Risk management, civil society, and where we go from here

Babble on.

Last night I began my latest professional development course: Essentials of Risk Control. For those of you who aren't in the Property & Casualty (P&C) insurance business, insurance risk managment is comprised of two fundamental areas. Risk financing looks at ways to pay for accidents. Risk control looks at ways to prevent or mitigate the damage from accidents.

Predictably, discussion gravitated towards the disaster of Hurricane Katrina, and specifically to New Orleans. We all agreed that the Risk Manager for the City of New Orleans - if they have one - has most likely lost his or her job. Gallows humour. None of us, including the instructor, are disaster relief specialists, but all of us get paid to think about bad things - how to prevent them, and what to do when they occur. That's a large part of what the insurance industry is all about. Average experience in this class is over ten years in the business. I think some of what we discussed might be relevant to the tail-chasing many of us in the blogosphere are doing on the Katrina issue.

One of the approaches to Risk Control involves dividing methods into pre-loss and post-loss categories. A pre-loss measure for Katrina might have been to build better levees - preventing the flood. A post-loss measure could be to airlift stranded residents out - reducing the negative effects of the flood. I think in looking at who was responsible for what in this entire tangled mess, it might be useful to follow this division: what could have been done better before Katrina hit, and what could have been done better during and after the storm? From what I've read so far - and I'm fully aware there is a lot of conflicting information flying around out there right now - it seems the feds will shoulder much of the blame on the pre-loss front, but that the state and local governments bear much of the responsibility for the post-loss mistakes. There will undoubtedly be an inquiry or two (or twelve) into this incident, and I look forward to a little bit of clarity on what the plan was and how that plan was executed, because that will tell us much about where the mistakes occurred.

One of the big points of discussion in our class last night was whether a centralized or decentralized Risk Management approach was best for large organizations. The instructor and most of the students work in the private sector - only a couple of the students work for the government. The class was generally of two minds on this point. While everyone present understood the value of having local people who know their own situations intimately drive Risk Control at ground level, we all also agreed that some aspects have to be top-down initiatives. For example, it's reasonable for a head office or a federal government to insist branch offices or local governments have a risk management plan that covers the major bases, but it's counterproductive for the central authority to write that plan. Local people know local problems and are the best resource to deal with those problems. Pretty much everyone in the class agreed that oversight and support are the most important functions of a central authority, but that management of the loss has to be done at a local level if it is to be effective.

I mulled this problem and our discussion around in my head on the way home, and I think it can be boiled down to this: centralization is the easiest way to address risk managment, but decentralization done right is more effective. A decentralized model is more flexible, more responsive, and more creative. The catch is that decentralization is tougher. It requires communication, calm, and the subordination of egos to the greater good. Again with the caveat that we don't know the exact chain of events yet, it seems the decentralized model broke down in Louisiana with a lack of communication, some ill-placed panic and choking by some officials (federal and local), and at least one ugly political turf war.

Of course, the circumstances of this particular disaster have to be taken into account. Other than a WMD or hazmat accident, flooding is the most difficult situation to manage. In New York after 9/11, relief teams were able to be based blocks away. Not so in a flood zone, especially one this large. After an earthquake or a snowstorm or an electrical grid failure, it's much easier to stage rescue and relief efforts. Deep water poses unique problems, and it would help if more people understood that.

I said it in a previous post, and I'll say it again: I wonder how much better this entire disaster could have been handled. That is to say, it could obviously have been better prepared for and relief efforts could have been better run, but by how much? Damage and suffering couldn't have been entirely avoided, but they could undoubtedly have been mitigated. Shoring up the levees years ago is the most obvious measure, but once you get beyond that, good answers become more difficult to settle upon.

Some people are suggesting that the one good thing to come out of all this is that more cities and companies will take a serious and critical look at their own crisis management and continuity of operations plans. I'm not so sure. People said the same thing after 9/11, and since then we've had a major electrical grid failure that was miserably prepared for, and a flood that was dealt with even more poorly. And we haven't yet experienced the major earthquake in the Vancouver-Seattle area that every expert expects. Who knows how well-prepared we are for an incident like that?

I'm concerned that most people I talk to expect government to figure it all out for them. Those of us who can prepare - each individual, each family - should prepare. You're better off to volunteer for a local fire department or St. John's Ambulance, or the Red Cross than you are waiting for some faceless bureaucrat in Ottawa to wave his magic wand. Goverment has a role to play, no doubt about it, but civil society - which means you and me - can be far more effective in both the preparation for and execution of disaster relief. We should demand a great deal from our elected representatives and the machinery of state that they control, but we should not excuse ourselves from that demand. Volunteer. Prepare. And let there be no more fiascos like New Orleans.

Babble off.