Joel Berg

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected]

2015 Most Dangerous Emerging Risks

Aquifer: Nothing in the Bank

Once we deplete our aquifers, there is nothing helping us get through extended droughts. 
By: | April 8, 2015 • 6 min read

SCENARIO: Jon Gullo eyed the monitor as the nanobots burrowed underground, searching for moisture.

He and his lawyers had managed to convince regulators to let him explore the apparently empty aquifer under his 115 acres of almond trees in California’s Central Valley.


The nanobots were a last-ditch effort to find adequate water supplies in the face of a drought that was browning what had been the country’s richest agricultural zone.

Regulators were helping. Every other week, the U.S. Department of Agriculture collected data from satellites as they passed over the Western states. Like the nanobots, the satellites were searching, in vain mostly, for signs of water in the depleted aquifers, many of which had been pumped dry due to public and private sector mismanagement.

Now the chickens were coming home to roost. With the aquifers depleted, an economic sea-change was in the offing.

In the drought’s early years, businesses and governments invested billions in water recycling, desalination, and freshwater capture, storage and transport. They also drilled deeper and deeper into the aquifers, until stronger regulation of groundwater usage took effect. But the efforts couldn’t stop the aquifers, long a buffer against drought, from running dry.

Now the chickens were coming home to roost. With the aquifers depleted, an economic sea-change was in the offing.

Agriculture, one of the state’s biggest water users, was bearing the brunt of the shortage, and consumers paid for it at grocery stores and in restaurants. Although other areas of the world were ramping up production, fields were not producing fast enough to keep up, plus several batches of imported fruits and vegetables were found to contain traces of banned pesticides.

As the shortage continued, California’s politically powerful cities refused to take deeper cuts in their share of the remaining water supplies. And it was too costly in rural areas to pipe in water from desalination plants, or engage in the same aggressive recycling and conservation efforts used by larger metro centers.

Most of Gullo’s neighbors were already gone. His orchards were surrounded by fields of sand and dust, and abandoned food processing plants.

Undaunted, he was hoping to squeeze what he could from the depleted aquifers under his property.

The potential payoff was worth it, reasoned Gullo. Almonds were fetching astronomical prices thanks to production declines in the Central Valley, which had been the world’s leading grower.

Although he hesitated to admit it, he was frightened to try to sell his property. Few wanted to move to an area where jobs were disappearing and water was so scarce and expensive.

The dearth of homebuyers spurred by the water shortage resulted in a mini-foreclosure crisis up and down the Central Valley.

At least his county had oil and mining to fall back on, though automation and climate-change regulation had put dents in the workforce.

All newcomers could hope for were jobs in construction — fixing the damage to roads and bridges caused by the land subsidence that occurred after the aquifers ran dry.

But if there were no trucks ferrying crates of grapes, almonds and oranges, who needed roads?


ANALYSIS: As California’s drought wears on, no needles register precisely the decline of aquifers in the Central Valley, one of the country’s leading agricultural regions.

But water levels are clearly dropping. In some areas, the land has subsided more than a foot.

Ideally, the return of normal rainfall patterns will replenish the aquifers, though a full refill could take decades. However, the odds of even longer droughts — and even more strain on underground aquifers — are rising, according to climate scientists.

They cite the impact of global climate change, as well as the geological record. Medieval-era droughts in the American Southwest lasted 30 years or more.

B. Lynn Ingram, professor of earth and planetary science, University of California, Berkeley

B. Lynn Ingram, professor of earth and planetary science, University of California, Berkeley

Aquifers served as a buffer for those populations, which nonetheless succumbed to malnutrition and conflict, said B. Lynn Ingram, a professor of earth and planetary science at the University of California, Berkeley. That buffer is shrinking today.

“It’s kind of like the water in the bank that we’re using up now,” said Ingram, author of “The West Without Water.”

It’s not just a U.S. problem. Aquifers around the world are emptying, according to research by James Famiglietti, a professor of earth system science at the University of California, Irvine. Sao Paulo in Brazil, for example, has been hit hard, with the city experiencing widespread water shortages.

While modern economies are more technologically advanced, an extended drought and continued aquifer depletion would be painful, especially for agriculture.

The U.S. could see higher food prices and disruption to supply chains, according to insurance and agricultural experts.

The U.S. food supply is becoming more resilient, thanks to interest in local farms, said Dawn Thilmany, a professor of agricultural economics at Colorado State University.

But local farmers won’t be able to make up everything, and water scarcity may not be limited to California.


One alternative is crops genetically modified to withstand drought, experts said. More efficient water use is another. But as the globe warms, production may ultimately shift to northern states.

Imports from other countries also might make up the difference, but they bring new risks, especially if growers overseas are using pesticides or fungicides banned in the U.S., said Rodney Taylor, a managing director in the environmental services group for Aon Risk Solutions.

To guard against liability risks, food distributors and processors should scrutinize any new producers, said Tim McAuliffe, president of specialty casualty and programs for Ironshore. If crops shrink and prices rise, producers may be less rigorous about quality control.

VIDEO: California Gov. Jerry Brown announces the state’s first-ever mandatory water restriction rules.

New sources of surface water also pose a risk of contamination, as does water from deep inside an aquifer, he said. “I would call those a little more remote. But if the drought does continue at severe levels, it’s something that we would watch a lot closer.”

In California, urban areas could recycle wastewater and desalinate ocean water, said David Sedlak, a professor in the department of civil and environmental engineering at U.C., Berkeley. While costly, those efforts will keep the taps flowing.

“It’s just hard for me to imagine a situation where the cities run out of water,” said Sedlak.

Still, the shortage of water could have ripple effects. Electricity production, for example, may be stretched if dams are less productive and higher temperatures translate into greater demand.

“You could end up having situations where you have brownouts because there is so much strain,” said Kirsten Orwig, an atmospheric perils specialist for the reinsurer Swiss Re.

Risk managers will have to consider access to water when assessing supply chains and new operations, insurance executives said.

And if conditions stay dry, wildfires will worsen.


Interstate conflicts over water will flare, too, said David Bookbinder, a partner at Element VI Consulting, which focuses on climate change policy.

Aquifers and watersheds don’t follow state boundaries, he noted. The Supreme Court usually winds up arbitrating disputes over water.

“It’s problematic that our political structure is not set up to deal with this,” Bookbinder said. “That, I think, is going to be the biggest problem.”


Complete coverage of 2015’s Most Dangerous Emerging Risks:

Corporate Privacy: Nowhere to Hide. Rapid advances in technology are ushering in an era of hyper-transparency.

04012015_04B_implant_devices_150px_mainImplantable Devices: Medical Devices Open to Cyber Threats. The threat of hacking implantable defibrillators and other devices is growing.

04012015_03_concussions_150px_mainAthletic Head Injuries: An Increasing Liability. Liability for brain injury and disease isn’t limited to professional sports organizations.

04012015_04_vaping_150px_mainVaping: Smoking Gun. As e-cigarette usage rises, danger lies in the lack of regulations and unknown long-term health effects.


Aquifer: Nothing in the Bank. Once we deplete our aquifers, there is nothing helping us get through extended droughts.


Most Dangerous Emerging Risks: A Look Back. Each year since 2011, we identified and reported on the Most Dangerous Emerging Risks. Here’s how we did on some of them.

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected]
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Real Estate Industry

The Slow Road Home

The housing market recovery has been impeded by stagnant incomes, tight lending standards and a dearth of first-time buyers. 
By: | February 19, 2015 • 7 min read
02012015_32_Risk_Report_for_sale _ PB

The dent in the American dream of homeownership is proving difficult to undo.

Nearly seven years after the U.S. housing market collapsed, rates of homeownership remain below their peak of 69.2 percent, recorded in the final quarter of 2004, according to data from the U.S. Census Bureau. In the third quarter of 2014, the rate was 64.4 percent, down from 65.3 percent a year earlier.


While the housing market is expected in 2015 to continue its slow rebound, economists and industry observers question how sustainable it will be in the absence of more buyers.

Many buyers, especially first-timers, have been shut out by tight underwriting standards that block access to loans. Stagnant incomes also have deterred people, economists said. Unemployment fell to 5.6 percent at the end of 2014, but incomes slipped, with the hourly rate falling 5 cents to $24.57.

If and when homebuyers return, it is not clear whether homeownership rates will climb back to their peak, or fall shy.

“The housing bust did change the landscape of the housing market,” said Daren Blomquist, vice president of RealtyTrac, an Irvine, Calif.-based real estate information company and online marketplace for foreclosed and defaulted properties. “So we’re still trying to figure out what a healthy housing market looks like.”

The risk is misjudging what counts for a healthy homeownership rate, he said. “Some players may be overestimating or underestimating what that normal rate should be.”

“The housing bust did change the landscape of the housing market … we’re still trying to figure out what a healthy housing market looks like.” — Daren Blomquist, vice president, RealtyTrac


It’s uncertain whether 2015 will produce a clear picture, considering all the factors at play in the housing market. In general, economists and industry observers expect home sales to rise in 2015 and prices to continue going up, albeit at a slower pace.

“It’s not going to be a breakout year,” said Doug Duncan, senior vice president and chief economist for Fannie Mae, based in Washington, D.C.

Pockets of Risk Remain

Fannie Mae predicts the volume of home sales to jump 5.4 percent in 2015, after declining 2.7 percent in 2014 due to a temporary spike in interest rates. Sales grew by around 10 percent in both 2012 and 2013. The median home price, meanwhile, is forecast to increase 4.9 percent, less than the 5.7 percent average appreciation in 2014.

If Americans start making more money, the numbers could go higher, Duncan said. But the income growth would have to last. According to Fannie Mae survey data, potential first-time homebuyers are concerned not so much about a lack of credit but about having their own finances in order before they sign a mortgage.

“They’re wanting to be really ready before they make that plunge,” Duncan said.


While higher interest rates later this year could suppress sales, economists remained optimistic. “If anything, the risks seem to be stacked on the upside,” said Mark Vitner, managing director and senior economist for Wells Fargo Securities, based in Charlotte, N.C. “I don’t think there’s as much downside risk as upside risk.”

One exception could be markets tied to energy production, especially in Texas. A sustained slump in gasoline prices, for example, could dampen the Houston housing market, one of the country’s largest, said Jim Gaines, a research economist at the Real Estate Center at Texas A&M University in College Station, Texas.

It’s also unclear whether the economic slowdown in Europe will spill over into the U.S., Gaines added. “We’re not immune from these things.”

In the meantime, the housing market may encounter other shocks.

One represents something of a hangover from the boom. Borrowers who took out 10-year interest-only mortgages between 2005 and 2007 face steep jumps in their monthly payments over the next three years, according to a report from Fitch Ratings.

Payment increases also could strike borrowers with adjustable-rate mortgages and those with loans modified during the bust, according to Fitch. Loans accepted into the government’s Home Affordable Modification Program, launched in 2009, typically carry a lower interest rate for five years before resetting at a higher rate.

“It’s just going to take some time for the market to completely resume its pre-2004 long-term growth rate and, frankly, I don’t know that that’s necessarily bad.” — Jim Deitch, CEO, TeraVerde Management Advisors

Roughly 1.1 million mortgages are at risk, with interest-only loans facing the greatest potential payment shock, according to Fitch, which studied first-lien mortgages backing private label residential backed mortgage securities. Interest-only loans account for about 230,000 of the total.

Thousands of borrowers with home equity lines of credit also are looking at higher payments this year as the payback period on those loans begins, experts said.

Although loan defaults and delinquencies will rise over the next three years, the fallout should be limited, according to industry observers. Thanks to the downturn, lenders have plenty of experience working with troubled borrowers and won’t foreclose at the same rate they did in 2009 and 2010.

“I don’t see this as a systemic issue right at the moment,” said Matt Hankins, a principal at Chicago-based Sterling Partners, a private equity firm whose holdings include a retail mortgage originator and a mortgage servicing company.

Borrowers have had opportunities to refinance at low fixed rates, minimizing the shock. Plus, their homes likely have increased in value over the last few years, giving them even more breathing room.


Others were less sanguine.

Keith Jurow, a real estate adviser and publisher of the Capital Preservation Real Estate Report, suspects lenders already carry large numbers of delinquent loans that have not yet been declared formally in default, especially in high-cost areas of California, New Jersey and New York. He wondered how much longer lenders can give borrowers a pass, especially if no buyers emerge.

“It looks like a recovery,” said Jurow, based in Connecticut. “But when you go underneath it, it’s not really. There’s no solid foundation.”

Recovery Depends on New Buyers

The ultimate foundation for the market is first-time homebuyers. And they remain absent, accounting for about a third of sales in 2014, down from a historical average of around 40 percent, according to data from the National Association of Realtors.

Picking up the slack have been investors purchasing single-family homes and converting them to rentals, but those buyers have largely tailed off.

“Without meaningful participation of first-time homebuyers in the homeownership ladder, the housing recovery may sputter,” emailed Allen Jones, managing director at mortgage analytics and technology company RiskSpan.

“The low volume of new originations is creating a market disruption that will begin to impact the traditional move-up buyer because the pool of candidates coming from the entry level has decreased.”

Most observers attribute the drop to tighter credit standards. While critics contend lending standards were too lax during the housing boom of the mid 2000s, others now say they are too stringent, driven in part by new regulations.

Jim Deitch, CEO, TeraVerde Management Advisors

Jim Deitch, CEO, TeraVerde Management Advisors

The rules, for example, spell out income-based limits on how much debt borrowers can carry, as well as how to document that income, said Jim Deitch, CEO of TeraVerde Management Advisors, a Lancaster, Pa.-based consulting firm that works with banks, mortgage lenders and other financial companies.

“Ultimately, people are afraid to make loans, particularly to first-timers, because of the legal risk and the lack of bright-line standards.”

On the positive side, he said, more nontraditional mortgage lenders, including community banks and private-equity-backed lenders, are entering the market. Falling gas prices and rising rents could also entice people into buying homes.

But the math remains daunting for many. It’s not just the prospect of debt, Deitch said. Buyers also face slower appreciation in home prices. After accounting for closing costs, they may lose money if they have to sell sooner than expected.

“I think that’s holding people back,” Deitch said. “It’s just going to take some time for the market to completely resume its pre-2004 long-term growth rate and, frankly, I don’t know that that’s necessarily bad.”

Where that growth rate ends up depends, in large part, on whether Americans continue to prize homeownership as a goal.

The government has moved to make it easier for first-time buyers. In early 2015, the Federal Housing Administration announced a cut in mortgage insurance premiums on loans from the agency, which go mostly to first-time buyers. Under an initiative from Fannie Mae, first-time buyers may qualify for down payments as low as 3 percent.


Despite the lures, many people may decide to continue renting, said Eric Sussman, a senior lecturer in the Anderson School of Management at the University of California, Los Angeles.

Down payments remain prohibitively expensive in some areas, and many young people already are carrying high levels of college debt. They will value the freedom to find a new job — and a new pad — someplace else.

“Those are really big and maybe not even temporary headwinds,” Sussman said.

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected]
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2014 Teddy Award Winner

Building Value With Trust

Honda of South Carolina boosted its involvement with injured worker cases, making a positive first impression on employees and health care providers.
By: | November 3, 2014 • 7 min read

As they homed in on reasons they were spending enormous sums on workers’ compensation claims, managers at Honda of South Carolina (HSC) knew they needed to make some changes. The challenge was figuring out exactly where those changes needed to be made.

A 2007 audit of their workers’ compensation costs conducted by the company’s corporate parent, Honda of North America, helped move the ball down the field, according to managers Wendell Hughes and Lucinda Fountain.


One glaring red flag identified was the tendency of injured employees to contact attorneys right away, a move that is almost always certain to increase a claim’s cost and complexity.

“We were trying to understand what made them take that step,” said Fountain, staff administrator for associates risk management at HSC. “We felt from all the information we had gathered that we had a breakdown in our system.”

That breakdown turned out to be a fairly serious communications failure — a breakdown that started to occur immediately after an employee injury.

Company procedure up to that point had been that those who needed medical attention off-site were given rides by Honda security officers, according to Fountain and Hughes. After delivering the employee safely into the care of a medical provider, the security officer would return to the plant.

As for the claim itself, the company would let the employee know to expect a call from its third-party administrator, which would handle the follow-up from there.

Company representatives weren’t always available to attend workers’ compensation hearings, added Hughes, HSC’s environmental, health and safety manager. Those sessions were often handled by the third-party administrator as well.

Giving these practices a long, hard look made company officials realize that their level of involvement might unintentionally be sending the wrong message to employees, said Hughes. In considering potential changes, managers asked what they would expect if they were injured.

“To associates, it may have seemed as if we were putting up a defensive barrier, although that was never our intent,” Hughes said. Instead, HSC wanted procedures that reflected the company’s principles, which are rooted in a concern for employees’ well-being.

“The first 24 hours of that associate injury is going to make a big difference in how you manage that claim throughout the duration. So we try to do everything we can in that first 24 hours.” — Lucinda Fountain, staff administrator for associates risk management, Honda of South Carolina

“They’re truly an associate-centric company,” said Lynn Williams, managing director at Tennessee-based Sedgwick Claims Management Services Inc., which counts Honda as a client.

Today, Honda of South Carolina takes a personal approach from the moment an injury occurs. If employees need to leave the plant for treatment, a manager or other employee accompanies them — and stays with them until family members arrive and other needs are met, which could include bringing meals.

Lucinda Fountain, staff administrator for associates risk management, Honda of South Carolina

Lucinda Fountain, staff administrator for associates risk management, Honda of South Carolina

The company also begins educating employees about the workers’ compensation system immediately, letting them know the company will be a resource for helping them get care and navigating their return to work.

“The first 24 hours of that associate injury is going to make a big difference in how you manage that claim throughout the duration,” said Fountain. “So we try to do everything we can in that first 24 hours.”

The workers’ comp process can certainly be confusing, said Beth Osterholt, a client performance manager at Sedgwick. She serves as a liaison to Honda. Adding to the confusion sometimes is the uncertainty about the workers’ compensation system.

“If you have somebody there to support you,” she said, “it’s more comforting.”

Honda’s attention has focused not just on the first 24 hours, but also on the return-to-work process. HSC has identified numerous tasks that people can perform even if they are not ready to go back to their original positions at the plant, Hughes said.

Employees have handled administrative tasks, such as data entry for the training department, or sorting vehicle identification cards as they come off the production floor, Hughes said. “We don’t create jobs,” he said. “There’s always something somebody can do.”


Honda also began inviting doctors and other health professionals on regular tours of its facility, Hughes and Fountain said. The visits have made physicians more comfortable about allowing employees to engage in light or limited duty.

The difference is more than remarkable. The company recorded no costs for workers’ comp in the first nine months of 2014. But it’s showing up in less direct ways, too.

“We haven’t had an associate get an attorney in years,” said Hughes, noting that employees are readily cooperating with the company and returning to work more quickly.

The relatively hands-off approach that HSC used to follow is not uncommon, said Octavia Williams-Blake, associate vice president of occupational health at McLeod Health. Based in Florence, S.C., the health system works with many local employers, including Honda of South Carolina.

“We serve over 1,000 companies, and less than 10 percent actually send somebody here with the employee,” Williams-Blake said. “Very few of them stay.”

The corporate presence alongside injured employees provides several benefits, Williams-Blake said. It usually leaves employees with a better sense of what to expect from the workers’ compensation process, and they are less likely to call lawyers.

“That then helps reduce your overall costs as it relates to workers’ comp, but it also makes employees feel like you care,” she said.

There are other advantages.Company representatives hear firsthand from doctors about an employee’s injury and the expected treatment, Williams-Blake said. So employers spend less time tracking down physicians to confirm what they are hearing from employees, and less information gets lost in translation.

Still, she acknowledged, not every company has the resources to send someone along with an injured worker.

“They may see it as not productive. They’re losing somebody from the line, or they’re having to cover for somebody while they’re with the employee,” she said.

HSC has committed to the practice because they understand the value it brings for both the associate and the company. The proof is in the numbers: HSC’s claims costs have plunged by 93 percent since 2009. Medical costs are down by 87 percent.

In addition to increasing personal attention, Honda’s decision to bring doctors into its plant has made a positive impact, Williams-Blake said. Physicians tend to be conservative in their recommendations for return to work, and they often know little about working conditions beyond what employees tell them.

Knowledge of Honda’s operations allows physicians to make a more informed judgment about what a given employee will come back to in the workplace, Williams-Blake said. It’s also easier than reaching out after a doctor has made a decision a company doesn’t like.

“Have you ever tried to call an orthopedic surgeon and try to talk to them about a job? It’s tough,” Williams-Blake said.

Safety’s in the Details

Of course, the surest way to avoid those calls — and to avoid workers’ compensation claims in general — is to create a safe work environment. And that has long been a top priority for Honda of South Carolina.

Wendell Hughes, environmental, health and safety manager, Honda of South Carolina

Wendell Hughes, environmental, health and safety manager, Honda of South Carolina

Injuries are down, thanks to an aggressive approach to finding and fixing the causes of workplace accidents, Hughes said. The company recently notched 4 million hours without a lost-time injury, and six months without a recordable injury at its plant in Timmonsville, S.C., where more than 900 associates manufacture all-terrain vehicles and multi-use vehicles.

Nothing is too minor to escape attention.

About 10 years ago, for example, Hughes noticed a relatively large number of arm scrapes. He realized the preventive measure was close at hand: rolling down the long sleeves on Honda’s white uniforms.

He succeeded in implementing a policy requiring sleeves to be worn down. “You hardly ever see a first aid on arms anymore,” Hughes said.

Today, team leaders must accompany employees when they require first aid even for injuries that merit little more than a Band-Aid, Hughes said. The idea is to address the cause of the injury immediately.


“If you wait, a day later or two days later, everything changes,” Hughes said. But the conditions that triggered an accident may eventually return.

Another program, launched this year, underscores management’s commitment to a safe workplace. Every two months, managers closely examine a production process to look for anything that might cause a problem, Hughes said. The company president, meanwhile, undertakes semi-annual safety tours.

Employees also are committed to safety, a mind-set Hughes has observed from his office right off the production floor.

“I get constant foot traffic from associates coming in and wanting to understand a process or raise a concern. They’re very open about sharing their ideas,” he said, noting that he is especially happy to see employees fixing problems before he even learns of them.

“That’s when you know the safety culture is really taking root,” he said.


Read more about all of the 2014 Teddy Award winners:

11012014_02_cs_honda_150x150Building Value with Trust: Honda of South Carolina boosted its involvement with injured worker cases, making a positive first impression on employees and health care providers.


11012014_03_cs_harley_150x150The TLC Behind the Roar: A proactive and holistic approach to employees’ well-being has resulted in huge reductions in work-related injury claims for Harley-Davidson.


11012014_04_cs_compass150x150Quick to Act: Compass Group is lauded for its safety initiatives and for a return-to-work program that incorporates all of its business lines.



11012014_05_cs_coldspring_150x150Healing the Healers: Teddy Award winner Cold Spring Hills Center for Nursing and Rehabilitation proved that even small organizations can make a huge difference in their employees’ lives.


Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected]
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