Category Archives: Risk Management

Global Pandemics Top Extreme Risk Worry

A global pandemic is the most important extreme risk for the insurance industry to worry about in the long term, according to a survey of global insurance industry executives conducted by Towers Watson.

Rounding out the top three extreme risks of concern are a large-scale natural catastrophe and a food/water/energy crisis, the survey found.

Other top 10 extreme risks named in the Towers Watson survey include cyber-warfare, an economic depression, a banking crisis and a default by a major sovereign borrower.

Votes were compiled in a wiki survey which enabled participants to add their own ideas. Over 30,000 votes were cast.

Meanwhile, a new report by AonBenfield says pandemic risk remains the most important mortality exposure for the insurance industry and is placed above other forms of catastrophic event including natural catastrophes, nuclear explosions, and terrorism.

In Pandemic Perspective, AonBenfield points out that according to historical data, pandemics are large enough to destabilize the insurance market more than once every 200 years, with three global pandemics recorded in each of the last three centuries.

This suggests that the majority of people working in the insurance industry today are likely to face at least one pandemic during their careers. Insurers should be aware that now is the time to anticipate and educate themselves on pandemic risk, and begin to model it.†

Check out I.I.I. facts and statistics on mortality risk.

Study: Companies Recognize Nat Cat Risks, But Mitigation Plans Lacking

Despite recognizing natural catastrophes as a growing threat, many companies have insufficient mitigation plans in place, and considerably more effort will be required before the risks of natural catastrophes are adequately controlled, according to a global survey by Zurich Insurance Group.

The study, conducted in January 2013 by the Economist Intelligence Unit and sponsored by Zurich, polled 170 executives from medium-sized and large companies around the world.

The findings confirm a widespread perception among organizations that natural catastrophes are becoming both more frequent and more severe, and that commensurate importance is assigned to assessing and mitigating the associated risks.

Survey respondents were asked to rate the severity of potential disruptions to distinct areas of their business operations in the event of a natural catastrophe occurring within the next three years.

Combining the top two most severe ratings on a scale of five puts continuity of IT support as facing the most severe disruption (46 percent), followed by supply-chain logistics (44 percent) and business-critical functions (44 percent).

While most companies have taken some steps to mitigate associated threats to IT systems, the adoption of systematic, integrated approaches to risk management is surprisingly low, the survey found.

Fewer than half (45 percent) of the companies surveyed use some form of scenario analysis to assess the risks of natural catastrophes.

Moreover, while a large majority of respondents say they have addressed the challenges of mitigating IT risks from natural catastrophes, only 31 percent say that their risk-management strategy explicitly addresses the interconnectedness of different types of risk.

Zurich says the findings suggest that while businesses are aware of the challenges they face, most have not yet developed a holistic approach to confronting these risks.

Company executives consider inadequate budgets for business-continuity planning and/or disaster recovery as the biggest obstacle to adopting more effective risk management strategies. An inability to present compelling business cases for risk management initiatives is cited as another significant hurdle.

Canadian Underwriter has more on this story.

Boston Marathon Explosions

While it’s too early to answer many of the questions arising from twin explosions at yesterday’s Boston Marathon, what we do know is that three people are dead and more than 140 injured in the bombings.

Our thoughts and prayers are with the victims, all those injured and their families.

The Boston Globe reports that much of Back Bay is locked down to protect the crime scene and the investigation underway is being directed by the FBI.’s Big Picture has images of the scene at the finish line of the marathon.

Right now, it appears the White House is describing the incident as a potential terrorist attack.
A article cites a White House official saying:

Any event with multiple explosive devices – as this appears to be – is clearly an act of terror, and will be approached as an act of terror. However, we don’t yet know who carried out this attack, and a thorough investigation will have to determine whether it was planned and carried out by a terrorist group, foreign or domestic.†

Insurance Information Institute (I.I.I.) president Dr Robert Hartwig narrowly missed the blasts after watching his son cross the finish line of the marathon more than an hour earlier.

In an interview with PC360, Dr Hartwig said it was too soon to know the insurance implications of the event, but it looked like damage to property was light. Dr. Hartwig added that injured public safety and marathon workers would certainly be covered by workers compensation.

An I.I.I. advisory suggests  reporters with questions about the potential insurance implications of the Boston Marathon explosions contact Dr. Hartwig.

Check out the I.I.I. website for further updates.

CareerBuilder Infographic: Preparing Your Workplace for Disaster

There’s no way to guarantee your workplace won’t ever have to deal with natural or manmade disasters, but by being prepared and communicating effectively, employers can help employees be calm and responsive when disaster strikes.

This fact-filled infographic from CareerBuilder has all you need to know to:


Rethinking Risk

A timely report from the Association of Chartered Certified Accountants (ACCA), the global body for professional accountants, points to the increasing need for businesses to work harder to spread responsibility for risk management across the entire organization.

The survey of over 2,000 ACCA members found accountants on the front-line of businesses have a vital role to play in successful risk management. Its release comes at a critical time for risk management in the wake of the financial crisis.

ACCA says:

Accounting is really about providing information to help make good decisions, and good decisions mean less risk. The accountant’s day-to-day role is all about managing risk, even if people don’t think about what they do in that way.†

However, the survey did reveal the value of accountant’s contributions can be lost through their misuse.

Accountants in the survey reported very high levels of bad behavior around risk management, including frequent ‘gaming’ of forecasts, providing optimistic versions to avoid criticism or pessimistic ones to reduce expectations.

Just 1 percent of respondents reported never seeing any of the bad behaviors asked about in the survey at their organization.

Still, the survey did find a statistical link between the use of good risk management practices by accountants and incidences of dysfunctional behavior: more good practices correspond with less dysfunctional behavior.

Types of good practice identified by ACCA include aspects of management accounting, forecasting, reporting and quality controls, decision support and controls over wrongful behavior.

ACCA notes:

Businesses need to make sure they use the risk awareness and risk management skills of their qualified accountants, and not miss an opportunity to effectively integrate risk management.†

Fortune’s 40 Under 40

As I was sitting in the doctor’s waiting room the other day leafing through the latest issue of Fortune magazine, I couldn’t help but notice Fortune’s 40 under 40.

This annual ranking highlights the hottest young stars in business across the globe. Think technology – Facebook’s Mark Zuckerberg tops the list, while Twitter’s Jack Dorsey is ranked eighth – movies, music, athletic wear, oh, and finance.

Coming in at number 10 and leaping off the page to this insurance blogger is 34-year-old Sid Sankaran, chief risk officer at AIG.

Here’s what Fortune has to say:

The financial crisis proved that AIG had no clothes – or at least no controls. Now it’s up to Sankaran, a Canadian math hotshot (his degree from the University of Waterloo was in actuarial sciences) and former partner at consultancy Oliver Wyman, to make sure it doesn’t happen again. Sankaran declined AIG at first; today, as chief risk officer, he oversees the billions flowing among disparate insurance operations and reports to CEO Robert Benmosche if something suspicious rears its head.†

Just being mentioned in the same breath as Facebook and Twitter is impressive, and it doesn’t hurt to raise the insurance industry’s coolness factor a notch.

So here’s a shout out and congrats to Fortune’s number 10 under 40.

Spooky Insurance

As the Lady Gagas and Harry Potters come out Monday night, your standard auto and homeowners policies should have you covered in case you receive more tricks than treats.

The I.I.I. gives several examples of how insurance can protect you from Halloween-related losses. For instance, if your home is damaged in a Halloween prank your homeowners or renters policy provides coverage for vandalism, after the deductible is met.

Similarly, if your car is damaged by mischievous trick-or-treaters, there is coverage under the optional comprehensive portion of your auto insurance policy.

If you expect to be handing out candy or throwing a Halloween party, again you would be covered if a trick-or-treater or guest is accidentally injured in your house or apartment, the I.I.I. says. The liability portion of your homeowners or renters insurance policy covers you in the event you are sued by the injured party.

While it’s reassuring to have these insurance policies in place, it’s also important to follow some basic safety steps, such as:

– Ensure there’s a clear path to your front door by removing all objects that could cause children to trip or fall.

– Turn your outside lights on if you welcome trick-or-treaters.

– Take caution when using candles, jack-o-lanterns, matches and lighters and keep them out of reach of children and away from flammable materials.

– Have a plan for your pet especially if they are easily spooked by guests or doorbells.

– Motorists need to be extra cautious and watch for children, especially after dark.

2011 World Disasters Report

The international community needs to rethink how it will reduce risk and prepare for and respond to future humanitarian disasters, according to the 2011 World Disasters Report just-released by the International Federation of Red Cross and Red Crescent Societies.

The report notes that three mega-disasters in 2010 and 2011 – the January 2010 earthquake in Haiti, massive flooding in Pakistan in July 2010, and the recent earthquake and tsunami in Japan –   underscore the exponential change in crisis scale and impact and the increasingly interconnected nature of disasters.

Whatever the characteristics of past vulnerabilities, it is increasingly apparent that the dimensions and dynamics of humanitarian crises are changing exponentially and that those concerned with reducing disaster risks and their impacts will have to take both into account.†

Data included in the report show that natural disasters resulted in 297,752 deaths in 2010, making it the deadliest year of the decade. The majority of deaths in 2010 (222,570) were attributable to the January 2010 Haiti earthquake, which was the second deadliest natural disaster of the decade (after the 2004 Indian Ocean tsunami).

Of the 304 million people reported affected by natural disasters in 2010, more than 60 percent were victims of floods, according to the Center for Research on the Epidemiology of Disasters (CRED).

The most severe occurred in China (134 million people affected) and in the Indus river basin in Pakistan (more than 20 million). Six other floods affected one to nine million people for a total of 23 million.

Natural disaster costs ($123.3 billion) were the fourth highest of the decade, after 2005 ($240.4 billion, 2010 prices), 2008 ($193.3 billion, 2010 prices) and 2004 ($155.8 billion, 2010 prices).

The London Guardian’s Datablog has more on the findings.

Check out I.I.I. facts and stats on global catastrophes.

Managing The Risks Of Outdoor Events

Severe weather at an outdoor festival has proved deadly for the second time in less than a week.

At least  five people  are reported dead  and  dozens  injured after a stage collapsed  in heavy storms during a set by the Smith Westerns at the Pukkelpop Festival in Hasselt, Belgium yesterday.

Rolling Stone reports that this is the fourth major stage collapse incident this summer.

Just last weekend a stage collapsed onto the audience during a storm at the Indiana State Fair just as the band Sugarland was about to take the stage.  Six people have died and some two dozen  have been  injured. has more on the insurance implications of this tragic event.

Earlier in August extreme weather caused a video screen to collapse as the band Flaming Lips was about to take the stage at Tulsa’s Brady Block Party in Oklahoma, and in July the stage collapsed from beneath the band Cheap Trick at the Ottawa Bluesfest in Canada during a severe windstorm.

These events underscore the importance of safety and risk management when it comes to outdoor events, such as concerts, festivals and fairs.

An Associated Press article via CSI Special Event Insurance notes that concert events have increased in size and scale, becoming more elaborate and often involving tons of lighting and video equipment.

AP also notes that there are no standard safety regulations for outdoor events.

Special events insurance can provide a range of coverages such as event cancellation, bodily injury, venue liability  and workers’ compensation. Coverage can be tailored for a specific event to meet the risks involved.

Tuscaloosa Tornado: Better Construction Needed

Areas on the edges of tornadoes could see reduced property damage and dramatic improvements in safety by using better design and construction methods, according to a new study on the April 27 Tuscaloosa  tornado  by engineers at the University of Alabama and academic researchers  at universities across the country.

Insurance Journal reports that based on the study findings, relatively minor changes in construction, such as better shingles, more anchors and thicker vinyl siding, could have prevented much of the damage to homes caused by the April 27 EF-4 Tuscaloosa tornado.

Insurers expect to pay out around $2 billion on claims from tornado damage in the Birmingham and Tuscaloosa areas alone, according to the I.I.I.

Researcher Andy Graettinger of the University of Alabama told Insurance Journal that homeowners on the fringes of the tornado would have been spared at least some damage with different construction methods or improvements to existing homes.

In some cases, homes could have been saved from catastrophic damage by metal clips or straps that cost about $1 each:

You’re looking at a few thousand dollars for these clips that hold everything together. It’s a very small amount compared to the cost of the house.†

Key takeaways from the study include:

  1. Light-frame wood buildings do not, and will not, have the ability to resist EF4 or EF5 tornadoes. The level of damage to light-frame buildings at lower wind speeds is not acceptable and can be reduced through new engineering design and construction practices.
  2. Virtually all buildings in the path of a strong tornado, even along the outer edges where wind speeds are lower, are irreparable based on current design and construction practices. This provides incentive and an opportunity for tornado-resistant design and construction practices which currently do not exist, according to the researchers.
  3. Interior closets and bathrooms provide shelter at lower wind speeds on the edges of the tornado, but they were no guarantee of survival. The concept of a “safe spot† should still be taught, but a safe spot is not a substitute for a safe room or tornado shelter.

Download a copy of the Tuscaloosa Tornado Report here.

Check out I.I.I. facts and stats on tornadoes.