Category Archives: Crisis Management

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Lessons Learned from Winter’s Wrath

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What a winter. As the “polar vortex” pushed cold weather from the arctic all the way to the deep south in the United States, severe snow storms and frigid temperature cost the American economy billions. While there have been obvious physical losses, such as roof collapses and endless potholes to repair, three less evident balance sheet exposures have wreaked havoc across a broad swath of industries. People are paying attention to the economic impact of the weather (witness #frozenomics on Twitter, a term coined by CNBC).  Here are some of the weather-related exposures we are watching:

  1. Event cancellations. This season’s major snowstorms and unrelenting freeze forced the cancellation of countless events, from conferences, to sporting events. Event hosts have suffered not only lost revenue from attendees, they forfeited the merchandise sales and “sunken costs” – from signage to non-refundable food and beverage deposits -of their suddenly defunct events. Even those that staged events far from the possibility of snowflakes felt the fallout, as airlines cancelled flights in record numbers. (Some 13,500 flights were cancelled in one week in February alone. ) In many cases, attendees just could not make the trip, as winter weather halted transport to even sunny locales.
  2. Lost income. When customers cannot be out and about due to winter weather, sales suffer, business income drops. One restaurant in Atlanta lost $75,000 in revenue due to the snow on Valentine’s Day alone. This season not only gave us enormous amounts of snow, but prolonged frigid temperatures and precarious ice-filled sidewalks kept customers away from everything from outdoor skating rinks, retail shops, to car dealerships. Event planners and business owners saw income decline accordingly.
  3. Snow removal. Extraordinary snow removal demands tore through the budgets of municipalities and highly-trafficked properties such as hotels and airports. Roadways, parking lots and sidewalks must be safe and passable, so entities had to reallocate to find funds for labor, salt, de-icer and grit. In many cases, these costs were two or three times the amounts anticipated for the season. Last month, the state of Virginia was projecting its snow removal costs could reach $370 million, or twice the usual expenses.  Even places that normally expect minimal, if any, snow suffered costly storms. Property managers and association board members up and down the East Coast have been left scratching their heads over what to predict for next year’s snow removal budget.

The sunshine of spring will make it easy to forget this winter’s wrath, but for many, the hard financial lessons of this winter will leave lasting impressions. Looking ahead to next winter, risk managers can use hindsight to be sure their business is well protected on all (weather) fronts. Versatile insurance solutions can do everything from addressing the multiple facets of event cancellation losses, to bringing certainty to snow removal budgets and stabilizing business income through stormy times.

The following infographic from Beazley offers some interesting statistics on the winter that was:

The Attack of Jamzilla

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Residents of Los Angeles are serious about their cars. Really serious. Since traffic jams are routine in and around the city, an 80-hour closure of a major artery like Interstate 405 is nothing to be taken lightly. This is why the Metropolitan Transportation Authority needed a plan to get the attention of drivers before they made repairs to the 405—which carries more than 300,000 vehicles a day and is one of the heaviest traveled in the country.

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The $1 billion 405 Freeway construction project over President’s Day weekend added a carpool lane and improvements to entrances and exits along a 10-mile pass. It also required full and partial closure of the northbound lanes.

To get the attention of motorists, the project was dubbed “Jamzilla.

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” According to the Los Angeles Times, this follows the lead of closures of the 405 in 2011 and 2012, with replacement of the Mulholland Bridge. Local media dubbed the events “Carmageddon” and “Carpocalypse,” and “Carmageddon II.” While the names may sound frivolous, the media hype helps make sure that drivers pay attention and stay away.

For Presidents Day weekend, “we wanted to come up with a term that would be like Carmageddon in its ability to influence the public,” said Dave Sotero, a spokesman for the Los Angeles County Metropolitan Transportation Authority, told the Times. The strategy has been successful in the past. In 2011, the Metrolink commuter train system, in fact, reported their ridership was 50% higher during the construction at the same time the previous year.

Jamzilla was a complex paving operation in a 5.6-mile stretch, with the contractor, Kiewit Infrastructure West, pouring single layers of pavement at a time. Metro officials compared the job to “baking layers of a wedding cake—a far more delicate task than the bridge demolition that prompted the ‘Carmageddon’ full-freeway closures.”

K.N. Murthy, executive director of transit project delivery at the Metropolitan Transportation Authority said, “Operationally speaking, demolishing a bridge is a much simpler operation than paving and striping freeway lanes that must return to public use as quickly as possible. It’s the essential difference between destroying a structure and building a structure. Building something is much more difficult, and the paving methods we are using vary between each material type and have specific requirements that must be adhered to.”

Last week I visited Los Angeles and found Jamzilla to be a topic of conversation everywhere. Trips to destinations on the West side of L.A., such as the J. Paul Getty Museum right off of the 405, were scrapped and an extra half-hour was added to my already generous travel time to LAX early Sunday morning.

The good news is that all the hype surrounding Jamzilla resulted in success. Fortunately for me, traffic was so sparse that I arrived at the airport an hour early. Traffic overall was said to be lighter than usual on the 405 with no major jams. The Times reported a successful project and the 405 was opened an hour ahead of schedule. So much for Jamzilla.

Executives Explore Strategic Risk

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Quickly made business decisions and innovations in technology—such as big data and social media—can throw a curve to a company’s strategic risk management, according to a survey by Deloitte. As a result, risk managers need to be prepared to act quickly to avoid disruptions that can follow.

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The study, Exploring Strategic Risk: 300 Executives around the World Say Their View of Strategic Risk is Changing, found that 81% of companies surveyed manage strategic risk explicitly, focusing on major risks that could impact the long-term performance of their organization.

Strategic risk management is also more of a board level priority, with 67% saying the CEO and board have oversight in managing strategic risk. They also say reputation risk is now their biggest risk concern.

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Much of this concern is due to the instantaneous aspects of social media globally, which can impact a company’s perception in the marketplace.

While reputation was already the top risk identified by financial services three years ago, and still is today, the energy sector didn’t see reputation as a top-five risk. Today, however, they see it as their number-one risk.

Respondents said they expect human capital and innovation to be the top strategic assets for companies to invest in three years from now, according to the study.

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Illustrations: Deloitte

Train Disaster Calls for Safety Action

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Photo: eddtoro/Shutterstock.com

At 7:20 a.m., Dec. 1, four people died and more than 68 were injured, 11 critically, when a speeding passenger train headed for Grand Central Terminal derailed on a steep curve.

Brake failure was cited as a possible reason for the crash, but inspections determined that the brakes were in good condition. The train’s operator, who recently had been switched to an early shift, later said he may have dozed off, failing to apply the brakes in time to avoid the crash.

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The derailment is of special interest to me. The Hudson line is the one I take to work every day and is the same line that suspended service in July when 10 CSX garbage cars derailed near the same location, just north of the Spuyten Duyvil train station.

This week the Federal Railroad Administration cited the MTA’s safety record as “unacceptable.” The agency noted a series of other recent major accidents on the commuter railway: a two-train derailment May 17 in Bridgeport, Conn., where more than 70 people were injured, the death of a track worker in West Haven, Conn., who was struck by a commuter train, and the CSX train derailment, according to DNAinfo New York.

The Associated Press said that injuries from train accidents on Metro-North are higher this year than any of the past 10 years, with 123 people injured in train accidents through August. A 2012 report by the Government Accountability Office found human error to be the cause of almost one-third of train accidents from 2000 to 2009.

The question being asked is why a safety measure—an automated system that would stop a train that is out of control—was not in place, even though “positive train control” has been called for by the national safety board. In response to several fatal accidents and to combat human error, The Rail Safety Improvement Act of 2008 mandates that positive train control for passenger and freight trains be operational by Jan. 1, 2015. Because of the costs to install the technology, estimated between $6 billion and $22 billion, however, Congress is considering an extension of the deadline until late 2018.

The GAO report described positive train control as a system designed to prevent accidents caused by human factors, including train-to-train collisions and derailments that result from trains exceeding safe speeds. It is also designed to prevent incursions into work zones and movement of trains through switches left in the wrong position.

While its safety record leaves much to be desired, the MTA was fast to resurrect its contingency plans. On Monday, thousands of commuters were transported by bus from the Yonkers train station to a Manhattan-bound subway. I made the trip, which was seamless but understandably slow-going. It took me two-and-a-half hours to get to work.

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A standout were the first responders. They were fast to arrive on the scene, rescuing people from damaged cars and getting them to area hospitals. Responders and spokespeople were articulate, and did not speculate as to the cause of the crash. They were impressive.

As of yesterday service on the Hudson Line is fully restored.

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This is an amazing feat considering that the train cars had to be removed by cranes from a tight section of track flanked by the Hudson River and a steep rock embankment, all during an intense investigation. Sections of damaged track also had to be rebuilt.

Yesterday’s train ride was thankfully uneventful and today’s even more so, but there was a sad reminder of the disaster on both days, when the train came to a crawl as it approached the deadly curve at Spuyten Duyvil. Another reminder was several pieces of heavy equipment used for cleanup, still sitting near the tracks.