RIMS 2016

The Battle for New Orleans: And 99 Other Cities

The 100 Resilient Cities initiative continues to grow in the U.S. and globally.
By: | April 11, 2016 • 2 min read

New Orleans went down once.

It cannot afford to go down again.

As one of 68 cities that is currently taking part in the 100 Resilient Cities initiative, the Big Easy appointed a Chief Resilience Officer and created a resiliency strategy.


The hope is that New Orleans, which is still at 85 percent of its pre-Katrina population, can forestall another disaster of that scale and avoid a crippling population loss.

The initiative, funded by the Rockefeller Foundation in conjunction with global reinsurer Swiss Re, aims to bring a private sector concept, the chief risk officer, into the public sector, where fading infrastructure and limited budgets create a pressing need for holistic risk management.

Alex Kaplan, a North American sales leader, public sector business, for the Zurich-based reinsurer, said global private sector risk management knowledge can be brought to bear to make cities better at disaster recovery, and retain their lifeblood, the very citizens who pay their taxes.

“After a disaster what a city wants is not a check. They want their subway to work, they want their water system to work,” said Kaplan, who sat down with R&I at the RIMS Conference in San Diego on April 10.

In January, Swiss Re announced a partnership with Veolia, the venerable French-headquartered engineering and environmental firm with global reach.

With their combined strength, the reinsurer and the engineering firm aim to provide cities all over the globe with the engineering knowledge to strengthen their key assets, and the risk transfer muscle to speed recovery should those precious assets be damaged.

“Veolia is 160 years old,” Kaplan said.

“After a disaster what a city wants is not a check. They want their subway to work, they want their water system to work.” — Alex Kaplan, North American sales leader, public sector business, Swiss Re

“They focus entirely on infrastructure in the space of water, energy and waste. They can take over assets such as water plants and run them themselves or enter into a partnership with the city to help them optimize performance,” he added.

“Not only are they getting the best service, but they are also saving money simultaneously,” he said of the cities engaged in the initiative.

Additional key pieces for this resiliency equation are modeling and risk transfer.

Jamie Miller, a managing director of Swiss Re and its North America Property head, said the venerable Swiss insurer’s data bases and modeling capabilities can also be shared with public sector leaders to good effect.

“We are taking the modeling science and our risk appetite and some of our other ideas and coupling it with a societal need, whether it is climate change, pandemic or some other emerging risk,” Miller said.

Using state of the art analytics to measure the amount of passenger volume a particular subway route can hold, or the cost to a city of removing three inches of snow, gives public sector leaders a way to measure and mitigate or transfer risk that they didn’t have before, Miller said.

Over time, Swiss Re and other highly rated carriers will join together, to provide capital backstops to the public sector in a way that hasn’t been done before, he said.

“This is going to lead to greater syndication in the public space,” Miller said.

By the end of May, Kaplan said 100 Resilient Cities will announce the remaining 32 cities that will take part in the program.

Cities in the U.S. that are in more advanced stages of the program, which launched in 2013, include quake-exposed San Francisco, Norfolk, Va., and hurricane-exposed New Orleans.

The Rockefeller Foundation provides funding for the hiring of a chief resilience officer for a few years and the resources to build a resilience strategy.

But it’s not just physical damage that is the focus of many risk-focused civic leaders.

Societal problems such as affordable housing and egregious income inequality are also a focus, Kaplan said.


“Whereas we are thinking about hurricanes and earthquakes and tsunamis, they are thinking about aging infrastructure, social inequality, fragmented communities,” Kaplan said.

“So they are thinking about the social aspects as well, and I would say each city that has announced their strategy is paying homage to both,” Kaplan said.

“When a city is responding to a disaster the day the shock occurs, they have to quickly figure out what broke, who can fix it, how long it is going to take and where is the money coming from?”

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Cyber

Expanding Cyber BI

Cyber business interruption insurance is a thriving market, but growth carries the threat of a mega-loss. 
By: | March 5, 2018 • 7 min read

Lingering hopes that large-scale cyber attack might be a once-in-a-lifetime event were dashed last year. The four-day WannaCry ransomware strike in May across 150 countries targeted more than 300,000 computers running Microsoft Windows. A month later, NotPetya hit multinationals ranging from Danish shipping firm Maersk to pharmaceutical giant Merck.


Maersk’s chairman, Jim Hagemann Snabe, revealed at this year’s Davos summit that NotPetya shut down most of the group’s network. While it was replacing 45,000 PCs and 4,000 servers, freight transactions had to be completed manually. The combined cost of business interruption and rebuilding the system was up to $300 million.

Merck’s CFO Robert Davis told investors that its NotPetya bill included $135 million in lost sales plus $175 million in additional costs. Fellow victims FedEx and French construction group Saint Gobain reported similar financial hits from lost business and clean-up costs.

The fast-expanding world of cryptocurrencies is also increasingly targeted. Echoes of the 2014 hack that triggered the collapse of Bitcoin exchange Mt. Gox emerged this January when Japanese cryptocurrency exchange Coincheck pledged to repay customers $500 million stolen by hackers in a cyber heist.

The size and scope of last summer’s attacks accelerated discussions on both sides of the Atlantic, between risk managers and brokers seeking more comprehensive cyber business interruption insurance products.

It also recently persuaded Pool Re, the UK’s terrorism reinsurance pool set up 25 years ago after bomb attacks in London’s financial quarter, to announce that from April its cover will extend to include material damage and direct BI resulting from acts of terrorism using a cyber trigger.

“The threat from a cyber attack is evident, and businesses have become increasingly concerned about the extensive repercussions these types of attacks could have on them,” said Pool Re’s chief, Julian Enoizi. “This was a clear gap in our coverage which left businesses potentially exposed.”

Shifting Focus

Development of cyber BI insurance to date reveals something of a transatlantic divide, said Hans Allnutt, head of cyber and data risk at international law firm DAC Beachcroft. The first U.S. mainstream cyber insurance products were a response to California’s data security and breach notification legislation in 2003.

Jimaan Sané, technology underwriter, Beazley

Of more recent vintage, Europe’s first cyber policies’ wordings initially reflected U.S. wordings, with the focus on data breaches. “So underwriters had to innovate and push hard on other areas of cyber cover, particularly BI and cyber crimes such as ransomware demands and distributed denial of service attacks,” said Allnut.

“Europe now has regulation coming up this May in the form of the General Data Protection Regulation across the EU, so the focus has essentially come full circle.”

Cyber insurance policies also provide a degree of cover for BI resulting from one of three main triggers, said Jimaan Sané, technology underwriter for specialist insurer Beazley. “First is the malicious-type trigger, where the system goes down or an outage results directly from a hack.

“Second is any incident involving negligence — the so-called ‘fat finger’ — where human or operational error causes a loss or there has been failure to upgrade or maintain the system. Third is any broader unplanned outage that hits either the company or anyone on which it relies, such as a service provider.”

The importance of cyber BI covering negligent acts in addition to phishing and social engineering attacks was underlined by last May’s IT meltdown suffered by airline BA.

This was triggered by a technician who switched off and then reconnected the power supply to BA’s data center, physically damaging servers and distribution panels.

Compensating delayed passengers cost the company around $80 million, although the bill fell short of the $461 million operational error loss suffered by Knight Capital in 2012, which pushed it close to bankruptcy and decimated its share price.

Mistaken Assumption

Awareness of potentially huge BI losses resulting from cyber attack was heightened by well-publicized hacks suffered by retailers such as Target and Home Depot in late 2013 and 2014, said Matt Kletzli, SVP and head of management liability at Victor O. Schinnerer & Company.


However, the incidents didn’t initially alarm smaller, less high-profile businesses, which assumed they wouldn’t be similarly targeted.

“But perpetrators employing bots and ransomware set out to expose any firms with weaknesses in their system,” he added.

“Suddenly, smaller firms found that even when they weren’t themselves targeted, many of those around them had fallen victim to attacks. Awareness started to lift, as the focus moved from large, headline-grabbing attacks to more everyday incidents.”

Publications such as the Director’s Handbook of Cyber-Risk Oversight, issued by the National Association of Corporate Directors and the Internet Security Alliance fixed the issue firmly on boardroom agendas.

“What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.” — Jimaan Sané, technology underwriter, Beazley

Reformed ex-hackers were recruited to offer board members their insights into the most vulnerable points across the company’s systems — in much the same way as forger-turned-security-expert Frank Abagnale Jr., subject of the Spielberg biopic “Catch Me If You Can.”

There also has been an increasing focus on systemic risk related to cyber attacks. Allnutt cites “Business Blackout,” a July 2015 study by Lloyd’s of London and the Cambridge University’s Centre for Risk Studies.

This detailed analysis of what could result from a major cyber attack on America’s power grid predicted a cost to the U.S. economy of hundreds of billions and claims to the insurance industry totalling upwards of $21.4 billion.

Lloyd’s described the scenario as both “technologically possible” and “improbable.” Three years on, however, it appears less fanciful.

In January, the head of the UK’s National Cyber Security Centre, Ciaran Martin, said the UK had been fortunate in so far averting a ‘category one’ attack. A C1 would shut down the financial services sector on which the country relies heavily and other vital infrastructure. It was a case of “when, not if” such an assault would be launched, he warned.

AI: Friend or Foe?

Despite daunting potential financial losses, pioneers of cyber BI insurance such as Beazley, Zurich, AIG and Chubb now see new competitors in the market. Capacity is growing steadily, said Allnutt.

“Not only is cyber insurance a new product, it also offers a new source of premium revenue so there is considerable appetite for taking it on,” he added. “However, whilst most insurers are comfortable with the liability aspects of cyber risk; not all insurers are covering loss of income.”

Matt Kletzli, SVP and head of management liability, Victor O. Schinnerer & Company

Kletzli added that available products include several well-written, broad cyber coverages that take into account all types of potential cyber attack and don’t attempt to limit cover by applying a narrow definition of BI loss.

“It’s a rapidly-evolving coverage — and needs to be — in order to keep up with changing circumstances,” he said.

The good news, according to a Fitch report, is that the cyber loss ratio has been reduced to 45 percent as more companies buy cover and the market continues to expand, bringing down the size of the average loss.

“The bad news is that at cyber events, talk is regularly turning to ‘what will be the Hurricane Katrina-type event’ for the cyber market?” said Kletzli.

“What’s worse is that with hurricane losses, underwriters know which regions are most at risk, whereas cyber is a global risk and insurers potentially face huge aggregation.”


Nor is the advent of robotics and artificial intelligence (AI) necessarily cause for optimism. As Allnutt noted, while AI can potentially be used to decode malware, by the same token sophisticated criminals can employ it to develop new malware and escalate the ‘computer versus computer’ battle.

“The trend towards greater automation of business means that we can expect more incidents involving loss of income,” said Sané. “What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.

“We’re likely to see a growing number of attacks where the aim is to cause disruption, rather than demand a ransom.

“The paradox of cyber BI is that the more sophisticated your organization and the more it embraces automation, the bigger the potential impact when an outage does occur. Those old-fashioned businesses still reliant on traditional processes generally aren’t affected as much and incur smaller losses.” &

Graham Buck is editor of gtnews.com. He can be reached at riskletters.com.