to a business underinsuring, the main causes

fall into two key categories – inaccurate valuations. A

business which fails to adequately insure is at risk of

experiencing significant financial loss and potential

failure.”

Given the complexities and risks involved in accurately

valuing the replacement cost of assets, it makes good

business sense to appoint an insurance valuation expert.

An independent, defined, accurate, professional

approach to valuation devolves the burden of

determining the replacement value from the business.

HEEDING THE LESSONS OF DISRUPTION

As the natural catastrophes of the past 18 months have

shown, significant supply chain disruptions can reduce a

company’s revenue, cut into its market share, inflate its

costs and threaten production and distribution. It can

also damage a company’s reputation, credibility among

investors and competitive advantage.

Opportunities exist for companies to invest in effective

supply chain risk management programs which can

reduce their chances of suffering a ‘fatal’ business

disruption. Taking an holistic, enterprise wide approach

involves:

Performing regular asset valuations (replacement

values);

Performing pre-loss business interruption assessment;

Ensuring business continuity management plans are

in place and tested regularly;

Mapping supply chains and contingency plans; and

Reviewing insurance policy wording and limits.

Marsh Risk Consulting works with clients to

offer customised, innovative solutions across a

comprehensive range of insurable and non-

insurable risks. Our seasoned consultants

provide the specialised expertise required by

today’s organisations to effectively manage risk,

meet business objectives, realise opportunities,

and be successful. In Asia, Marsh Risk

Consulting has particular expertise in supply

chain risk management, business interruption

and business resiliency planning.

For more information, please contact Moey Park

Moon, Managing Director for Marsh Risk

Consulting in Asia on parkmoon.moey@marsh.

com.

13 Marsh


COST REDUCTION AND EMPLOYEE LOYALTY: AN IMPOSSIBLE TASK?

The rising cost of health care is one of

the most significant issues facing

employers in Asia today.

While striving to protect their employee

benefit programs which are important

tools in the war for talent, employers

are concerned about their ongoing

ability to fund those benefits.

As employers reassess their employee

benefit strategies, creative solutions are

being sought to meet this growing

challenge.

The quest to find and keep high quality employees is

more intense than ever across Asia.

To gain competitive advantage in this battle, firms are

increasingly looking to differentiate themselves by

evolving their employee value propositions to offer a

broad package of employee benefits beyond simple

financial reward.

In particular, health insurance provision by employers

has grown exponentially and is rapidly becoming the

most valued employee benefit, particularly in

developing markets. This reflects companies’ growing

recognition that poor workforce health, as well as

medical and disability costs, are a drag on productivity

and financial performance.

As demand for these benefits has grown, so too has the

cost of providing them.

This spiralling and often unsustainable cost is

compounding the existing financial pressures felt by

organisations, many of which continue to manage

through the current global economic uncertainty.

But with more than one third of Asia’s firms experiencing

employee turnover rates of 10 - 20%, the struggle to

attract and retain talent means organisations are loathe

to cut back their employee benefit programs.

Instead, they are looking to reinvent their strategies,

embracing innovative ways to deal with the immediate

need to contain costs, and instituting longer term

‘wellness’ solutions to curb the underlying cost drivers.

RISING COSTS AND SHIFTING LANDSCAPE

Data shows health and medical costs have risen rapidly

since 2006 in nearly all global markets. Many countries

have experienced double-digit growth often exceeding

general inflation.

Across the Asia Pacific region, health insurers

experienced a medical cost increase trend of more than

10% in the past year, and there is little relief in sight as

higher trends are projected.

Many factors are driving healthcare cost increases. The

ageing of populations, growing incidence of chronic

disease due to lifestyle changes, and prevalence of

infectious disease in Asia are contributing to claims

inflation. Overuse of care and expensive new medical

technologies are also contributing to higher costs.

15 Marsh

Compounding this inflationary trend, policy changes are

dramatically altering the healthcare marketplace,

resulting in increased cost-shifting from government to

employers and their employees.

For example, China recently enacted the ‘Interim

Measures for the Participation in Social Insurance of

Foreigners Employed in China’ which requires that

foreigners legally employed in China maintain basic

pension insurance, basic medical insurance, work-

related injury insurance, unemployment insurance and

maternity insurance.

As a result of all of these trends, the vast majority of

employers across Asia expect their employee benefits

package spend to increase in 2012.

CREATIVE, SUSTAINABLE SOLUTIONS

While many employers are heavily focused on the

immediate challenge of containing costs, there is

growing recognition that sustained savings can only be

achieved through building a healthy and engaged

workforce.

According to Rosaline Chow Koo, Mercer’s Asia Pacific

Business Leader, Employee Health and Benefits, said

many employers have been forced to rethink traditional

approaches to achieve this.

“There’s a growing acceptance that not only is employee

health key to the ongoing success and competitiveness

of a business, there are in fact huge costs associated

with not having a healthy and engaged workforce,” Ms

Koo said.

“This means employers throughout Asia are beginning

to think about this issue through dual lens. On one

hand, they are rethinking the design of their employee

benefits program and how it’s delivered, to ensure it is as

cost effective as possible.

“On the other hand, they are also looking to tackle the

underlying trend of rising healthcare claims costs by

incorporating health and wellness programs as part of

their overall approach to employee benefits.

“By adopting a combination of these short- and long-

term approaches employers can help their employees to

live healthier lives, which can reduce health care costs,

improve productivity, and lift employee engagement – all

leading to sustained cost effectiveness,” Ms Koo said.

In reviewing the design of employee benefit plans with

an eye to cost containment, a number of trends are

emerging across Asia.

Many are moving towards programs which cater to the

needs of specific employee segments, rather than

offering a ‘one-size-fits-all’ approach. Young single

employees, for example, have very different needs than

older employees with families.

Ms Koo said to achieve this employers are turning to

solutions such as flexible benefits, which encompasses a

menu of benefits and cost-shifting mechanisms.

“Offering flexible benefits allows employees to choose

the mix of health insurance and other benefits that suit

their personal needs. At the same time, it increases the

employer’s control over total benefit spending. The cost-

shifting aspect of this solution can reduce employer

expenditures as healthcare costs continue to rise,” she

said.

Other breaks in traditional approaches are also emerging

to contain costs, according to Ms Koo.

“Employers in India, for example, are rethinking their

traditional approach toward providing medical coverage

to parents of employees,” she said.

“In Singapore and Hong Kong, more employers are

incentivising employees to use the region’s high-quality

public health facilities instead of expensive private

hospitals and, in the Philippines, hospital deductibles are

being introduced to discourage unnecessary hospital

stays,” she said.

While these solutions address the immediate need to

optimise costs, tackling the underlying claim inflation

trend by improving the health of a workforce is fast

becoming viewed as the key to sustained cost savings.


“Viewing health management as an integral feature of an

overall employee benefits plan represents a fundamental

shift from a single focus on reducing premiums to a

complementary focus on claims reduction through

having a healthier workforce,” Ms Koo said.

“This dual focus ensures an organisation is achieving the

most competitive price for its health care plan, while also

managing the underlying cost by addressing a much

wider range of cost drivers.”

Offering wellness programs to build a healthier

workforce not only minimises expenses such as medical

claims, absence, and disability rates, it can also:

Mitigate the risk of damage to the business – poor

health can contribute to higher incidences of safety

breaches, business continuity failures, and reputation

and financial harm;

Improve productivity – ill health can affect customer

service, creativity, and decision making;

Differentiate companies as ‘employers of choice’,

which increases brand equity, helps to attract

employees, and enhances preference among

customers;

Boost employee loyalty and retention, thereby

reducing the costs associated with employee

turnover; and

Generate a positive return on investment.

Across Asia, a number of wellness and health

management trends are emerging.

In China, for example, where manufacturing and

construction projects are innumerable, employers are

proactively undertaking ergonomic assessments to

reduce worker injuries. In India, a growing number of

organisations are addressing rising levels of chronic

disease such as diabetes by providing proactive health

coaching.

Joan Collar, Marsh’s Asia Business Leader, Employee

Health and Benefits said optimising employee benefit

plan design also requires a review of plan delivery costs.

“Employers are looking to ensure their plan has the most

efficient vendors, processes, accuracy, timeliness and

quality. This includes evaluating which aspects of

program administration to retain in-house versus

outsourcing to insurance brokers thereby reducing

internal administrative expenses,” she said.

COST REDUCTION AND EMPLOYEE LOYALTY

IS POSSIBLE

As the world emerges from the global recession, the

window is now wide open for employers in Asia to create

an employee benefit arsenal to attract the best people to

their workforce and, very importantly, retain them.

There is no doubt surging healthcare costs are a key

influence on how companies reassess their employee

benefits plans. But rather than cut back on benefits,

employers should look to creative, targeted and

integrated solutions which are more cost effective today

and can improve workforce productivity over the longer

term.

To create the best solution, employers are increasingly

relying on their benefit advisors for assistance with plan

design, including wellness solutions, as well as

regulatory compliance, reporting requirements,

employee communication and enrolment, and

administration.

Success in this field is possible, but takes time to build.

Employers are well advised to start now in designing a

creative solution which best suits the needs of their own

unique workforce.

17 Marsh

ABOUT MERCER MARSH BENEFITS

Mercer Marsh Benefits provides clients with a single source for managing the costs, people risks, and

complexities of employee benefits. The network is a combination of Mercer and Marsh local offices around

the world, plus country correspondents who have been selected based on specific criteria. Our benefits

experts, located in 135 countries and servicing clients in more than 150 countries, are deeply knowledgeable

about their local markets. Through our locally established businesses, we have a unique common platform

which allows us to serve clients with global consistency and locally unique solutions.

IMPORTANT NOTICE: This document does not constitute or form part of any offer or solicitation or invitation to sell by either Marsh or Mercer to

provide any regulated services or products in any country in which either Marsh or Mercer has not been authorised or licensed to provide such

regulated services or products. You accept this document on the understanding that it does not form the basis of any contract.

The availability, nature and provider of any services or products, as described herein, and applicable terms and conditions may therefore vary in

certain countries as a result of applicable legal and regulatory restrictions and requirements.

Please consult your Marsh or Mercer consultants regarding any restrictions that may be applicable to the ability of Marsh or Mercer to provide

regulated services or products to you in your country.

For more information, please contact Joan Collar, Marsh’s Employee Health and Benefits Leader for Asia on

[email protected] or Rosaline Chow Koo, Mercer’s Employee Health and Benefits Leader for Asia

Pacific on [email protected].

19 Marsh

MARSH ASIA OFFICESFor further information, please contact your local Marsh office or visit our web site at: www.marsh-asia.com

CHINA

Marsh (Beijing) Insurance Brokers Co.

Ltd.

Unit 1506,North Tower,

Beijing Kerry Centre,

1 Guang Hua Road, Chao Yang District,

Beijing 100020, P.R. China

T: +86 10 6533 4000

F: +86 10 8529 8761

F: +86 10 8529 8762

HONG KONG

Marsh Hong Kong

26th Floor, Central Plaza

18 Harbour Road, Wanchai

Hong Kong

T: +852 23017000

F: +852 25763340

INDONESIA

PT Marsh Indonesia

Sentral Senayan II,

15th Floor Jl. Asia Afrika No. 8

Jakarta 10270, Indonesia

T: +62 21 5790 0110

F: +62 21 5790 0120

GUAM

Marsh Micronesian Inc.

Suite 105, Tumon Bay Business Center

919 Pale San Vitores Road,

Tumon Guam 96913

T: +1671 646 6713

JAPAN

Marsh Japan, Inc.

Marsh Broker Japan,Inc.

Tokyo Opera City Tower 38F,

3-20-2 Nishi-Shinjuku

Shinjuku-ku, Tokyo 163-1438

T: +81 3 5334 8200

(Marsh Japan Operator)

T: +81 3 5334 8290

(Marsh Broker Japan Operator)

KOREA

Marsh Korea, Inc.

5F Seoul Finance Center

84 Taepyungro 1ga, Jung-gu

Seoul 100-768, Korea

T: +82 2 2095 4700

F: +82 2 775 2325

MALAYSIA

Marsh Insurance Brokers

(Malaysia) Sdn Bhd

Unit B-9-1, Level 9

Block B, Menara UOA Bangsar

No 5, Jalan Bangsar Utama 1

59000 Kuala Lumpur Malaysia

T: +603 2302 8488

F: +603 2301 0913

PHILIPPINES

Marsh Philippines, Inc.

19/F Citibank Center

Paseo de Roxas, cor. Villar St.,

1226 Makati City, Philippines

T: +632 902 3000

F: +632 751 6202

F: +632 751 6204

SINGAPORE

Marsh (Singapore) Pte Ltd

8 Marina View #09-02

Asia Square Tower 1

Singapore 018960

T: +65 6922 8388

F: +65 6333 8380

TAIWAN

Marsh Ltd., Taiwan Branch

3F, No. 2, Sec. 3, Minquan East Road,

Taipei, Taiwan 104, R.O.C.

T: +8862 25189998

F: +8862 25182188

F: +8862 25180388

THAILAND

Marsh PB Co., Ltd.

10th Floor, UBC II Building

591 Sukhumvit Road

Klongton Nua,

Wattana Bangkok 10110

Thailand

T: +662 695 7100

F: +662 262 0080

VIETNAM

Marsh Vietnam Limited

6th Floor, Nguyen Hue, District 1

Ho Chi Minh SR, Vietnam

T: +848 38227456

F: +848 38227343

The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding

any individual situation, and should not be relied upon as such. Insureds should consult their insurance, legal and other advisors regarding specific

coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Marsh cannot

provide any assurance that insurance can be obtained for any particular client or for any particular risk.

Marsh is part of the family of Marsh & McLennan Companies, including Guy Carpenter, Mercer, and the Oliver Wyman Group (including Lippincott

and NERA Economic Consulting).

Copyright © 2012 Marsh Inc. All rights reserved. www.marsh.com

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