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Column: Risk Management

Sizing Disaster

By: | November 1, 2017 • 3 min read
Joanna Makomaski is a specialist in innovative enterprise risk management methods and implementation techniques. She can be reached at [email protected]

I write this column in a week following many serious natural disasters — Hurricanes Harvey and Maria and the less discussed Hurricane Nate. It is the impact of Nate, specifically, that I feel personally. I spend much time throughout the year in the beautiful country of Costa Rica.

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This week, the tropical storm surges of Nate caused many deaths and left thousands of people, some of them friends and neighbors, desolate.

As of today, many of my friends are still without water, power, roads, bridges and essential services. Rivers exploded from flash flooding and washed their homes and land into the ocean in just a matter of hours.

Worse still, people had to sleep in trees as to not to be eaten by crocodiles, which are now swimming freely in streets and back yards.

The average wage in Costa Rica is about $4 per hour, so the idea of buying insurance is a pipe dream for most and considered a luxury item for the wealthier. Replacing a basic appliance such as a refrigerator will no doubt be a deep financial struggle for the average family and will likely take a few years to repay or procure. It is heartbreaking.

For this reason, I deeply took to heart the words of President Trump when he clumsily compared Hurricane Katrina to Maria and stated one was a “real” disaster as it had more casualties than the other. As awkward as this statement was, it did make me think.

Do we, in our risk management community, have a consistent way of measuring and ranking one disaster over another? Do we have a system that can clearly paint a holistic picture of the full range of impacts in a catastrophe?

The average wage in Costa Rica is about $4 per hour, so the idea of buying insurance is a pipe dream for most and considered a luxury item for the wealthier.

Quick research seems to indicate we often rank disasters using three metrics: number of fatalities, economic loss and insured loss.

At first glance, these sole metrics are deeply inadequate to portray the true impact of such natural disasters.

What of long-term resultant injuries, loss of uninsured habitat, recovery ability and duration, total population affected, gravity and concentration of property damage, crop destruction, and social damage?

There are so many other effects on humans and the environment critical to understand.

With hurricanes in the U.S. accounting for about two-thirds of all insured losses, we have done much in the way of developing sophisticated hurricane tracking and early warning systems. Truly impressive feats.

This work in turn reduced the number of fatalities and assisted in much-improved evacuation planning efforts. But it feels as if we are left blind to the real magnitude and diversity of impacts.

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The fundamental difference between disaster management and risk management is that it is emergency and recovery management. Effective emergency management requires us to pre-quantify and properly size all potential damages, losses and post-disaster needs.

Assessing the potential scale and duration of needs before the return to normalcy and re-establishment of basic services is essential for meaningful disaster planning and budgeting.

I see a need to better aggregate data that measures true diversity of disaster impacts to assist us in future planning.

I would like to see the development of some form of universal disaster index with clear classifications, which has the means of describing disasters in a multidimensional and unified way. Only with that will insurers, communities, responders, government and the public really stand to gain. &

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

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