Author Archives: Emily Holbrook

About Emily Holbrook

Emily Holbrook is a former editor of the Risk Management Monitor and Risk Management magazine. You can read more of her writing at EmilyHolbrook.com.
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Q&A: The Automotive Industry After the Quake

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Though many industries were affected after the Japan earthquake and tsunami, there were some that were hit especially hard — electronics and automotive.

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To get a better glimpse of what the automotive industry was going through, I contacted Fred Hubacker, automotive supplier expert with Conway MacKenzie, a Detroit-based crisis management firm. The following is what transposed:

The earthquake and tsunami in Japan has created chaos for most companies
with operations in the area. How has the automotive industry fared. In your
opinion, was it the industry hardest hit?

FH: In general, the automotive industry has suffered tremendous loss from this
tragedy. Lost auto production, in Japan, could reach 335,000 units by the
end of this week (3/25). In addition, the effect is starting to be felt in
North America with overtime elimination and at least one assembly facility
down (GM Shreveport [Louisiana]) and downtime in Europe. Automotive seems to be the
hardest hit, at least on an immediate basis, however, the effect on other
industries such as electronics and aviation have not been widely reported
yet.

What were the major risks posed to automotive companies with operations
in the affected areas?

FH: The major risks include damage to their own assembly and component
manufacturing facilities, damage to suppliers producing many components
including electronics, petro-chemical products and powertrain components,
the loss of infrastructure including power, roads, water and transportation,
and of course, the issues created from the huge loss of human lives.

Was there one particular automotive company that was hit hardest?

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FH: Not entirely clear at this point but it appears that Honda has a heavier
concentration of suppliers in the quake zone than the other manufacturers.
Toyota, for example, is losing all Prius model production at the moment.

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How will such business interruptions in the automotive industry affect
other industries?

FH: Widespread component shortages and production downtime could ripple effect
to thousands of other auto component and logistics suppliers who were not
directly affected by the quake. Normal just-in-time suppliers will not be
able to continue production.

What can be done, if anything, to prevent such interruptions in the wake
of a catastrophe?

FH: Alternative sources can be developed, but generally that is a lengthy and
expensive process.

Initial Estimates of Claims from Japan Quake

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Though it is far too early to pin down an exact number for the amount of money the Japan quake will cost insurers, initial estimates have started to surface for some of the hardest hit insurers and reinsurers.

Swiss Re, the world’s second-biggest reinsurer, has estimated it will face claims of about $1.2 billion from the earthquake and tsunami in Japan.

The figure is low because Japan’s government insures residential properties covered by non-life companies against earthquake and tsunami damage and this protection is not reinsured internationally, the Zurich-based company said in an e-mailed statement today. The preliminary claims figure is net of retrocession and before tax, Swiss Re said.

Eqecat, a catastrophe modeling firm, has stated that insurers and reinsurers will likely have losses of $12 billion to $25 billion. However, AIR Wolrdwide has estimated losses of up to $35 billion from the quake alone.

AIG has recently reported that it will record $1 billion in claims for the first quarter, most of which can be attributed to the Japan earthquake and tsunami.

Zurich-based ACE Ltd., a major player in the insurance and reinsurance market, said its initial loss estimates are $200 million to $250 million.

Though Lloyd’s of London has not officially released an estimate, an anonymous market source has said “$3 billion in losses for the Lloyd’s market as a whole sounds plausible.”

QBE Insurance Group Ltd. of Australia has said it estimates $125 million in claims from the quake and tsunami.

Below is a video of the always-entertaining Joe Plumeri speaking on the topic of Japan’s insured losses.

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The Cost of a Data Breach

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Six years ago, The Ponemon Institute conducted its first “Cost of a Data Breach” study in the United States. Since then, the independent research firm has expanded into the United Kingdom, Germany, France and Australia. This most recent study focuses on actual data breach experiences of 51 U.S. companies from 15 different industry sectors.

The results of Ponemon’s 2010 study, which were released this month, find that:

  • For the first time, malicious or criminal attacks are the most expensive cause of data breaches and not the least common one
  • Organizations are more proactively protecting themselves from malicious attacks
  • Companies’ investments in finding and remediating data breaches may be paying off
  • For the third straight year, direct costs accounted for a larger proportion of overall data breach costs

Other important findings include: more organizations favor rapid response to data breaches, and that is costing them greatly; for the fifth year in a row, data breach costs have continued to rise (the average cost of a data breach in 2010 increased to $7.2million, up 7% from $6.8million in 2009); breaches by third-party outsourcers are becoming slightly less common but much more expensive; more companies had better-than-average security postures, and those organizations enjoyed much lower data breach costs.

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The report points to popular and effective technologies that are currently available to secure data both within an organization and among business partners.

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They include:

  • Encryption (including whole disk encryption and for mobile devices/smartphones)
  • Data loss prevention (DLP) solutions
  • Identity and access management solutions
  • Endpoint security solutions and other anti-malware tools

Business Interruption in Japan

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Thousands are dead after the worst earthquake in generations struck off the northeast coast of Japan on Friday. The 8.9-magnitude quake rocked the country, sending cars off bridges and causing numerous buildings in the area to collapse while causing several tsunamis that essentially washed away entire parts of the island nation. The following aftershocks, which were only slightly weaker than the earthquake itself, were felt throughout the country, causing even more damage and death.

Companies there have evacuated and closed plants in the aftermath of the world’s fifth-largest earthquake since 1900. Because Japan is the destination of so many global businesses, the economic effect of the earthquake will be felt throughout the world. From the Wall Street Journal:

  • Volvo
    The automobile company was among the worst hit. Its main facility in Japan that produces heavy-duty trucks was forced to halt production. Volvo employs 10,000 people in Japan.
  • Daimler
    One of the company’s facilities in Kawasaki was slightly damaged. Production is continuing with all employees accounted for.
  • Nestle
    The Swiss food giant has reported damage to two of its buildings, one of which was closed and production halted. The company says all employees are safe and accounted for.
  • GlaxoSmithKline
    Operations at one of its manufacturing plants is suspended for several days as damage is assessed.
  • Procter & Gamble
    A company spokesperson has reported that the majority of the consumer product company’s employees have been accounted for. It has suspended operations at its fabric care products plant.
  • Autoliv
    The world’s biggest producer of car safety products reported that it was forced to halt operations at one of its plants due to infrastructure damage.

Some telecom companies are also reporting damage to underseas cables.

An official from Chunghwa Telecom, who asked not to be named, said the affected cable belongs to the Asia Pacific Cable Network 2, which is owned by a consortium of 14 telecom operators led by AT&T Inc.

Though the emotional effects of such a devastating natural catastrophe will be felt for years to come, it is hoped that the economic effects won’t be so long-lasting. It’s hard to be optimistic when you see the damage, however. Below is a frightening video of the earthquake and tsunami as it unfolds.