Managing Risk In A Time of Unforeseen Events

Simulation exercises are considered by the insurance industry as an effective way of preparing for unforeseen disasters and events. In Toronto, private and public organizations including the Building Owners and Managers Association of Toronto (BOMA Toronto) have embraced this advice and are planning a mock event that is to take place October 13th.

The simulation is the grand finale to a five-day training session called The Impact of Social Media on your ability to communicate & respond to incidents in a timely and meaningful way. DRIE Toronto (Disaster Recovery Information Exchange Toronto) is co-ordinating the event. The simulation itself is a project called GTIME or the Greater Toronto Incident Management Exercise. A similar exercise was carried out in the past that involved response to a major heat wave (Download GTIME brochure).

The GTA is a leader in Canada with respect to this type of emergency preparation. Nevertheless according to Ralph Dunham the Former Managing Director of the National Business Continuity Practice of Marsh Canada – who presented at the recent BOMEX conference – the property sector is not preparing as quickly as other industries to respond to unforeseen events.

There are gaps in the co-ordination between the real estate industry and the emergency response organizations. Dunham illustrated by saying that it is unlikely the building owners and the Police have synchronized evacuation procedures for removing people from the downtown core, a problem he suggested might surface in the up and coming simulation.

BOMA Canada played a significant role in pandemic planning associated with a possible SARS epidemic, Dunham acknowledged, a process he referred to as ‘a wake-up call for industry’.

Unforeseen Events Increasing in Number

An unforeseen event that has a cascading series of outcomes, often tragic and destructive, is a phenomenon with which we are becoming all too familiar.

The 911 attacks on the World Trade Centre is the best known but there are many others; the BP Deep Water Horizon oil spill in the Gulf of Mexico, Earthquakes in Haiti and Japan, the flooding of New Orleans. The Ice Storm in Eastern Canada, Hurricane Igor in Newfoundland, flooding in Saskatchewan this year are unusually severe natural Canadian events.

Information from the insurance industry shows that there are more unusual natural disasters than in the past – over 385 around the World in the last 12 months. Human initiated events such as the financial meltdown, G20 riots in Toronto and terrorism are also increasing.

The Next Wave of Black Swans

Unforeseen events are what the insurance industry refers to as ‘Black Swans’ explained Dunham

Black swans are an evolving species that are becoming more common and permeating how insurers look at risk. Each one is unique and the probability of their occurrence cannot be calculated. There are often compounding outcomes that are difficult to assess.

Technology based terrorist attacks such as the 2010 software virus infection of Iran’s nuclear facilities are becoming more common. That particular virus was able to accelerate and decelerate equipment associated with the reactors operations and according to Dunham similar destructive applications are in the public sphere.

A criminal element in society that will use a virus to bring down major infrastructure such as a pipeline, nuclear plan or a transmission system resulting in a massive gas or electrical failure ‘is likely the next wave of terrorism’ Dunham surmised.

Developing Resilience and Pervasive Readiness

The insurance industry is moving away from scenario-based risk analysis. In the past building owners created a series of scenarios caused by events such as fire, flood and chemical spills and building operators and management were trained to respond.

Instead of building specific scenario-based preparation, developing ‘resilience’, the ability to adapt to a situation as it unfolds, is a new recommended approach. Dunham described it as a state of ‘pervasive readiness’ where an organization has no expectations about what might happen and instead is ready for anything.

“Training people without a particular procedure but with an aim as they go through a particular event” is how Dunham described an approach for managing the unforeseen.

Many Executives are evaluated and trained to be efficient administrators but not necessarily to be effective leaders. Empathy for people and managing the human aspects of Black Swan events is often critical to mitigating outcomes according to Dunham.

From an insurance company perspective, measuring resilience is not easy and as yet an unknown, Dunham explained.

For some companies Corporate Social Responsibility (CSR) reporting is pushing them toward considering risk mitigation measures associated with unforeseen events.

Bentall Kennedy is a company that Dunham mention as a leader in the real estate sector in its approach to preparing for Black Swan events.

Ann launched RENX in 2001 as a part-time venture and has grown the publication to become a primary source of online news for the Canadian real estate industry. Prior to…

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Ann launched RENX in 2001 as a part-time venture and has grown the publication to become a primary source of online news for the Canadian real estate industry. Prior to…

Read more

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