2016 Most Dangerous Emerging Risks

Crumbling Infrastructure: Day Of Reckoning

Our health and economy are increasingly exposed to a long-documented but ignored risk. 
By: | April 4, 2016 • 5 min read

For decades, government watchdog groups and engineering associations warned that the nation’s infrastructure was grossly underfunded and on the brink of collapse, but those warnings, for the most part, went unheeded by authorities.

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Now a day of reckoning is upon us. The dereliction of North American infrastructure is a catastrophe in slow motion.

For four months, natural gas spewed from a leaking well in southern California — the largest recorded natural gas leak in history. The amount of methane released was the equivalent of running half a million cars for a year. Residents of the area were sickened and more than 10,000 of them needed to be relocated.

For more than a year, the residents of Flint, Mich., suffered lead exposure when the city changed its water source. Water from the Flint River interacted with aging water pipes, resulting in thousands of children being exposed to heavy metals for extended periods. The city is in a federal state of emergency.

Michael Sillat, president and CEO, WKFC, managing general underwriter, Ryan Specialty group

Michael Sillat, president and CEO, WKFC, managing general underwriter, Ryan Specialty group

Dozens more health and environmental debacles are certain to take place.

“U.S. infrastructure is in a dire state of disrepair,” said Michael Sillat, president and CEO of WKFC, a managing general underwriter in the Ryan Specialty group handling excess and surplus lines.

“The roads, bridges, schools, airports and power grids of the U.S. will take something like $3.5 trillion to bring them up to an acceptable, safe and manageable standard.”

Despite events like the huge Northeast blackout in 2003 that affected seven states and the Province of Ontario, and the collapse of the Interstate 35 Bridge in Minneapolis, he noted that “funding for public infrastructure is deficient.”

Operational Risk Challenges

The continuing problem in Flint underscores the challenge of operational risk and risk management. Municipalities all over the country are facing water main ruptures and sewage overflows daily. The costs of repairs and cleanup have to be calculated against any perceived savings in operational or maintenance expenses.

“The onus is on the insureds, especially on government entities for shoring up the infrastructure in the country.” —Michael Sillat, president and CEO, WKFC, managing general underwriter in the Ryan Specialty group

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“We write governmental entities that are water and wastewater authorities and municipalities that treat and provide their own water and collect or treat their own sewage,” said Kathy Adamson, lead underwriter for government entities at CivicRisk, a division of WKFC.

“Prior loss history and infrastructure condition/maintenance is a major factor in determining our attachment and premium.”

Addressing infrastructure shortcomings lies at the feet of owners.

“The onus is on the insureds,” said Sillat, “especially on government entities for shoring up the infrastructure in the country.”

Grace Hartman, director at Aon Infrastructure Solutions, noted that the “contraction in [public] spending … does not mean that existing bridges don’t need maintenance and that new ones don’t need to be built.”

Grace Hartman, director, Aon Infrastructure Solutions

Grace Hartman, director, Aon Infrastructure Solutions

“The question is how to get that done if public entities are not going to pay up-front. There are alternative project delivery methods, notably public-private partnerships (P3s).”

Use of P3s in the U.S. varies with state law. “So called ‘mini-mega’ projects, in the $750 million to $1 billion range have been identified as the correct economy of scale and cost of capital for P3s so far,” Hartman added.

For all the signs of progress, it is unlikely that full infrastructure restoration can be accomplished before another major failure.

Risk professionals in the public and private sectors are asking about worst-case scenarios — bridge collapses that cut off major highway arteries; dam failures that flood vast areas and prevent manufacturing and trade. There are not yet a lot of answers to those big questions.

“We see some agencies in the U.S. that do not even know what their assets are,” said Terry Bills, global transportation industry manager for Environmental Systems Research Institute (Esri). “If I were an insurer, I would have concerns about asset management and would be very engaged in the process.”

In starting to assess the effects of a major infrastructure failure or natural disaster, Adrian Pellen, also a director at Aon Infrastructure Solutions, said the costs “have to look beyond frequency and severity of losses to include litigation costs and issues. Property insurance is not intended to pick up things that are already in disarray, but liability can still play a big role.”

The Insurance Response

Aging infrastructure puts a spectrum of industries and even the economy as a whole at risk, said Lou Gritzo, vice president and manager of research at FM Global.

Lou Gritzo, vice president of research, FM Global

Lou Gritzo, vice president of research, FM Global

“The key issue is protecting industry from water, a risk that continues to change with rising sea level. Now, there are exposures that were previously unrealized. That directly affects coastal development and urbanization.”

There have been efforts by the industry to adapt business-interruption policies to accommodate indirect disaster and infrastructure risks. Results have been mixed. Underwriting is complex, and uptake among owners has been spotty.

Where there are clear and present dangers, such as indicated on new flood maps, homes and businesses are being moved, but refineries and chemical plants can’t be.

“The most important protections in any case are those that are fit for purpose,” said Gritzo. “Anything that can be moved or elevated should be.”

Risk managers must make a plan based on current exposures, and then address the greatest vulnerabilities, he said.

Bills of Esri said that public agencies are focusing on traffic levels as they decide what to repair and what to abandon.

R4-16p30-32_1BInfrastruc.indd“What to keep and what to let go is a very different political issue now,” said Bills. “Infrastructure used to be nonpartisan. But the gridlock at the federal level has forced states to be creative in their own directions.

“One option is P3s, which are growing fast in some places,” he said.

According to the U.S. Army Corps of Engineers, there were about 3,000-plus P3 projects in the works as of September 2015, with a value of about $268 billion.

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Part of the problem, said George Spakouris, director of infrastructure advisory at KPMG,  is that “governments have not been building things in a long time. The booms were in the ’50s and ’60s. That expertise is not within cities and states anymore. Even utilities don’t seem to know how to plan and build anymore.”

That brings the problem full circle, Spakouris noted. “There are many old assets out there where failure could cause great damage,” well beyond the immediate loss of the structure. &

BlackBar

2016’s Most Dangerous Emerging Risks

brokenbridgeThe Fractured Future Infrastructure in disrepair, power grids at risk, rampant misinformation and genetic tinkering — is our world coming apart at the seams?

01c_cover_story_leadCyber Grid Attack: A Cascading Impact The aggregated impact of a cyber attack on the U.S. power grid causes huge economic losses and upheaval.

01d_cover_story_vaccineFragmented Voice of Authority: Experts Can Speak but Who’s Listening? Myopic decision-making fostered by self-selected information sources results in societal and economic harm.

01e_cover_story_dnaGene Editing: The Devil’s in the DNA Biotechnology breakthroughs can provide great benefits to society, but the risks can’t be ignored.

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

R&I Profile

Achieving Balance

XL Catlin’s Denise Balan stays calm and focused when faced with crisis.
By: | January 10, 2018 • 6 min read

In the high-stress scenario of kidnap or ransom, the first image that comes to mind isn’t necessarily a yoga mat — at least, not for most.

But Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin, who practices yoga every day, would swear by it.

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“I looked at these opposing aspects of my life,” she said. “Yoga is about focus, balance, clarity of intent. In a moment of stress, how do you respond? The more clarity and calmness you maintain, the better positioned you are to provide assistance in moments of crisis.

“Nobody wants to be speaking to a frenetic person when either dealing with a dangerous situation or planning for prevention of a situation,” she added.

“There’s a poem by [Rudyard] Kipling on that,” added Balan’s colleague Ben Tucker. “What it boils down to is: If you can remain calm, you can manage through a crisis a lot better.”

Tucker, who works side by side with Balan as head of U.S. terrorism and political violence, XL Catlin, has seen how yoga influences his colleague.

“The way Denise interacts with stakeholders in this process — she is very professional and calm in the approach she takes.”

Yin and Yang

Sometimes seemingly opposite or contrary forces may actually be complementary and interconnected. In Balan’s life, yoga and K&R have become her yin and yang.

She entered the insurance world after earning a juris doctor degree and practicing law for a few years. The switch came, she said, when Balan realized she wasn’t enjoying her time as a commercial litigator.

Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

In her new role, she was able to use her legal background to manage litigation at AIG, where her transition from law to insurance took place. She started her insurance career in the environmental sector.

In a chance meeting in 2007, Balan met with crisis management underwriters who told her about kidnap and ransom products.

She was hooked.

Because of her background in yoga, Balan liked the crisis management side of the job. Being able to bring the calmness and clearness of intent she practiced during yoga into assisting clients in planning for crisis management piqued her interest.

She then joined XL Catlin in July 2013, where she built the K&R team.

As she became more immersed in her field, Balan began to notice something: The principles she learned in yoga were the same principles ex-military and ex-law enforcement practiced when called to a K&R-related crisis.

She said, “They have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.”

“K&R responders have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Many understand yoga to be, in itself, one type of meditation, but yoga actually encompasses a group of physical, mental and spiritual practices. Each is a discipline. Some forms of yoga focus on movement and breathing, others focus on posture and technique. Some yoga is meant to relax the mind and create a sense of calmness; other yoga types make participants sweat.

After having her second child and working full-time, Balan wanted to find something physical and relaxing for herself; a friend suggested yoga. During her first lesson, Balan said she was enamored with it.

“I felt like I’d done it all my life.”

She dove into the philosophy of yoga, adopting the practice into her daily routine. Every morning, whether Balan is in her Long Island home or on a business trip, she pulls out her yoga mat to practice.

“I always travel with my mat,” she said. “Daily practice is the simplest form of connection to routine to maintain my balance — physically and mentally.”

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She said the strangest place she has ever practiced was in Lisbon. She was on a very narrow balcony with a bird feeder swarming with sparrows overhead.

After years of studying and practicing, Balan is considered a yogi — someone who is highly proficient in yoga. She attends annual retreats with her yoga group, where she is able to rejuvenate, ready to tackle any K&R event when she returns.

In 2016, Balan visited Tuscany, Italy, where she learned the practice of yoga nidra, a very deep form of meditation. It’s described as the “going-to-sleep stage” — a type of yoga that brings participants to a state of consciousness between waking and sleeping.

“It awakens a different part of your brain,” Balan commented. “Orally describing it doesn’t quite do it justice. One has to practice Nidra to fully understand the effect it has on your being.”

Keeping a level head during a crisis is key in their line of business, Tucker said. He can attest to the benefit of having a yogi on board.

“I’ve seen her run table-top exercises where there is this group of people in a room and they run an exercise, a simulation of a kidnap incident. Denise is very committed to what we’re doing,” said Tucker.

“She brings that energy. She doesn’t get flustered by much.”

Building a K&R Program

When Balan joined XL Catlin, she was tasked with creating the K&R team.

Balan during a retreat in Sicily, Italy, 2017

She spent time researching and analyzing what clients would want in their K&R coverage. What stuck out most to Balan was the fact that, in these situations, the decision to purchase kidnap and ransom cover is rarely made because of desire for reimbursement of money.

“I asked why people buy this type of coverage. The answer was for the security responders,” she said.

“These are the people who sit with the family. They’re similar to psychologists or priests,” Balan further explained. “Corporations can afford to pay ransom. They buy [K&R] because it gives them access to these trained and dedicated professionals who not only provide negotiation advice, but actually sit with a victim’s family, engaging deep levels of emotional investment.”

“I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Balan described these responders as people having total clarity of purpose, setting their intentions to resolve a crisis — a practice at the very heart of yoga. She knew XL Catlin’s new kidnap program would put stock in their responders.

“I’ve worked closely with the responders to better understand what they can do for our clientele. These are the people who run into danger — warrior hearts married to dedication to our clients’ best interests.”

But K&R is more than fast-paced crisis and quick thinking; Balan also spent a good deal of time writing the K&R form and getting the company’s resources in order. This was a huge task to tackle when creating the program from the ground up.

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“A lot of my day-to-day is speaking with brokers and finding ways to enhance our product,” she said.

After a few months, she was able to hire the company’s first K&R underwriter. From there, the program has grown. It’s left her feeling professionally rewarded.

“People don’t often get that opportunity to build something up from scratch,” she said. “It’s been an amazing experience — rewarding and fun.”

“She brings groups of people together,” said Tucker. “She’s created a positive environment.”

Balan’s yogi nature extends beyond the office walls, too. Her pride and joy, she said, are her kids. And while it may seem like two large parts of her life are opposite in nature, Balan’s achieved balance through her passions.

“[Yoga] has given me the ability to see beyond only one aspect of any situation” she said. “I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]