Managing Risk in a Certainly Uncertain World

 
 

Managing Risk in a Certainly Uncertain World

Historic drought in the Midwest, scorching temperatures across the country, a rare “derecho” that slammed Washington, D.C. and Superstorm Sandy make extreme weather events a top-of-mind issue for business and consumers alike. The Washington State Department of Ecology earlier this year released a report entitled “Preparing for a Changing Climate”, an integrated response plan for the impacts of climate change on our state (http://www.ecy.wa.gov/climatechange/ipa_responsestrategy.htm).

The report is a response to the reality that more frequent natural catastrophes may be “the new normal”, placing individuals and organizations at higher risk. Scientists predict current weather trends will continue and in some cases accelerate, posing significant risks to human health, forests, agriculture, supplies of fresh water, coastlines, and other natural resources vital to Washington State’s economy, environment, and way of life.

Businesses would benefit from following the state’s lead in preparing for the impacts of climate change. Prudent leaders should take steps to understand and quantify the risks to their businesses, make adjustments where possible, and mitigate inescapable consequences through insurance or other innovative methods.

Below are three steps CEOs, CFOs and risk managers can take to prepare for an uncertain future, where the critical questions are not if, but when, will climate-driven catastrophes strike, and how devastating willtheir impacts be to operations.

Step 1: Perform a risk analysis to identify exposures based on the organization’s susceptibility to likely impacts of climate change. For instance, are you a manufacturer that relies on cheap power to produce yourgoods? How would a tripling of energy costs impact your bottom line? For fruit or vegetable growers, what would happen if water rates tripled, or access was rationed?  How will warming oceans affect a commercial fishing company’s catch?

Forward-thinking organizations are working to better understand natural disasters and their potential to disrupt business. Three years ago, I-5 was closed for a week due to flooding between Seattle and Portland. The entire Kent Valley braces for the impacts of the winter and spring rains, which seem to increase in intensity and frequency each year.  If your business involves transportation, warehousing or manufacturing in or near flood-prone areas, you would be wise to establish and test contingency plans now, rather than hoping for better weather.

By looking ahead and considering a wide range of possible scenarios, smart businesses can position themselves to protect, if not expand, their businesses now and in the years to come.

Step 2:  Insurance companies are (understandably) reviewing their approaches to offering policies, coverages and limits.  And you can be sure that rates will go up commensurate with increased risk and likelihood of claims.  Only after you have completed a thorough risk assessment can you create a proper cost/benefit analysis of available insurance coverage.

Step 3: In addition to traditional insurance policies that transfer financial impacts of hazard losses, there are new and innovative ways for companies to hedge climate risk. There is a wide range of products – forwards, futures, options, swaps – designed to enable buyers to reduce risk associated with adverse or unexpected weather conditions. These products are available to address an array of weather events, including temperatures, snowfall, frost and hurricanes, in many parts of the United States and the world.

Now is the time to take a serious look at your exposure to climate-related risks. Considering a range of potential futures enables you to make adjustments that may help you avoid material adverse impacts, and could position you to thrive in a changing environment. A rigorous assessment will also prepare you to make more informed choices regarding insurance or other hedging tools designed to address unanticipated or unavoidable climate-related losses.

Mark Twain is well known for the adage, “Everyone complains about weather, but no one does anything about it.” Today, organizations can challenge Twain’s maxim by deploying a wide range of risk management tools and techniques to evaluate, control, and finance weather risks.

 

Seth Shapiro is a senior vice president and risk strategist at Kibble & Prentice, a USI company. He can be reached at 206-441-6300 or seth.shapiro@kpcom.com

 

Final Analysis: The Sporting Life in 2017

Final Analysis: The Sporting Life in 2017

Three predictions for the coming year on a new arena, an old arena and the Mariners.
| FROM THE PRINT EDITION |
 
 
 
As every first-year business student knows, a city’s economy is not considered “world class” until said city has erected at least four shrines to professional sports and these shrines remain empty and unused most days of the year. Seattle is knocking on the door of world classiness because it already has KeyArena, Safeco Field and CenturyLink Field up and running. Occasionally. Just one more monument to appease the great mass of athletic supporters and we’re there. Hallelujah!
 
It’s only a matter of time because Chris Hansen, the San Francisco rich guy who wants to build a new arena on First Avenue South and bring pro basketball and pro hockey to Seattle, is this close to getting his way. In October, Hansen revealed that he and his investors are now willing to pay the whole honkin’ bill for plopping a new arena into the SoDo neighborhood a block from Safeco Field. He still wants a piece of Occidental Way vacated and also expects some tax breaks from the city, but that’s how rich guys are. (See: Trump, Donald.) Besides, the people who believe we’re not world class until the NBA returns to Seattle are salivating over this deal because it’s the best deal we’re ever going to get
 
Of course, these same people said Hansen’s previous offer, which would have required that $200 million in public money be plowed into a new arena, was also the best deal we were ever going to get. 
 
Hansen’s decision to pay more for his arena places the sports economy clearly in the local spotlight this year. Heaven knows we could use more opportunities to pay $9 for a beer and see millionaire athletes selling Jaguars and BMWs on TV. It’s the kind of economic shot in the arm that only comes around whenever a sports league is in a coercive mood. 
 
And so, in the spirit of this January issue’s “looking ahead” theme, we offer three predictions relating to the regional economy as the Hansen arena intrigue continues to unfold.
 
Prediction 1: Hansen, who has already spent more than $120 million buying up property in the area of his proposed arena, will persuade the Port of Seattle, his arch nemesis in this melodrama, to fold up its tent and send all cargo-handling operations to Tacoma. That decision will pave the way for so many trendy bars and restaurants with names like Kale & Kumquat or Cobblestone & Wingtip that Hansen will be persuaded to create a private streetcar system to connect Pioneer Square with the burgeoning Stadium District. 
 
Prediction 2: The city-owned KeyArena, whose very future is clouded by the Hansen proposal, will announce plans to house up to 10,000 homeless persons every day. Even on days when the Seattle Storm and Seattle University basketball teams need the building, the city believes the Storm and the Redhawks could use the attendance boost, so it becomes a classic win-win.
 
Prediction 3: The Seattle Mariners, who still don’t like the arena proposal, will channel their hostility onto the field of play — and still not win the World Series. (This is called pattern-recognition analysis.) However, always mindful of improving the fan experience — because it’s not whether your team wins or loses, but whether you’re inclined not to press charges for being gouged by a vendor — the Mariners will introduce several new fan-friendly food items, plus mani/pedi stations in the pricey seats and roving loan officers to assist anyone trying to finance the purchase of hot dogs and sodas for a family of four. 
 
JOHN LEVESQUE is the managing editor of Seattle Business magazine. Reach him at john.levesque@tigeroak.com.