I was at an IoD event the other night celebrating the award of two distinguished fellowships. As I networked people naturally asked what I do and I answer relatively simply – risk and insurance The conversation turns very quickly to the affects to the storm in Auckland and the subsequent cyclone damage along the east coast.
As we discussed various aspects of public policy, the damage itself and whether and how recovery would occur there appeared to be something that we weren’t talking about. As I reflected on the conversations there isn’t appear to be a common language around the risks that businesses and people are exposed to.
Sow while there will be great work done to rebuild communities and peoples lives there should be work undertaken to establish, using a common language and framework, what risks are people and businesses exposed to. If we have a sense what might happen we can have a reasoned debate about what we can do about it.
At this point we should probably clarify what a risk is. While there are numerous definitions my preferred approach is to consider a risk as three distinct questions
- what are we exposed to/what could happen?
- what could trigger that exposure and
- what would the consequences be
Consequences (impacts) can arise from a number of different perspectives. They can be financial, physical, emotional, or combinations of all three. Once you know the consequences then the debate can move on to what you can do about them. Broadly the options come down to
a) Accept the risk itself
b) mitigate the risk – do something that reduces any one of the three risk descriptions. Can you mitigate (reduce or eliminate) the exposure or can you reduce the trigger and if neither of these can you reduce the consequences.
c) avoid the risk – is there some way of making the risk go away
d) transfer the consequences to others – this is often through insurance but can involve other approaches.
These types of risk assessment processes are often run to give the Directors and leadership a clear sense of what could impact the performance and sustainability of the business. And it presents the Directors and managers with a range of options and actions that they can take. They are top down, individual and often treated, quite correctly, as a confidential competitive lever.
However his type of assessment is rarely undertaken by households or small businesses. imagines however if every household in New Zealand had undertaken a process like this? Many would have identified flood as a major exposure and when individuals information is aggregated at a community or regional level there would, perhaps, have been much greater insight on the risks that people and small businesses are exposed to. The sort of insight that helps councils and planners reduce or eliminate some of the risks. Perhaps the exposure to the waste left from logging work would have been identified earlier allowing some of this risk to be reduced or eliminated. Just imagine the clarity and empowerment a shared understanding of risk exposure could create when driven from the bottom up.
On the subject of the left over logging remains I was surprised by a comment made that the waste wasn’t removed because this would have made the logging business uneconomic. That is perhaps understandable as a comment about the logging industry itself but takes no account of the consequences that can rise from waste being pushed down by torrential rain and storms. Consequences are often (not exclusively) financial and for those households, bridges and communities impacted by the damage caused by the waste the impacts are substantial. Considering risk from the perspective of not just the logging companies economics but also from the perspective of the exposure to wider community is an important next step if we are to correctly assess and understand risk.
I’d welcome your feedback
The Burble 