Riding the Tiger
Oct 1, 2020

Word association test: what pops into your head when you see this word?


Be honest now - did that give rise to good thoughts or something else entirely? If CHANGE gives you bad vibes, don't read any further. It'll just ruin your day.

Here's our lead from the latest report from McKinsey: "In most industries, more than half of leaders are considering or planning large-scale changes in their organizations, including how meetings are run, talent management, use of technology, and innovation." The report features an interactive graphic which details planned/likely changes across a wide variety of internal categories for a cross section of ten company types. Good stuff - check it out.

If we look at just the top five categories of impending change (12 in all), we see:


Meeting structure and cadence (80%)


How leaders lead day to day (78%)


Use of technology (76%)


Core processes and how the company is run (72%)


Approach to talent and skills needed (69%)

So, what do you think - will any of this impact risk? As we noted a couple of issues back, the folks at McKinsey have coined the term "the next normal," and this graphic gives that phrase serious reality.

Our suggestion is that you learn, if you don't know already, where your company is on this express train to the station named Next Normal and make certain that risk is part and parcel of change planning, just in case someone might overlook that RISK check box in the haste COVID has piled on all of us. Perhaps even more important, get your brokers, service vendors, and carriers on board with your need to accommodate and channel change in ways that are risk management-friendly and risk-wise. Make them give you their best and freshest thinking. Don't settle for recycled anything.

Our humble Journal tries to keep you up to date with new risk acceptance, amelioration, and management concepts. Are you talking to your brokers about the potential for parametric insurance for some of your more non-standard risks? Are they plugged into the newest information sources, like the example we discuss in the following article about enhanced flood prediction? In short, are you pushing the need for new and better thinking about the next normal (and the one after that and so forth) down to your risk ecosystem? Are you and your brokers, carriers, and service vendors getting smarter, ready to move where your company needs to go?

For a more philosophical and far-reaching look at the big issues of 2020 and the Bulldozer of Change it's driving, take a look at a new essay on the BBC news service, "Are we living at the ‘hinge of history'?" *. Don't be put off by the invocation of "philosophy." The idea that we may be living in a hinge of history, a point at which we see massive swings in how we perceive the world and how we operate in it occur in a remarkably short time frame, is vital to how we approach managing risk. At what point are old ideas and methods systematically obsolete? When does "old think" become "no think"? Do your risk assessment algorithms really have an expiration date - and is it now?

This is not academic abstraction. At the beginning of the 17th Century John Donne wrote, "The new philosophy calls all in doubt." A hundred years later, Europe was not recognizable in any way. For one thing, the direct ancestors of modern insurance companies had been invented along with the first inklings of actuarial science - whole new ways of dealing with the uncertainties of life.

Try our word association test on your risk partners. If they blanch, watch out. Don't take 2010 answers for 2020 problems.

*Part of the BBC's Deep Civilization series. The Brits still do this kind of thing better than anyone else.

photo of a multi-street sign, saying Lost, Confused, Unsure, Unclear, Perplexed, Disoriented, Bewildered
All roads lead to 2020.


So, Tell Me - How Do You Start a Flood?

Let's start with this: Floods are "acts of God," but flood losses are largely acts of man.* Now, let's ask a non-obvious question - why are commercial flood losses so high after yet another hurricane sweeps through? The facilities we manage are not sitting ducks, like granny's doublewide stuck in a trailer park which was located on a floodplain because the land was cheap. In theory, at least, we have options and available actions which can get equipment and materiel out of harm's way - if we know what's coming.

Quelle coincidence, that's the subject of an excellent short piece by Jonathon Jackson in a recent ITL blog. Hurricanes and their subsequent tropical storms are not exactly sneaky. Unlike, say, earthquakes, we can see them coming days in advance. Early forms of storm modeling actually date back to the late 1930s. Unfortunately, most of the models in use today (the ones you see on TV) are not much more advanced than the pencil and paper models that just missed the disastrous Long Island hurricane of 1938. The predictions are too broad (missed Hurricane Laura's landfall by a full 40 miles) and laced with storm-of-the-century exaggerations and unnecessary, off-point warnings. The point of Jackson's essay is that this situation is changing - right now. This is important, so let's quote the heart of the essay:


Over the last 19 years of university and commercial research, in conjunction with the U.K. government, the next generation of flood forecasting has been developed. This uses a live modeling approach, which solves the library-based problems by using hydrodynamic modeling, explicitly routing flood water over the landscape. This new forecasting system has been proven globally, including against Superstorm Sandy, which hit New York City in 2012, where the model had 90% accuracy.

Couple this with the fact that some 50% of recent flood losses have been outside FEMA's designated high risk areas and you can appreciate the potential power of enhanced flood science to help you relocate valuable inventories and equipment and assist your people in managing their own personal risks when the skies let loose, like Hurricane Harvey which dumped one million gallons of rain for every man, woman, and child living in Texas.

One common theme nowadays is that current predictive science allows us to do so much more to manage risk than to negotiate the lowest premium dollar for a coverage and call it a day. Dr. White's words ring louder today than ever.

*The words of Dr. Gilbert White, often called the father of floodplain management and a prolific writer on the subject who continued publishing important papers well into his 90s (our kind of guy).

cartoon of a house in a flood
You think this fall is tough? Wait until spring.


Quick Take 1:
How About Tsunami Risk - The Silver Tsunami, That Is?

How can the words "tsunami" and "ERISA" fit in the same sentence? Try this - a number of household name companies are defending themselves against lawsuits alleging mismanagement of 401(k) accounts, as retirement plan litigation under the Employee Retirement Income Security Act (ERISA) becomes a new form of silver tsunami. Yes, indeed, here is another one of those quicksand pits where risk and HR overlap. Ask your buddy in HR to let you read all about it on his Society for Human Resource Management (SHRM) access to the Resources and Tools site pages

The Boomer retirement tidal wave, the silver tsunami, is breaking as we write and retirement plan litigation is a "thing" now and corporations are being named. At the heart of many of these cases are allegations that employers' retirement plan oversight committees tolerated high fees and poor investment performance. What can risk management do? Well, here are a few ideas which can help contain, but not eliminate, risk, courtesy of SHRM:


Have an active plan oversight committee with a written charter and broad representation. Nothing says negligence more clearly than the absence of meaningful oversight.


Provide periodic fiduciary training for committee members - just like you do for drivers, heavy equipment operators, and others in risk attracting jobs.


Create and update a written investment policy statement.


Minimize investment fund expenses. Use flat dollar fee services to the extent feasible.


Compare investment performance relative to risk and drop consistently underperforming funds.


Document activity and decisions.

There's more, but you get the idea. HR sometimes likes to think that this is their exclusive domain, but when millions of dollars are potentially at risk and appropriate insurance is vital, in case that sure fire investment in new snail breeding technology fizzles, risk management should be at the table.

Don't let this be you.


Quick Take 2:
Say, Pilgrim, What Kind of Ship is That, Anyway?

So how much of the world's freight, probably including major parts of your supply chains, travels by sea? What do you think - 50%? Maybe 60%? A recent report in the Smithsonian Magazine tells us the answer is 90%. That's a lot of potential exposure, which is why we zeroed in on a recent item profiling the new Mayflower.

The new Mayflower: no humans need apply.

According to The Daily Mail, this new research vessel is completely autonomous.

The nugget for risk managers is this:


The ship will be staffed with an AI Captain that uses computer vision, automation software and IBM's Watson technology. Human operators will program the Mayflower on where to travel, which then deciphers a plan to reach the designated point. The ship is also designed to react to ocean traffic in real-time using combination of radar, cameras, and the Automated Identification System (AIS), which transmits information such as the Mayflower's latitude and longitude to other boats.

While this Mayflower's mission is oceanic research, it will also be proving out the AI captain concept. The absence of a crew, with all those bothersome requirements humans have, like a galley, a head, bunks, etc., means much more room for the science experiments. Or, if we look down the road a nautical mile or so, paying cargo. The new ship is also solar powered, thus providing real world testing for another important new tech concept.

What impact might new AI/solar ships have on the cost of shipping - or of marine insurance? Will Captain AI forget where the reefs are (Exxon Valdez) or misread the gathering weather (El Faro) or ignore iceberg sightings (Titanic) or not notice that other ship in front of his (Stockholm)? Remember that 90% figure? Captain AI is unlikely to take the bridge on every ship any time soon, but over the coming decade or so, he and his clones may have a serious impact on the cost of shipping. Stay tuned.

We should note that the first Mayflower had an estimable captain in Christopher Jones of Rotherhithe who brought his ship safely back to England after depositing those quarrelsome pilgrims in Massachusetts. The Mayflower herself was broken up shortly thereafter and her timbers salvaged for a barn in Buckinghamshire. The new, high tech Mayflower seems unlikely to wind up as a barn.

The other Mayflower II (a replica of the original)


Words to Remember

Guess which month is the riskiest to drive.

Is it January, when revelers tend to crash on New Year's Day? Or July, when the same thing happens on Independence Day? Is it November or December, when people hit the road for Thanksgiving and the winter holidays?

Nope. It's September.*

*From the Insurance Institute for Highway Safety, courtesy of Dow Jones News Service. Looks like we dodged the bullet this year.


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