a hukou book’s photo (photo by Chengdu Living)

A Chinese migrant worker couple Jianhong Fang and Zhou Wang have worked in Suzhou, one of wealthiest cities in China with high GDP per capita 145,205 CNY (21,868 USD), for the past 15 years. They work at the same electronic factory, earn money to support their daily lives and send the rest of the earnings to their parents and eight-year-old son Ming Wang.

Ming Wang has studied at his hometown Yancheng with his grandparents for the past eight years. Although in the same province, Yancheng’s economic development is much slower than Suzhou does. The city’s GDP per capita was 58,299 CNY (8,780 USD) in 2015, 0.4 times of Suzhou’s GDP per capita.

What has distinguished Ming Wang and his parents is the hukou system, a household registration system that the government has implemented to allow each citizen to only enjoy their social benefits in the registration place and then control population imbalance within big cities.

According to the China Labour Bulletin, there were more than 287 million rural migrant workers in 2017, making up 36 percent of the entire working population in China. Because of the natural drive of the economy, workers who were born in an urban area tend to search for a job in a metropolitan area. China’s economic rise has relied on these rural migrants.

Although some workers may access the healthcare and social benefits of their working cities by having their employers paid accumulation funds for them, their children usually cannot go to school in their working cities.

Ming Wang’s hukou is in Yancheng. So, without giving up their satisfying jobs in Suzhou, Fang and Wang may never live together with their little son.

Children like Ming Wang have been called “left-behind children,” which means migrant workers have left their children with family members, usually children’s grandparents, in their hometown.

At the end of 2015, Fang and Wang decided to have a second child after the Chinese Communist Party announced the new two-children policy, which allows Chinese couples to have two children without paying extra fees, would replace the old one-child policy.

After one year, their second son Jin Wang was born. Fang and Wang said because of the revision of the hukou policy in 2014, they may be able to let their second son to be educated in Suzhou.

 

The History & Revision of the Education Hukou Policy

 

The vast population of China requires its government to control labor distributions within each region more effectively. Therefore, since 1949, the Chinese government has used the hukou system to assign each citizen a household registration identity. Each citizen has a hukou that demonstrates his or her name, date of birth, citizen identity number and, most importantly, birthplace. This is a pass for everyone to access education, healthcare, housing and other social benefits locally.

In 1949, due to the lack of transportation and slow-development of the economy, most Chinese citizens tended to stay where they were born.

The hukou system had its first revision in 1958 that set a rural and urban divide. Specifically, children were required to stay at their hukou registration places to achieve an education. However, more migrant workers wanted their children to go to school in the city they worked. For example, although Ming Wang was born in Suzhou, he was still defined by the policy as a migrant child and should go back to his parents’ household registration place to achieve an education. In 2001, 20 percent of the youth population in China were migrant children.

Therefore, hukou policy had its second revision in 2014, which allows migrant children to go to school in cities. This is why Jianhong Fang and Zhou Wang couple immediately had their second child after the new hukou policy and the two-child policy was published.

The Chinese central government and the education department have designed to allow migrant children to receive education in cities. Based on the Chinese Ministry of Education policy, all migrant children are encouraged to complete nine-year compulsory education (six-year elementary school and three-year middle school) in the city that their parents work. According to China’s mandatory education policy, public school usually charge a small fee, which is about 700 CNY (100 USD) per semester.

Zhou Wang said they would keep their second son with them this time.

 

Where Can Migrant Worker’s Children Get Educated In The Cities Now?

 

Public School

Based on the education policy, the education cost of a public school should have no significant difference with a migrant school. Therefore, if given a fair chance, most migrant parents would choose a public school for their children due to the experienced teachers and good-quality equipment there.

However, discrimination among migrant students is still alive at most public schools in the cities, according to the new analysis in the Global Education Monitoring Report.

Reputable public schools in the cities have the right to fill up local students first and usually leave no space for migrant students. Even when some public schools open some seats, local governments and schools request burdensome paperwork to each migrant applicant. For example, in Suzhou, migrant parents need to present at least five supporting documents, which can be proof of residence, temporary resident permit, work permit, income report, place of origin certificate, etc. Human Rights Watch reported that over 90 percent of migrant families could not obtain these documents.

Although public schools are not allowed to charge extra fees to migrant students, some public schools may still request different kinds of renamed fees such as school selection fees, miscellaneous fees or out-of-district fees.

Additionally, transportation is another extra cost for migrant parents who live on the border of the urban and rural area. In Shanghai and Beijing, migrant workers need to reach certain social credits to purchase a car. However, even the point system application process is overwhelming for most migrant workers. Also, the Chinese government has imposed heavy taxes on automotive goods. Therefore, it usually costs a migrant student more than two hours to reach his or her school by public transportation.

These obstacles have forced migrant students to either choose migrant schools or return to their hukou registration places.

Migrant School

Migrant schools, which usually run privately, are a type of schools designed for migrant students who are not accepted by public schools.

For most migrant parents, migrant schools are always their second option. Unlike well-equipped public schools, migrant schools lack teachers, nutritious food supply, facilities and sometimes even licenses.

Some teachers in migrant schools are retired teachers or volunteers or young graduates. According to the 2013 China Labour Bulletin report, the turnover rate among migrant school teachers was about 51 percent in Beijing because most young teachers treated migrant school positions as their stepping stone to public schools.

The overcrowded public facilities and unqualified lunch is another serious issue. Because migrant parents often busier and pay no attention to children’s dinner food, the limited access to drinking water and poor nutrition food at school make children’s health problems worse.

More importantly, the old migrant education policy didn’t allow any private migrant schools; therefore, most current migrant schools are still illegal or have no teaching licenses. In 2011, the Beijing government closed more than 20 local migrant schools.

According to a recent NPR report, a Beijing migrant school’s volunteer said that her students and their parents feel like being kicked out by the city if the government closes their school.

Although the new migrant education policy was published in 2014, it hasn’t spurred some local governments to build more legal migrant schools. So, the plan has not reached out the majority of the migrant population.

 

What Has Caused Returned Students?

 

Migrant workers’ children have made up one of the third student population in China. The new hukou policy has planned to solve their education difficulties. Nine-year compulsory education is one of the most important strategies.

However, discrimination in migrant education cannot be eradicated overnight. ‘Returned children’ refer to the students who have to return to their province of origin after finishing the nine-year compulsory education in the cities.

Furthermore, they have to achieve higher education and take the college entrance examinations, also called gaokao, where their hukou is registered.

The gaokao policy is another invisible disadvantage coming from these children’s hukou. For students who have a hukou of big cities such as Shanghai and Beijing, their college entrance examination is usually designed relatively easy.

In China, most parents have a higher expectation on their children to go to an ideal college because they believe that gaokao is a fair game for every student. If a student wins this game, he or she may have a better chance to enter the middle class. However, the Chinese government still wants to control the population imbalance within a large country. When migrant students pass the scoreline of universities in big cities, they can temporarily hold a city hukou based on their school certificates. The local governments and universities have set score barriers preventing a large number of other provinces’ students from entering their ideal universities.

For example, in 2016, Tsinghua University and Peking University, the top 2 universities in China that located in Beijing, accepted 84 students out of every 10,000 Beijing students and less than three students out of every 10,000 students from other provinces.

Without achieving good-quality education, Ming Wang may never be able to compete with students who have a city hukou. When asked Jianhong Fang and Zhou Wang what kind of future they want for their second son, they said they don’t want Jin Wang to follow Ming Wang’s road.

 

With 130 million subscribers, reaching an estimated 300 million people worldwide, Netflix has become an international phenomenon that has millions of people now binge-watching a variety of TV shows and movies. Netflix has completely disrupted and changed the distribution and content creating landscape in the entertainment industry. What started as a DVD rental delivery service has transformed into a streaming service spending over $11 billion a year on creating original, exclusive content. Netflix has effectively put Blockbuster out of business, is shrinking cable companies by the quarter and has studios scrambling to innovate to avoid being the company’s next casualty. The enormous effect the streaming giant has had on entertainment has led people in the industry to coin the term, “the Netflix effect.”

After Reed Hastings walked into a Blockbuster in 1997 and paid $40 in late fees after returning his VHS copy of Apollo 13, he came up with the idea of Netflix. Blockbuster operated 10,000 stores at its peak and had a market value of $5 billion in 2002 (Harvard Business Review). A company that once seemed unbeatable was being disrupted by a company that offered a more convenient business model and was significantly less expensive – especially without the dreaded late fees. At its beginnings, Netflix was a competitor of Blockbuster but not yet close to putting it out of business. Ironically, in the early 2000s, CEO Reed Hastings wanted Netflix to be bought by Blockbuster. When a deal wasn’t met, Netflix continued to grow on its own. Hastings clearly saw the opportunities the internet offered, and he invested in streaming. In 2007, Netflix launched its streaming service – they were no longer offering the same service as Blockbuster, they were offering more, and at a cheaper price. By 2010, Blockbuster filed bankruptcy and four years later all Blockbuster stores were closed.

Netflix has continued to expand its business, launching its first piece of original content in 2013 with House of Cards. At this point, their stock (NFLX) began to sky-rocket and their number of subscribers domestically and internationally were growing rapidly.

The vast amount of content Netflix was offering – from people’s favorite old TV shows to movie classics to fresh, original content – was extremely valuable to customers, at a still very low monthly fee. Studios and networks were benefiting off of Netflix as well; they were now able to sell Netflix TV shows and movies that had been collecting dust in their archives for years, and begin to make money off of that property again. It is cable companies who began to see “the Netflix effect” after the launch of original content in 2013, and have suffered tremendously ever since.

Netflix subscribers doubled from 2012 to 2017 while cable subscriptions were simultaneously declining quarter after quarter. In 2017, total Netflix subscribers surpassed total cable subscribers in the United States (Forbes).

More and more people started to see the value in cutting their expensive cable subscriptions for cheaper, commercial-free content. This had led cable providers, like Xfinity, to launch their own streaming services. But these have not been successful – live sports are the only thing keeping cable companies afloat at the moment.

As of December 2016, Netflix had a 75 percent market share in the streaming services market. YouTube was closest behind, at 53 percent, while Hulu, Amazon and HBOGo were all competing closely for market share (TechCrunch). While Netflix still maintains its dominance in the market, the landscape of competitors is about to drastically change, with traditional studios entering the market.

Netflix is now heavily spending on original content and this has studios, who were once working harmoniously with the company, trying to compete directly with them through launches of their own streaming services. Disney pulled all of their content off of Netflix earlier this year in preparation for the launch of their direct-to-consumer service, Disney+. Similarly, WarnerMedia has announced they are launching a streaming service, using their library of 7,000 films and 5,000 TV shows in order to attract customers.  Additionally, there have been massive moves towards consolidation in the industry – most recently with Disney purchasing 21^st Century Fox, effectively eliminating an entire studio. Disney now has more content at their disposal, and one less competitor trying to edge out Netflix.

Netflix has been challenging the studio system for a few years now, forcing them to modify their traditional practices. They have lured some of the most coveted industry talent away from their long-time studio homes with enormous contracts. Ryan Murphy, creator of Glee and American Horror Story, signed a $300 million deal with Netflix, leaving 21^st Century Fox. Creator of Grey’s Anatomy, Scandal and How to Get Away with Murder, Shonda Rhimes, left ABC (Walt Disney Co.) after over a decade for a $150 million deal. These deals have not only increased hostility between Netflix and studios, but they have changed the entire economic system of the industry. Producers used to own a piece of their shows outright, potentially earning hundreds of millions of dollars by selling the rights to reruns. Tom Werner, for instance, made enough money from The Cosby Show and Roseanne to buy a sports team. Friends creators and talent are still earning residuals every time an episode is aired on Nick At Night or TBS – or sold to Netflix. There’s no back end on Netflix. “You get more upfront with less risk, but potentially less upside in success,” explains Chris Silbermann, Rhimes’s agent at ICM Partners. Rhimes now is working on developing and producing several shows at once through Netflix, something she would not have been able to do at ABC.

In order for studios and networks to maintain their top talent, they must now offer extremely competitive contracts to their employees. Warner Bros. recently offered one of their star producers, Greg Berlanti, a contract worth $400 million to stay at Warner Bros. until 2024. Berlanti currently has fifteen shows on the air, the most of any TV producer in history. Warner Bros. cannot afford to lose him and his success, so they must pay the extremely high price that Netflix has set for them. Lionsgate and Disney have made similar deals with their top executives. Traditional studios are tired of Netflix, and they are beginning to fight back relentlessly. A talent agent at Creative Arts Agency, Joe Cohen, has noted how harsh of an environment this has become in the industry, “There is a lot of crazy stuff happening in the market today, and there is an aggressive dividing line between what is now considered old media companies and new media companies.” This is a line that old media companies are trying to blur as much as they can, and have put an enormous amount of their efforts and money into doing so.

All of these major changes in the entertainment industry prompted by Netflix’s disruption are so significant, and have gained so much media attention, because the industry has not shifted this much and this dramatically since 1948. Then, the supreme court hearing, United States v. Paramount, ended studios being able to own theaters and exclusively show their own movies at those theaters. The studio system completely collapsed and studios were forced to adjust. Now, the old media companies, which now encompass the studios, must adjust to the disruptions caused by Netflix and begin to innovate themselves. The result is an aggressive environment, with no signs of the growing disruptor slowing down. For reference, AT&T shares have sunk 15 percent in five years compared to a 480 percent rise for Netflix.  (The Hollywood Reporter)

With all of Netflix’s massive successes – unbelievable subscription numbers, huge international reach and 112 Emmy nominations in 2018 – it is easy to overlook their massive debt problem. They spent $11.7 billion on new content in the last year, but only brought in $14 billion in revenue. The reality is, Netflix is a barely profitable company that has approximately $10 billion in outstanding debt, with no signs of slowing down on their spending. Steven Birenberg, founder of Northlake Capital Management, notes, “Netflix seems to have proved that a model of all types of content, all genres for all people, can be successful — at least if success is measured by subscribers.”

With more players entering the direct-to-consumer market, many industry professionals are wondering how sustainable Netflix’s business model is. Many financial analysists already believe that Netflix stock is overvalued, but when their market share soon begins to be eaten into by streamers with a library of premium content, they will no longer have such a unique business. Big tech companies like Amazon and Apple, who have a lot of money to spend, are also working for their share of the pie in the streaming space. With the potential of Netflix being disrupted itself in future years, investors will likely take notice to the change in landscape and urge Netflix to cut back its spending in order to maintain long-term success. Already in the last six months, NFLX stock has declined dramatically – a perceived correction of an over-evaluation by analysts and investors.

Not only are all of these changes affecting companies internally, and within the Company Town of Los Angeles, but navigating this new landscape poses a potential challenge for consumers. It will be a battle among marketing and public relations professionals to communicate to them in the future. Will a single household be subscribing to Netflix, Hulu, HBOGo, a Disney service and a Warner Bros. service? Or will there be even more consolidation?

 

Sources:

https://www.hollywoodreporter.com/news/netflix-effect-can-rivals-compete-by-bulking-up-content-1162416

https://www.hollywoodreporter.com/features/welcome-hollywoods-new-age-anxiety-1127792

https://www.forbes.com/sites/ianmorris/2017/06/13/netflix-is-now-bigger-than-cable-tv/#217b95cf158b

https://hbr.org/2013/11/blockbuster-becomes-a-casualty-of-big-bang-disruption

https://www.latimes.com/business/hollywood/la-fi-ct-att-streaming-service-20181010-story.html

https://www.bloomberg.com/news/articles/2018-10-04/netflix-is-forcing-hollywood-into-a-talent-war

Netflix reaches 75% of US streaming service viewers, but YouTube is catching up

Widespread fires burn through thousands of California homes year over year. This doesn’t only affect the homeowners and their families but also lays immense pressure on firefighters in these dry areas in addition to the struggles of insurance companies that insure these households and properties that are prone to blow up in flames.

The aftermath of recent Northern California wildfire. Source: NBC News

Considering the recent fires burning through Northern and Southern California, I am discussing the economic impact that this disaster-prone state has on insurance companies. As one of the driest states in the United States of America, it seems like insurance companies struggle as California officials don’t do much to mitigate these risks. There is not much of a boundary for homeowners to build on land that is so dry that the probability of a wildfire is high. It feels like these fires that happen on a yearly basis are not enough for someone to take a step in the direction for safer housing, which would result in insurance companies saving money, as well. While public resources are spent defending or salvaging what is left of those homes which shouldn’t have been built in the first place, insurance companies must defend themselves or they are at risk for driving themselves out of business.

As California residents sift through the ash and hope to rebuild, funds may be insufficient, as insurance companies don’t need to cover one homeowner’s lost property, but the entire community (if not more). According to a Forbes article discussing insurance and loss of use for the recent victims of the Woolsey and Camp Fire in Los Angeles and Ventura County, “What is often overlooked is loss of use coverage. How long will it take to repair or rebuild?” (Gorman). Loss of use, or living expenses during the duration of the recovery process, usually covers living expenses and rental value. Although, not all insurance plans have this, and when a fire causes destruction, Californians may be surprised when their insurance companies don’t fully cover these temporary living costs. Homeowners in these high-risk areas must understand that in cases of natural disasters, they may be left with a much lighter wallet than expected.

According to a Los Angeles Times article discussing fleeing insurers, insurance companies in high-risk areas for natural disasters are no longer agreeing to insure homes. For example, a couple living in Lake County in Northern California is denied insurance. In the area which the couple resides, “50% of the land has been burned by fires in the past several years” (Newberry). With an already expensive premium of $2,100, their rate had skyrocketed to $5,800 in only two years (Newberry). The increase in California wildfires leads to more fleeing insurers. What insurers have continued to do in California is to inflate the price of insurance in high-risk areas to veer builders away from this land, and make home buyers think twice before buying a property with a likelihood to catch fire.

The Los Angeles Times article also provides statistics on the California Department of Insurance: This department acknowledges that the trend of inflating insurance prices is a rational and fair response on the part of the insurance companies. In 2017 alone, they “received nearly $12 billion in claims from wildfires that destroyed more than 32,000 homes. It makes sense that companies will write fewer – if any – policies in areas where they predict losses will outweigh what they can recoup through premiums.

What’s next? Legislators must act to protect home buyers and homeowners who have made efforts to reduce wildfire risk.

The Nature of Wildfires

The risks of more intense wildfires ahead increase due to climate change and the expansion of urban living near forest areas. The geography in California, especially near the coast which is a popular place to live is mountainous and dry. There are dense populations living in California locations which have a high risk of wildfire around them. According to Lloyd’s report, Wildfire: A Burning Issue for Insurers, global warming “is expected to increase average global temperatures and, in some regions, drought frequency and severity will increase” (Doerr). This could lead to a longer season of more frequent fires.

The Lloyd’s report, Wildfire: A Burning Issue for Insurers, also discusses the socio-economic and land use changes in society: “Population growth at the fringe of urban and wildland areas in North America has raised the likelihood of wildfire ignitions, whereas rural depopulation and abandonment of traditional agriculture has led to vegetation build-up, increasing the risk of severe fires” (Doerr).

Not only is it important to understand the weather and living trends of people to analyze potential risk of fires, but sometimes fires start from actions out of our control. Maybe lightning strikes a tree in the middle of a desert, or someone forgot to stop their cigarette from burning. In densely populated areas, accidental human ignitions are a common cause to wildfires. These wildfires pose a threat to lives and infrastructure; massive losses can occur, which will affect insurance companies.

Wildfire Risk

Recently, the insurance industry has taken hit after hit with regards to covering damage due to California wildfires. The threat of wildfires extends beyond the months of summer, but even when the Santa Ana winds blow in the fall.

According to Risk and Insurance’s article about living with wildfire risk, “The evolution of wildfire risks creates challenges for the insurance industry, especially as events occur more often in areas with significant insurance penetration” (Amaral). Therefore, the expected increase in wildfires in urban areas will have some implications for the insurance industry.

Risk and Insurance further discusses the risk management which insurance companies undergo to protect their companies. According to Kevin Van Leer, product manager at RMS (Risk Management Solutions), “‘From a (risk) modeling point of view, probabilistic methods can enable insurers and reinsurers to better manage their accumulations of exposure, particularly in the wildland-urban interface.’ But several challenges remain on proper aggregation of exposures” (Amaral). Factors like the amount of rainfall in the summer and snow in the winter must be considered to understand and mitigate risk. The unpredictability of weather trends leaves insurance companies walking on eggshells deciding which areas to choose are the most prone to yet another fire.

Mitigating Risk

For less houses to be burned down and more healthy and happy humans to live in society, a joint effort between public agencies and private owners is necessary. According to Lloyd’s Wildfire: A Burning Issue for Insurers, “Different public policies can increase the commitment of private landowners, such as subsidizing private spending on fuel treatments, enacting legislation that marries insurance availability and premiums to risk mitigation behavior and providing education about wildfire risk and mitigation. For instance, laws exist in some US states that require fuel treatments on private land” (Doerr). But, why don’t laws exist in all US states, especially the states more prone to fires? Although the government and insurance agencies have taken steps to fix the problem, there is still a long way to go.

Inflated premiums could prove effective, as it would drive away the lower income homeowners that are unlikely to pay a high insurance premium each month. Although, the wildfire risk affecting more valuable homes still poses an issue for insurance companies even if the homeowners can afford it. In a case when the home burns down, the insurance companies are still accountable for paying the losses. Rather than raising premiums in high-risk areas, insurance companies should minimize areas available for homebuilding.

Introducing zoning regulations prohibiting or limiting building in high wildfire risk areas would be a significant advancement in wildfire mitigation.

Often, homeowner’s and insurance agencies’ preferences differ. Neighborhoods form as many homeowners adore the natural aesthetic living in wildfire-prone areas; therefore, effective mitigation should be enforced on a neighborhood level. Insurance companies must zone these high-risk areas by either restricting all homeowners to build property. The other option is restricting none, but inflating the insurance premiums higher than their 3 story roofs. Insurance companies will need to offer similar mitigation efforts for adjacent properties to maintain homeowner trust and commitment.

The “new normal” which insurance companies face is almost double the costs of damages from the previous year. Based on Insurance Journal, an analysis from Moody’s breaks down the losses of the recent fires in Northern and Southern California. The losses in California generated last year were around $12.5 billion, while these recent fires in the past few weeks alone have predicted losses of $6.8 billion— and fire season is not finished just yet (Jergler). With years of wildfire history showing fires worsen year over year, it is shocking to see neither insurance companies or government agencies taking more action to minimize the risk.

What the Future Holds

Milliman, a management consulting published an article written by consulting actuaries David Chernick and Paul Anderson, about how insurance companies react to California wildfires. While California real estate continues to rise, “the amount of coverage selected by policyholders had not kept pace with the increase in home values, especially on policies that were 10 or more years old” (Anderson).

Paul Anderson is asked how wildfires will affect insurers’ future decisions on where to write policies. After a major wildfire, insurance companies will “look to re-underwrite their books to ensure that their exposure and their risk are appropriately spread out in these wildfire-prone areas” (Anderson). Chernick adds that companies should not write insurance policies for an entire area, as a natural disaster can spike the losses if insurance companies write policies for all houses in a concentrated area (Chernick).

Getting insurance is becoming harder as companies reject to insure houses just close enough to the woodlands that a spark of fire could burn up an entire city. There are many of those houses still standing in California. In an article explaining the effect of wildfires on Insurance companies in California published by the Insurance Journal, author Sarah Skidmore Sell discusses that it is harder for in-state residents to find and hold on to insurance (Sell).

“We are not at a crisis point yet, but you can see where the trends are going,” Insurance Commissioner of California, David Jones, stated in an interview (Sell). Jones’ expectations for the future of insurance companies is to “opt not to renew policies or to simply stop writing homeowners policies in areas with the highest fire risk” (Sell). Rate increases and reclassifications of fire-prone areas are also expected.

As claims continue to settle and policyholders and insurance companies undergo huge losses during times of natural disaster, it is shocking that we haven’t seen any necessary corrections in the insurance industry.

Rather than targeting the main issue that has led to the most disastrous fires of all time—climate change—insurance companies are canceling policies, boosting their prices and crossing their fingers that they get lucky enough to insure houses that don’t burn down.

How Insurance Companies Should Protect Themselves

According to the Union of Concerned Scientists, “the effects of global warming on temperature, precipitation levels, and soil moisture are turning many of our forests into kindling during wildfire season” (Is Global Warming Fueling..). The dry and hot areas in California are getting drier and hotter. This article on global warming impacts proves that global warming is a pressing issue that insurers must face: In the western United States, wildfires have been “increasing in frequency and duration since the mid-1980s. Between 1986 and 2003, wildfires occurred nearly four times as often, burned more than six times the land area, and lasted almost five times as long when compared to the period between 1970 and 1986” (Is Global Warming Fueling..).

Mike Scott, a contributor to Forbes who writes about the intersection of the environment and business, questions why insurance companies are not investing in a low-carbon economy. “The impacts of climate-related risks are a growing reality for the insurance sector. This reality has key implications for that sector’s valuation,” the report adds. “Weather-related financial losses, regulatory and technological changes, liability risks, and health impacts related to climate change have implications for the business operations, underwriting, and financial reserving of insurance companies.”Yet, the insurance industry is not aligning itself with initiatives to improve the issues that are causing the insurance companies to bury themselves in their own grave.

 

Works Cited:

Amaral, Rodrigo. “Living With Wildfire Risk.” Risk & Insurance, 12 Sept. 2017, riskandinsurance.com/living-wildfire-risk/.

Anderson, Paul, and David Chernick. “California Wildfires: Implications for Insurers and Policyholders.” Milliman, 2 Nov. 2007, www.healthcarefinancenews.com/news/transitional-policies-risk-corridor-tweaks-bring-new-market-implications.

Gorman, Megan. “What California Wildfire Victims Should Know About Insurance And Loss Of Use.” Forbes, Forbes Magazine, 18 Nov. 2018, www.forbes.com/sites/megangorman/2018/11/13/what-california-wildfire-victims-should-know-about-insurance-and-loss-of-use/#19d68f4e5423.

“Is Global Warming Fueling Increased Wildfire Risks?” Union of Concerned Scientists, 24 July 2018, www.ucsusa.org/global-warming/science-and-impacts/impacts/global-warming-and-wildfire.html#.XAdAky2ZOu4.

Jergler, Don. “How Insurance Industry Might React to ‘New Normal’ of California’s Historic Wildfires.” Insurance Journal, 14 Nov. 2018, www.insurancejournal.com/news/west/2018/11/13/507414.htm.

Johnson, Alex, et al. “ Northern California Wildfires Claim at Least 15 Lives as More Than 100K Acres Burn.” NBCNews.com, NBCUniversal News Group, 10 Oct. 2017, www.nbcnews.com/storyline/western-wildfires/one-killed-major-wildfires-ignite-overnight-across-northern-california-n809206.

Newberry, Laura. “As California Fire Disasters Worsen, Insurers Are Pulling out and Stranding Homeowners.” Los Angeles Times, Los Angeles Times, 31 Aug. 2018, www.latimes.com/local/lanow/la-me-ln-wildfire-homeowners-insurance-20180830-story.html.

Sell, Sarah Skidmore. “Fires May Make It Harder for Homeowners to Get Insurance in California.” Insurance Journal, 14 Aug. 2018, www.insurancejournal.com/news/west/2018/08/14/497977.htm.

 

In popular culture, the line “Follow the money” is associated with Watergate, when Bob Woodward and Carl Bernstein tracked the cover-up of the break-in at the DNC headquarters all the way to President Richard Nixon. A similar version comes in the recent Broadway musical Hamilton, when Thomas Jefferson is pursuing salacious charges that will eventually ruin Alexander Hamilton: “Follow the money and see where it goes.” It is an apposite statement with regard to the 1Malaysia Development Berhad (fund). Today, firms across the world are asking where their money went in the case of the money-laundering Malaysian sovereign wealth fund. Following some initial investigations and findings, Goldman Sachs is in the crosshairs.

The investment firm, long one of the world’s most integral, has come under a barrage of criticism and rhetorical gunfire from Anwar Ibrahim, the likely future Prime Minister of Malaysia. After key Goldman partners were caught bribing and misleading significant Malaysian politicians as part of their dealings and bond underwritings with the country’s sovereign wealth fund 1Malaysia Development Berhad (1MDB), the firm has essentially been labeled “persona non grata” by Malaysia’s new ruling coalition. Goldman could lose out on numerous future contracts and the damage to its reputation will likely last for some time.

Anwar argues Goldman should return “significantly more” than the $600 million the bank was paid for arranging three bond sales in 2012-13 because “it’s a cost to the image of the country, it’s a cost to investments and now it’s a burden shouldered by the government because of the complicity of so many of these so-called credible, renowned financial institutions … For them to use a country like Malaysia — which is struggling to reform itself economically, moving up the ladder — really, to me, it’s disgusting.” [source]

The prime minister has said “aggressive negotiations” with Goldman are necessary, which may result in litigation or having the bank engage in information sharing to support the country’s ongoing probe of the fund.

Not only is Goldman under pressure in the country tainted by the scandal of its own prime minister furthered by financiers like the bank’s senior Asia partners, it is also under serious investigation at home in New York. The US Department of Justice is investigating as well. Goldman share prices have dropped, according to (rival) investment bank Morgan Stanley, by fourteen percent since it was reported that the bank was involved in the sleaziness.

Morgan Stanley analysts write that “It is unclear how long the issue will take to resolve, what the fines and penalties could be, and what costs Goldman Sachs will subsequently incur to satisfy any demands from regulators” [source].

Currently, much of the infrastructure projects developed in conjunction with other nations by 1MDB is under review, and some have even been cancelled — including multiple China-backed pipeline projects. As part of the new government’s relatively icier China stance, the current prime minister, Mahathir Mohamad, “suspended $23 billion in schemes linked to Beijing and criticised “lopsided” contracts as well as potential links to the scandal-ridden fund” [source] [source].  

It is quite possible Goldman could be charged with a violation of the Foreign Corrupt Practices act, and could face a fine of $1.2 billion, double the amount it made on bond underwriting for 1MDB. With the additional lawsuit against Goldman by Abu Dhabi’s own sovereign investment fund that is also wrapped up by the tentacles of the scandal, the bank could end up paying damages that “exceed Goldman’s average annual net profit over three years of $5.4 billion” [source]. While it remains to be seen how much Goldman will end up paying, it is clear the hit to its reputation and the three charges against former partners are just the beginning — the longer this scandal entangles Goldman, the worse it will get.

Black Friday and its shopping craze have been the hallmark beginning of the United States’ holiday season for decades, with the term first becoming popular in print in the 1960s. In years past, the holiday (if one can call it that) has been characterized by eager deal-seekers crowding outside of stores, waiting for midnight to strike so they can grab hot, discounted items before they’re sold out. It has become an iconic sight to see the most intense shoppers actually fight over the last product on the shelf, with many recorded fights turning into viral videos in the process. Black Friday is, after all, the busiest shopping day of the year.

 

Black Friday isn’t just a family shopping tradition — it’s an economic necessity for retail, too. In the U.S. economy at large, consumer spending accounts for about two-thirds of U.S. economic activity, and holiday spending makes up a decent chunk of that. For example, in 2013, the U.S. retail industry generated over $3 billion in sales during the holiday season, accounting for 19.2 percent of the industry’s total sales that year. Additionally, 768 thousand employees were hired to aid with the increase in consumer shopping, according to Statista. After a dip in spending following the 2008 recession, holiday retail sales have continually been on the incline.

Holiday retail sales continue to soar. Source: Statista

Holiday spending in 2018 will be no exception. With the Los Angeles Times reporting high consumer confidence with low unemployment, rising incomes and a greater sense of job security, shoppers are spending enthusiastically. This holiday season, retail sales are expected to total $1 trillion (a 5.8 percent increase from 2017) according to research by eMarketer, and online sales may reach $123.73 billion (a 16.6 percent increase from 2017).

Black Friday 2018 saw record online sales, raking in $6.22 billion, which is up 23.6 percent from a year ago. With that, $2 billion of those sales stemmed from smartphones, according to CNBC.

Increases in e-commerce spending across Thanksgiving weekend. Source: Statista

As Black Friday trends show, online shopping, clearly, is the future of retail. The e-commerce giant Amazon has been at the forefront of consumers’ shift from physical shopping to online shopping. Outside of holiday expenses, Amazon has proven to be strong competition with large brick-and-mortar stores that were once thought to be invincible. Take Macy’s and its iconic red star for instance. In June 2018, the company’s stock price was down 45 percent from its all-time high in July 2015. Additionally, Amazon is estimated to pass the behemoth Walmart and become the top player in the U.S. apparel industry, according to Investopedia.

The increasing popularity of Amazon demonstrates that the e-commerce giant is the prime (pun partially intended) destination for online sales. Source: Investopedia

I don’t necessarily think brick-and-mortar stores are going anywhere because they are still central to the American shopping experience. After all, It wouldn’t be the holidays without someone anxiously running to Best Buy to purchase some discounted 60 in television. The prominence of e-commerce, however, will only continue to offer more competition to physical retailers, which will be an interesting trend to watch as the digital age continues to envelop our lives.