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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Sustainability — Managing a Major Business Risk

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True, businesses need to make money to stay afloat in the competitive business world. But in this modern marketplace, companies are increasingly focusing on remaining profitable while incorporating sustainability. With evidence that business activities are influencing climate change and companies are depleting the earth’s resources at an alarming rate, environmental risks have become business risks.

Marsh recently released a white paper entitled, “Sustainability – Managing Your Risk” that addresses the risks companies face in trying to manage one of the newest business risks. First, the report stresses companies to look for tangible evidence that their own suppliers have signed up to a sustainability code, saying that not only should your company become sustainable, but your company’s supply chain as well.

With legislation passing, companies are realizing their operations may not be considered environmentally friendly. As an example, the European Union enacted the Environmental Liability Directive, meaning that businesses must now ensure that they do not cause damage to water, land or biodiversity.

But many companies believe “going green” is more costly. Though that may be true in the near-term for some instances, the long-term return is proof that green is good.

“There is evidence that changing business practices to a more sustainable model can reap financial rewards. The Fairtrade movement is an example where consumers are willing to pay higher prices to be reassured about how the products have been produced.”

Among the sustainability issues for businesses and society is water (we ran an in-depth feature on this topic in the June 2009 issue). Water-intensive companies (think Coca-Cola, Nestle, Texas Instruments) are now assessing the risk they pose to the areas in which they operate. In fact, the Carbon Disclosure Project is now asking the world’s biggest companies for the first time to disclose how much water they use. And this is no tree-hugging initiative — major investors “with trillions of dollars in assets have backed this call for such information.”

In today’s business world, people’s view of a company is not based simply on what it does, but how the company does it. As Marsh says:

“With the increasing pressure on depleted natural resources and a greater level of scrutiny concerning environmental performance from policymakers and investors, it makes more sense than ever to fully understand the impact that a business is having on the environment and to make changes to business process that are seen to be having a deleterious effect on the environment and society.”

Lagging behind on the issue of sustainability within business operations will eventually mean lagging behind the competition.

Aon Unveils Five Earthquake Hotspots

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Aon has listed five earthquake hotspots around the world, following the launch of its report, “When the Earth Moves: Mega-Earthquakes to Come?” Aon lists the five hotspots as:

Caribbean (Lesser Antilles) – The 2cm a year rate of plate convergence is enough to produce a mega-earthquake of Mw 9.0 once every 3000 years. A major loss in the Caribbean would quickly use up available reinsurance capacity.

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Chile – As the only segment of the Chile-Peru Subduction Zone not to have ruptured within the last 100 years, the north Chile segment is now considered to be a region at high risk from an earthquake similar in size to the 2010 event. Following this year’s earthquake in Maule, reinsurance programs are now renewing with increases of 75% or more.

Indonesia (Sumatra) – Padang is now regarded as being at high risk from a mega-earthquake comparable to that which occurred in 1797, with a magnitude of 8.5 or more. A mega-earthquake would undoubtedly increase the price of reinsurance following a sizeable insured loss.

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Japan – The South Japan Subduction Zone (Nankai Trough) has a complex pattern of three segments. The largest earthquakes rupturing along the whole subduction zone may have magnitudes up to 8.6. A mega-earthquake in this region would most likely be a market-moving event.

North America (Cascadia) – The last mega-earthquake on this subduction zone occurred 300 years ago. While the short to medium term probability of a mega-earthquake may be low, insurers should not disregard the associated risks to the cities along the coast.

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After the devastation in Chile and Haiti this year, predictions like these are a valuable resource. As John Moore, head of international analytics at Aon Benfield said:

“Predicting the location of the next mega-earthquake is an inexact science but by examining the fault lines and historical precedence of earthquake activity in five of the world’s most vulnerable regions, this report sets out to assess the current risk and improve our understanding of where and when the next mega-earthquake could hit.”

Understanding when and where the next catastrophe could take place is the ultimate form of risk management.

BP Oil Spill Claims Reach $1.6 Billion

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This morning, BP announced that the Gulf of Mexico oil spill has cost the company $1.6 billion. The London-based company said that included in the $1.6 billion figure were payments of $62 million that have been paid out to 51,000 claims. The figure also includes “the cost of the spill response, containment, relief well drilling, grants to Gulf states” and federal costs.

With several years (or decades, even) of cleanup ahead, the $1.6 billion is seen as a merely an initial cost figure. Credit Suisse actually estimated the total bill at $37 billion.

President Obama, who has been criticized for what has been perceived as a lack of urgency towards the situation, has announced that the government wants BP to set up an independently managed escrow account to compensate those with damage claims.

A majority of the Senate called on BP to set up a $20-billion account, administered by an independent trustee, to pay for cleanup and economic damages from the massive gulf oil spill, “ensuring that there will be no delay in payments or attempt to evade responsibility for damages.”

The letter was signed by 54 senators, almost the entire Democratic caucus. “The damages caused by your company are far reaching,” the lawmakers wrote to BP’s Tony Hayward.

Obama is scheduled to address the nation Tuesday evening in regards to ongoing oil leak.

Though the current situation in the Gulf of Mexico may seem like the worst oil spill in history, it has, so far, been a far cry from the Ixtoc oil spill. The Ixtoc 1, like the Deepwater Horizon, was an exploratory rig that suffered a blowout in the Bay of Campeche (Gulf of Mexico) in 1979. Fast Company created an interesting infographic that compares the world’s worst oil spills. Here is a section from the rather large graphic:

bp oil spill

When you look at the Deepwater Horizon oil spill this way, it doesn’t look as bad as you thought, right? Well take a look at the environmental impact of this current spill, compared to the impact of previous, and some larger, spills:

Picture 6

Experts say that this event could become the largest oil spill in the world in terms of amount of oil leaked, money required for cleanup and claims and damage to the environment. If BP doesn’t find a solution soon, there is little doubt the Deepwater Horizon oil spill might make the number one spot — an unfortunate accolade.

Alcohol: A Risk from Scotland to South Africa

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When you hear news reports about physical violence, it is not unusual to learn that alcohol sometimes plays a part. In Scotland, however, alcohol-induced violence has taken center stage.

Just yesterday, the head of Scotland’s biggest police force has said that alcohol has played a major role in 14 murders in his area in the past 10 weeks. Stephen House, the chief constable of Strathclyde Police, is grappling with a disastrous trend spreading through his jurisdiction.

“We know that the violence is driven by drink. We see the death and the misery and the lives ruined. Something has to be done about it.”

Searching for options, House called for supermarkets and other alcohol distributors to look at raising their prices to hopefully quell the mass buying and consuming of alcohol in certain areas of Scotland.

But it’s not just Scotland that struggles with the numerous risks associated with drinking. As I covered in a blog post back in October, the United Nations issued a report stating that Russia’s population has fallen by 6.6 million since 1993, and by 2025 the country could lose a another 11 million people.

The reason? According to experts and the AP, it’s vodka, which has contributed to the country’s drastically high mortality rate.

So now we have Scotland and Russia dealing with problems associated with alcohol. Let’s add to that South Africa, which, in just two days, will see hundreds of thousands of fans cheer on their teams — and some (or most) will do so while intoxicated. Facebook has even created a “2010 FIFA World Cup Drinking Game” on their site for those watching from the couch. In preparation for the ensuing bacchanalia, the CDC has gone so far as creating a page entitled “Stay Healthy During the World Cup in South Africa,” which touches on alcohol use.

Alcohol, a risky libation for many countries.