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Catastrophic Risks
Are there Gaps in Your Risk Management Strategies?
Mark Aiello Marsh Risk Consulting

Overvie
! "e#ining Catastrophic Risk ! Accepting the Potential ! Measuring Catastrophic Risk ! Managing Catastrophic Risk

$% "e#ining Catastrophic Risk

&hat is Catastrophic Risk?

'o is a catastrophic event typically de#ined?
Common Descriptors Global Disaster Tragedy Natural hazard Accident Etc. Common Events Earthquake Tsunami Hurricane Terrorist attack Plane crash Etc.

Glo(al Catastrophic Risks

Do the critical global risk issues rank highly in your organization Ho! are catastro"hic risks unique to indi#idual organizations
$ource% &orld Economic 'orum( Global )isks *+,,

Case Study
Example

2010 Deepwater Horizon spill

&ould you consider this a catastro"hic e#ent &ho !as this catastro"hic -or

Re#ining the "e#inition

!uestion
How do you define catastrophic risk for your organization

De-inition is unique -or di--erent entities .ust align !ith tolerable ca"acity )e"resents a !orst case scenario

)% Accepting the Potential

*gnoring the +lephant in the Room

Challenges
/o! likelihood e#ents Di--icult to "redict Nebulous e#ents Poorly de-ined metrics 0om"le1( -ar reaching im"acts ! ! ! !

"ypical #esponse
*nactivity Avoidance ,-orce #ield. O## the shel# / (est e##orts planning

$utcome
! Poorly prepared #or ma0or incident ! 1ntested / improper plans ! Potential #or compounding impact

Accepting the Potential #or 2oss

! Accept that catastrophic risks can happen ! 1nderstand and diligently 3uanti#y the (road potential impact on your organi4ation ! Plan appropriately

5% Measuring Catastrophic Risk

"etermine 6olera(le Capacity

! 'o much can e a##ord to lose? ! At hat point do e risk continuity o# operations?
6
Target 2utcome 3e.g. Earnings4

Profit warning Covenant breach Capital wiped out

.easuring 0atastro"hic )isk

9uanti-y the "otential im"act to the organization
7alues

8m"act Path!ay

De#elo" a ste"6!ise a""roach to -ollo! the inter6related im"acts

De#elo" credible e#ent scenarios

$cenario

0onsider :the im"ossible; De-ine critical "rocesses !ithin the organization

0ritical Processes

7alues

8m"act Path!ay

"e#ining Critical Processes

! &hat are the critical processes in your organi4ation? ! &hat assets / processes / #unctions can you not a##ord to lose? ! &here do multiple processes overlap or converge?

$cenario

0ritical Processes

7alues

8m"act Path!ay

"e#ining Critical Processes

Distribution Process
0redit 000<$ales
2rdering( ser#ice( etc.

$cenario

0ritical Processes

0ustomer

Distribution 'ield 0oordinator = .gr

Provides direction Information sharing Advising

Dis"atch
Provides direction Daily loads & deliveries via on-board computer

$er#ice
Advises

$er#ice Tech
Repairs, etc.

Critical Process Garage

Vehicle aintenance

,+@

?+@

Dri#er
!ecure instructions from dispatch Drive to loading rac" to load fuel per driver#s manual

Product /oading by Dri#er

$op or bottom loaded per driver#s manual %alculate amount of product Revie& previous vehicle inspection log %hec" vehicle & complete ne& inspection log 'pre-trip( Repair any safety defects

Product Trans"ort
Vehicle operation Road conditions Delivery delays echanical problems Accidents )ire Improper operation 'speeding, etc.( *ses manifest to plan daily delivery route

>nloading at 0ustomer $ite

*nload at client location per driver#s manual %omplete daily shift report Verify delivery tic"ets

Critical Process

Critical Process

Delivery %rocess

Dri#er Training

Dri#er .anual

Dri#er $election 0riteria

7alues

8m"act Path!ay

"eveloping Scenarios
Global e#ents 8ndustry e1"erience 8ndi#idual e1"erience 0reati#ity

$cenario

0ritical Processes

'ocus on critical "rocesses 0onsider !orst case e#ents Plausibility Assume -ailure o- controls Take :outside6in; "ers"ecti#e

Credi&le catastrophic event scenario

7alues

8m"act Path!ay

"eveloping Scenarios
! 1se critical processes as a starting point ! -ocus on a managea(le num(er o# ma0or scenarios ! Consider all do nstream e##ects

$cenario

0ritical Processes

7alues

8m"act Path!ay

*mpact Path ays

'mpact %athways( A method o- systematically identi-ying e#ent im"act Describe detailed "rogression o- the risk e#ent Areak im"acts do!n across the #alue chain 0onsider de"endencies and inter6related "rocesses

$cenario

0ritical Processes

7alues

8m"act Path!ay

*mpact Path ays

)hy *se 'mpact %athways /ogical( ste"!ise a""roach to risk e#aluation Promotes reasonable estimates o- likelihood and im"act Allo!s -or the identi-ication and inclusion ointerde"endencies o- "rocesses 8ncreases the credibility o- analysis results

$cenario

0ritical Processes

7alues

8m"act Path!ay

*mpact Path ays

$ccurrence 'mpact +reas
Direct -inancial

$cenario

0ritical Processes

'mpact "ypes

'mpact #esult

0osts -or e1ternal legal counsel Budgement < settlement costs Public relations < de-ensi#e marketing

,inancial cost

/egal

,inancial cost

)isk e#ent

)e"utation

,inancial cost

2"erations

/oss o- donor -unding

,inancial cost

Etc.

7alues

8m"act Path!ay

*mpact Path ays

-ample "ree Diagram
No 'ire $carsdale 'acility 'ire

$cenario

0ritical Processes

0hance o- 'ire 0

?C.D@ +

./012 0 ?D.+@ + 0on-inement 3.04//2451. D.+@ Not 0on-ined +

0on-ined To )oom 2- 2rigin

- ILLUS RA I!" 0011332 0 0002.62 0 0000672 0 5017E80/ 0 0001672 0 000012 0 006/.12 0 0002652 0 0000222 0 703/E80/ 0 00031/2 0 0007012 0 ?C.+E@ E--ecti#e $"rinkler 2"eration + D+.+@ + $"rinkler 2"eration ..041.3416. +.F*@ +

&et $"rinkler

$"rinklers Not E--ecti#e

No $"rinkler 2"eration

E.,D@ +

/arge 'ire

ED.+@ +

0ontrols in Place .1240354355 F+.C?@ +

FD.+@ + 0on-inement .1641114.51 ,D.+@ Not 0on-ined + GH.+@ 0on-ined To )oom 2- 2rigin + 0on-inement 37040214501 *C.+@ Not 0on-ined +
0on-ined To )oom 2- 2rigin

0on-ined To )oom 2- 2rigin E--ecti#e $"rinkler 2"eration

Pre6action $ystem

D+.+@ +

$"rinkler 2"eration .154/504205 +.H*@ +

0on-inement 1.542774337 D.+@ Not 0on-ined + FD.+@ + 0on-inement 20.452.4..1 ,D.+@ Not 0on-ined + GH.+@ 0on-ined To )oom 2- 2rigin + 0on-inement 6504.724017 *C.+@ Not 0on-ined +
0on-ined To )oom 2- 2rigin

?D.+@ +

$"rinklers Not E--ecti#e

No $"rinkler 2"eration

,F.F?@ +

'ire

E.D@ +

$ize o- 'ire 0 CD.+@ +

$mall 'ire

D+.+@ + 0hance 1..4013433. D+.+@ $moldering 'ire +

.anual E1tinquishment

1017512 0 1017512 0

7alues

8m"act Path!ay

Generating *mpact 7alues

)hat you get( Probabilistic ranges o"otential im"acts 0lear delineation oim"acts and controls 9uantitati#e "rioritization ocatastro"hic concerns How it helps(

$cenario

0ritical Processes

De-ensible( quantitati#e a""roach 'osters internal discussion Dri#es targeted( rele#ant risk management actions

8% Managing Catastrophic Risk

Mitigation
%re8event ,ocus9 : ;ikelihood : Exposure
Pre#ention

%ost8event ,ocus9 : 'mpact of event

.itigation

A#oidance

#isk event

Trans-er < -inance

0ontrol

0ontinuity

Pre9+vent Mitigation
! *denti#y drivers ! -ocus activities on drivers ! *denti#y process improvements that can minimi4e occurrence ! +arly identi#ication is key
Number o8ncidents
Theoretical im"ro#ement in cur#e due to early !arning o- "roblem

8deal ty"ical cur#e o- a "roblem;s history

/osses
;osses

Time
'irst utilization o"roduct or ser#ice 'irst -ailure Problem understood

Pre9+vent Mitigation
-"E%%reparedness #eview #esiliency Development =usiness 'mpact +nalysis -trategy -election %lan %reparation "esting <aintenance

+C"'$> 8denti-y e1isting Analyze #alue reco#ery chain strategies( Purchase risks( business "olicies issues( and Di#ersity ga"s 8denti-y critical De-ine Document Train "rocess reco#ery reco#ery ste"s em"loyees strategy -or business )eco#ery times 0ontinuous o"tions units im"ro#ement 'inancial and $elect strategy non6-inancial im"act

Post9+vent Mitigation
#e$ Actions ! Putting planning into action ! 1sing support net orks / resources ! Communication

Measuring Your Plan

%ave $ou& ! "e#ined catastrophic risk #or your organi4ation? ! *denti#ied potential catastrophic risks? ! 6horoughly 3uanti#ied potential impacts? ! "eveloped a #ocused plan? ! Practiced your plan?

2egal
6he in#ormation contained herein is (ased on sources e (elieve relia(le: (ut e did not veri#y nor do e guarantee its accuracy% *t should (e understood to (e general risk management and insurance in#ormation only% Marsh makes no representations or arranties: e;pressed or implied: concerning the #inancial condition: solvency: or application o# policy ordings o# insurers or reinsurers nor does Marsh make any representations or arranty that coverages may (e placed on terms accepta(le to you% 6he in#ormation contained in this presentation provides only a general overvie o# su(0ects covered: is not intended to (e taken as advice regarding any individual situation: and should not (e relied upon as such% Statements concerning ta; and/or legal matters should (e understood to (e general o(servations (ased solely on our e;perience as risk consultants and insurance (rokers and should not (e relied upon as ta; and/or legal advice: hich e are not authori4ed to provide% *nsureds should consult their o n 3uali#ied insurance: ta; and/or legal advisors regarding speci#ic risk management and insurance coverage issues% Marsh assumes no responsi(ility #or any loss or damage sustained in reliance o# this presentation% Marsh is part o# the #amily o# Marsh < Mc2ennan Companies: including Guy Carpenter: Mercer: and the Oliver &yman Group =including 2ippincott and >+RA +conomic Consulting?% 6he materials: data and/or methodologies used in this presentation are proprietary to Marsh% 6his document or any portion o# the in#ormation it contains may not (e copied or reproduced in any #orm ithout the permission o# Marsh Canada 2imited: e;cept that clients o# any o# the companies o# Marsh < Mc2ennan Companies need not o(tain such permission hen using this report #or their internal purposes: so long as this page is included ith all such copies or reproductions% Copyright )@$$ Marsh Canada 2imited and its licensors% All rights reserved% &&&.marsh.ca + &&&.marsh.com

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