NEW YORK — Risk managers need to shift from a threat-centric approach to one that emphasizes resilience, an expert said Wednesday at Business Insurance's Risk Management Summit in New York.
Delivering the keynote address, Stephen E. Flynn, Boston-based professor of Political Science and director of the Center for Resilience Studies at Northeastern University, said the rash of catastrophic events from 9/11 to the 2008 financial crisis to Hurricane Katrina and Superstorm Sandy have disabused risk managers of the notion that the purpose of risk management is to eliminate risk.
“Risk is to be managed, it is not something that can entirely be avoided,” Mr. Flynn said. “In the latter half of the 20th century, we seduced ourselves into thinking that we could reduce risk to near zero. In the process, we started to lose some of skill sets we need when a risk does manifest itself.”
Sandy shifted focus to resilience
Superstorm Sandy proved instructive in how a focus on resilient systems can be effective, Mr. Flynn said. As risk managers across both the private and public sectors prepared for the storm, many relied on plans heavily based on past experience. For example, in anticipation of the storm, the New Jersey Transit Corp. moved many commuter rail cars to a rail yard in Hoboken, N.J., in case high winds knocked down trees and blocked tracks in the central part of the state. The rail yard was flooded as Sandy came ashore, damaging many of the trains, Mr. Flynn noted.
“Past hurricanes were largely wind events,” he said. “But past experience is sometimes not a good guide.”
The struggles to restore fuel to the New York City metro area after Sandy also illuminated risk management deficiencies, Mr. Flynn said, noting that the majority of the 42 million gallons of fuel the region consumes daily comes from pipelines that enter the region through New Jersey. Despite angry protestations from residents and politicians, it took time to restore the fuel supply to the 800 gas stations in the region because the storm had damaged the grid, which provides power to pumping stations along the pipeline.
“No elected official really understood the complexity of this system,” he said. “Mayor (Michael) Bloomberg didn't understand the need for electricity in central New Jersey. We didn't understand the system at the micro level.”
Accordingly, risk managers need to concentrate efforts on making systems resilient through better design and planning, Mr. Flynn said.
“Pre-event, we have to model the system and then do resilient design,” he said. “We have to focus on anticipated risk, not backward-looking risk. Should we be designing infrastructure in coastal cities based on data from 2000 in 2014, or should we look at the risk coming at us?”
Nonetheless, the time immediately after event is vital to incorporate lessons learned during the event, Mr. Flynn said.
“Post-event, we have to learn, adapt and improve, and that ultimately feeds back into plan design,” he said.