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

 

Creating an Affordable, Inclusive Puget Sound

Creating an Affordable, Inclusive Puget Sound

Making room for our growing population will require more density in urban areas as well as innovation in transportation and office use.
 
 

Seattle has an enviable problem. More and more people are moving to the Puget Sound, so many that, by some estimates, the region’s population could increase by one million residents by 2040. At the same time, Seattle is constrained geographically by water and hills. Our topography is scenic and beautiful, but it also makes it difficult to build new housing.

Further complicating matters, approximately 65 percent of Seattle’s land area is zoned for single-family residences. The hourglass shape of Seattle, at its widest point—between Ballard and Magnuson Park, along 65th Street—is zoned for the lowest density. Meanwhile, the area zoned for the densest development—downtown—is narrowest and where land is most scarce.

Water, land and zoning regulations: these are the facts. If population trends continue, how will people live in our city? As Seattle densifies, how can design provide a more humane environment and housing that all residents can afford? These are some of the questions I’m interested to explore at a panel discussion on October 5, “Seattle 2040: Where Will All the People Live?” at NBBJ’s Seattle office.

 

As an architect, I’m particularly interested in how we might insert greater density, for people of all incomes, into our existing street network including the single-family areas that constitute such a high proportion of Seattle. Mother-in-law apartments, residential units over garages, duplexes and townhouses are just a few options. Done right, we could increase density and affordability without dramatically changing the character of those neighborhoods.

This November a major ballot initiative, Sound Transit 3, could raise billions of dollars to expand light rail. If that happens, it would substantially increase the number of transit-oriented centers in our region, which would lessen the impact of building because we could spread it across more light rail stations.

There are other options. We could look at reusing and densifying public rights-of-way. High-rises like the “no-shadow tower” could mitigate the impacts of tall building on the urban environment. Or driverless cars might create a new transportation system in the next 25 years that fundamentally changes how we get around and where to encourage development.

If you think about the design of office space, 25 years ago, a majority had a private office with limited public amenities; now office space is moving in the other direction, asking people to have less personal space at their desk, but having access to a wider range of shared amenities. I almost think we need a similar approach whereby people move from large single-family houses to smaller homes or apartments. The key to making this work is to have access to more shared, semi-private amenities or nearby public open space.

Some of the issues Seattle faces also challenge many other U.S. cities, but these challenges cannot be solved by design firms single-handedly. A city’s growth affects everyone, young and old, rich and poor, newcomers and long-time residents. We are in this together, and it will require everyone to bring about our shared future. 

David Yuan, AIA, LEED AP, is a partner at global architecture and design firm NBBJ.