Natural catastrophes cost $160 billion in 2018: companies must be ready to mitigate these risks

Hundreds of natural catastrophes killed more than 10,000 people in 2018 and caused damage and losses amounting to $160 billion, according to re-insurer Munich Re.

The number and severity of these incidents should also prompt companies to thoroughly review their own business resilience, continuity and crisis management plans relative to natural disasters.

The highest single loss of life was caused by the September earthquake and tsunami in Indonesia, where 3,100 people died, while the incident with the biggest financial impact was the ‘Camp Fire’ wildfire in California, at $16.5bn, closely followed by Hurricane Michael, again in the US, which cost $16bn.

Half of the global losses were not insured, leaving businesses, farmers, householders and governments picking up the bill.

Munich Re says there are clear indications that man-made climate change has influenced wildfires in California and the high cost of the damage is partially as a result of high-value real estate developments near forests.

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The Woolsey Fire in the Los Angeles celebrity residential area of Malibu destroyed 1,600 homes and mansions with damage amounting to $5.2bn. Fires in 2018 in California cost a total of $24bn, of which $18bn was insured.

In Europe – agriculture was hit hard with wildfires and drought, causing poor harvests, lack of animal feed for the coming winter, causing increased costs for farmers with its knock-on effect on food price trends. The overall cost was $3.2bn, with only a small proportion of the losses insured.

While Munich Re looks at increasing frequency, scale and costs of global ‘natcats’ – natural catastrophes – from an insurance and underwriting perspective, their reports and data are also very useful source material for risk management professionals in business and industry.

In addition to deciding on their level of insurance for natcats, companies must ensure natural risks feature in Enterprise Risk Management (ERM) programs and that their implications are thoroughly worked through.  A systematic review of risks should include:

  • Floods (especially operations in flood plains to or close to tidal areas, especially in places likely to suffer storm surges from hurricanes or tropical storms)
  • Wildfires
  • Hurricanes/cyclones/tropical storms
  • Drought – especially in water stressed areas where a company’s use of water as an input to production could cause trouble with community access to drinking or agricultural water
  • Other severe weather – eg snow, extreme cold

Companies should pressure-test their ability to maintain their operations in the face of any of the above that are relevant.

Employees and their families could themselves also become the company’s weakest link if their homes are damaged, cut-off or destroyed by a weather-related event.  Staff traveling are also at directly risk from natcats– as illustrated by the grounding of 110,000 flights due to the 2010 eruption of the  Eyjafjallajökull volcano. Having procedures that are well-understood by colleagues globally will contribute to both business continuity and the employer’s duty of care to staff.

A valuable method to test the company’s resilience is through scenario planning – using a natcat as the scenario for a crisis or resilience exercise on a corporate, country, business or location level.

In addition, it’s worth mapping how natcats could affect suppliers in countries and regions that are more exposed to these incidents. Suppliers can, and in many cases, must be involved in exercises. This is especially the case for those that are critical to the company’s operations and whose absence from the supply chain would seriously interrupt customer supply. Getting to know partner companies’ resilience levels and procedures will save time and contribute to a more agile, confident and effective company response.

Lines of communication should also be tested during exercises, with one or multiple methods of normal communications made inoperative in order that alternative comms channels (eg sat phones) can be established and be in place in case the company needs to respond for real.

CrisisManagement offers a world-class crisis management service to clients on resilience strategy, planning and tactics. We also undertake crisis readiness audits, as well as testing crisis plans with ‘as live’ scenarios delivered through bespoke workshops by crisis management professionals.

Our team comprises highly experienced consultants with backgrounds in corporate resilience, ERM programs, policing and the military. We have led teams that have undertaken contingency and business continuity planning, as well as crisis response to natural and man-made catastrophes, including the Japanese tsunami and nuclear disasters, floods, hurricanes, terrorist attacks and the Arab Spring movement. More information from adam.roscoe@crisismanagement.ch.

Photo credits: Heading Photo by Kevin: Mt. San Miguel. San Diego wildfire as seen looking south from Santee. Original can be viewed here

Satellite photo by Stuart Rankin: Edited Landsat 8 image of the Camp Fire on 9 November 2018, in Northern California. The city of Paradise is in the middle of the flames. Original can be viewed here

Both photos published under Creative Commons licence

 

 

A 101 for press conferences

I have no idea why, but today, I’m prompted to share some hints a tips on press conferences.

Some key principles:

  1. Unless you have something earth-shattering to communicate to all of the media, at the same time – don’t do a press conference; for businesses a conference call is often more effective
  2. Use the first couple of minutes for an opening statement, covering the two or three key messages you want to get out during the session
  3. Answer the question, then shut up; if in doubt, leave it out
  4. Use answers to communicate your two, or maximum three key messages
  5. Don’t talk about yourself, or how good you are, the size of your brain, or how unfairly treated you feel
  6. Don’t insult the journalists and don’t belittle them, their questions or their news organisations
  7. If you have answered the question previously, you don’t have to include that answer to other questions
  8. Use simple language, especially if the topic is complex or technical, but don’t use slang and don’t swear. If you have to explain a phrase, like ‘con-job’, you shouldn’t use it
  9. Don’t call people who are not in the room ‘dishonest’, ‘low-life’ or ‘bad people’ – they can’t defend themselves at the event, but will definitely get even later
  10. Press conferences are streamed, so both friends and opponents can selectively cut your comments and post them on social media to support or harm you. So keep the messages as simple as possible

Anything I missed?

With thanks to my mate and all-round comms expert, @liamherbert, who sometimes sanity-tests my drafts.

Photo: Richard Nixon Presidential Library and Museum [Public domain], via Wikimedia Commons, October 26, 1973.

Carillion, the government and when someone else’s problem becomes yours

The situation with Carillion seems to support the old adage: “If you owe the bank £100, it’s your problem, if you own the bank £10m it’s the bank’s problem.”

In this case, last week’s theoretical, but realistic prospect of the melt-down of Carillion looked like the banks, bondholders and shareholders would have a problem, but this morning, the UK government has a huge problem.
Carillion has, after all, taken on a lot of risk from the government, simply because running contracts in return for money is a form of accepting risk.  But the level of exposure the government faces became clear as this turned from a corporate finance problem to a government headache.
To appreciate the scale of the challenge, this link shows just one aspect of the government’s exposure to the company – in the defence area.  In the recent past, the government also continued to award contracts worth hundreds of millions to the company, despite one, then another profit warning.  Perhaps the intention was to keep cashflow flowing, in the hope that the company would turn around and continue to manage these risks on behalf of the government.
The cash didn’t keep flowing and the company hasn’t turned around.
The government has now ‘crystallised its responsibilities’ and in solving company’s problems, ministers now must decide how they want to manage the coming few days, weeks and months.  They have a few options:
  • temporarily re-nationalise some of the service contracts, therefore maintaining continuity of service (in defence and prison contracts this is particularly important)
  • at a corporate level, hope for and encourage debt for equity swaps and plough on while restructuring on an ongoing basis
  • find trade buyers for some of the businesses or contracts and inject some funding for an interim period on critical strategic infrastructure projects in order to maintain continuity and retain key staff
  • JV partners of Carillion take over contracts (maybe with government guarantees)  in a way that ensures continuity on contracts
  • a mix of the above
  • none of the above, or anything else the government has planned with the administrator
The extent to which government-led crisis and contingency management planning has been going on – and for how long – will be directly related to how ‘bumpless’ the transfer is between Carillon and a new solution, like those listed above.  I’d expect any JV partners to have been working overtime since September (the last profit warning from Carillion) to ensure an orderly transfer of responsibilities.
Compounding the woes, lurking in the background is the spectre of the government’s pension lifeboat having to take over the 28,000-member scheme, which reports a deficit of £580m. Costs could end up being more than twice that, but either way, it’s additional angst for the government and politically another point of exposure.
We do know that the pension situation, and the scope and scale of government work that was contracted out to Carillion, will clearly mean the taxpayer will take a hit on this insolvency. The unknown is how and how much it will cost.
Lessons for crisis management?  A business would undoubtedly have n process by which it identifies big-ticket potential hits to the organization in a systematic way – via an Enterprise Risk Management process, for example.  In this case, they will have generic, adaptable plans to activate if a supplier or a customer goes out of business.  The plans will be developed on a risk basis (how likely how damaging), including from a ‘worst-case, what if’ scenario planning perspective, and contingencies will be put in place in good time.
So how will we know whether the government (and constituent departments that contract with Carillion) has been through a similar exercise?  If they have, while the first few days will naturally be a bit ragged, the stabilising solutions should be ready to implement relatively quickly and smoothly.  If it hasn’t planned or planning is incomplete, expect a more extended period of uncertainty as solutions are more obviously invented and cobbled together on a tactical, case-by-case basis.
And finally, the plunge in the company’s worth from £2billion to Friday’s closing valuation of £61m reminded me of the time the company I worked for took a 60% hit on the share price in one day, and then fell further to just over one Swiss Franc.  The national financial magazine here characterised the situation thus: “Question: What’s the difference between [the company’s] share price and a sausage? Answer: You can eat a sausage.”
Cruel, but in that case, the company recovered, stabilised and thrived, but it was scary.
[Thanks to Terry Robinson for allowing his photo above to be used via a Creative Commons licence]

Toby Young, tweets and the challenge of hiring the right people

By early Tuesday morning, the name ‘Toby Young’ had been trending on Twitter with nearly 50,000 tweets. The outraged Twitterati were celebrating that their pressure on the government had resulted in Young falling on his sword. And this, despite earlier support from the PM and senior government ministers, like the Johnson brothers.

Just days earlier, Young, an abrasive ‘shock-jock’ of a journalist turned founder of schools, had been appointed to the UK government’s Office for Students (OfS).

His downfall, it seems, stems from a combination of his long-form articles on eugenics, among other topics, and his track-record of obscene tweets which are covered in detail elsewhere.

And aside from the time it took for Young to go (many were presuming it would be a firing by the government, when they realized about the man’s previous form), the whole sorry affair prompts questions about how people are appointed to quangos. What is the process, who administers it, and who made the final decision that Young was the preferred candidate?  Or was this a case of ‘jobs for the boys’ – or as the phrase went on the radio on Tuesday morning, the ‘chumocracy’. Or worse still – was there no process, was it finessed, or was it ignored?

When my son joined the forces, his background check included my background and even my parents’.  When I appointed someone to my team in a large company, for some sensitive roles in security, with the candidate’s permission, we undertook deep due diligence into the person’s professional and personal background in order to ensure they were what they said they were on their CV. It’s also common for references to be taken from a candidate’s previous boss AND the colleagues on the same level with whom they worked.

The key challenge for the government now is to share the process whereby Young and the others appointed to the regulator are selected, applications processed, decisions made and background checks undertaken.  It’s not clear to me how this works, but as the committee is funded by the taxpayer, it should be made clear.  And specifically, was this process properly applied to Toby Young, or was there a nod and a wink between old mates?

It’s disappointing that the government cannot immediately spring to the defence of the human resources processes in this case, but it’s not surprising. Perhaps if they had done their homework, they would have been ahead of the curve and may not have been in the position of having to reactively deal with this fiasco.

Lessons learned?  Apply a clear, transparent and robust process for the appointment of members of regulators and watchdogs that is at least as tough as the processes used for the appointment of civil servants and managers in many businesses.

Classic final lesson? An issue ignored (or not searched for) is a crisis ensured.

STOP PRESS: Commissioner for Public Appointments, Peter Riddell, said on BBC Radio Four’s PM programme later on Tuesday that the process was followed, interviews conducted by an independent panel, but that the candidate’s web and social media profile wasn’t ‘googled’ and ‘common sense plus’ wasn’t applied in terms of flagging his social media activities to a minister.

 

Government issues media advice for people caught up in disasters… Really?

The UK government has issued advice for those members of the public caught up in a crisis or a disaster – don’t hold your breath – it’s mainly a marketing push for its radio, TV and newspaper complaints channels.

It recommends people talk to a lawyer and that they should be aware of PR companies who can help manage the media.

As a card-carrying member of the Chartered Institute of Public Relations (MCIPR) for more than 25 years – I would dispute this advice.  Not because I don’t want my colleagues winning business, but because working with victims of disasters and taking a fee off them is generally NOT something ‘PR people’ do.

I’m pretty sure few, if any MCIPR or PRCA members would seek out paid work members of the public who have been affected by disasters, unless the individual was well enough to sell their story to the highest bidder – and again, that’s not supporting victims, it’s monetising their experience.

Yes, PR people work with business facing crises and to help them present themselves in a transparent and responsible way.  They also work with celebs to manage relationships with the media and sometimes with governments, NGOs and multi-lateral organisations to help them get their message across to attract funds and support for humanitarian work and campaigns.

Our team here at CrisisManagement has worked on response and communications for significant issues and crises.  We’ve supported people whose family members have been impacted by natural disasters, unlawful detention, terrorist kidnap or killings, but we’ve done that within the context of a corporate response to international crises, not as consultants.  In those cases, we’ve often worked with third-party professional psychological care-providers, but we’ve never taken this kind of work to charge a fee. We have worked with and against lawyers who have initiated multi-party actions on behalf of hundreds, thousands and hundreds of thousands of plaintiffs, but that’s another story.

If an individual member of the public finds themselves in the middle of a media storm resulting from a terrorist attack or other disaster in the UK, often the police, and their experienced communications people, will help them keep a low profile and protect their privacy and that’s exactly as it should be.