Corporate Recovery From Catastrophic Loss - An Atlantic Canadian Case Study
Mark Gillan
Deputy Fire Chief (Ret.) at Saint John Fire Department, Director Emergency Solutions International
"...a company's insurance strategy should not be considered in isolation and should not be viewed as a substitute for high quality risk management and contingency planning systems and procedures"
A number of recent incidents in Atlantic Canada over recent years, give me concern that Corporations believe they are mitigating risk through insurance products that assist in recovery, rather than a proactive risk mitigation strategy based upon the fundamentals of the CSA Standard CSA Z-1600 Emergency Management and Business Continuity, which prevents or minimizes an incident of any causation.
Total fire losses at the Paturel International Lobster facility in Deer Island N.B. this week, fish processing facilities at Miscou Island N.B. and Bay de Verde Nfld. as well as the 2011 loss of the White Point Beach Resort N.S. illustrate the severe affects to the corporation and the surrounding communities. The loss of these businesses immediately threw over 1000 Atlantic Canadians out of work and due to the size of the small communities where the businesses were situated, have a tremendous proportional affect.
It may be argued that risk managers for these businesses ignored proactive mitigation of risk provided by a programmatic investment through the Canadian Standard CSA Z 1600 choosing instead a uni-dimensional reactive strategy of using insurance products focused upon total loss. At times corporate managers believe that given the Insurance companies usually conduct annual inspections, they are somehow protected; clearly their inspection regimen is not working and is not looking a the program level of risk.
Unfortunately hoping that insurance alone will protect the Corporation and the community is misplaced. After the catastrophic loss, the Corporation is in the position of making the decision "Do we rebuild?" Currently the Paturel International incident in Deer Island, their second fire in 2 years, has ignited the discussion: Will the facility be rebuilt? The local MLA Mr. Rick Doucet is working very hard to make sure this happens. Early into the incident he was in discussions with the US owner hoping that the company would re-invest in the region.
It is clear that in the case of a catastrophic loss:
1) Shareholder value is severely affected, especially if the corporation is publicly traded
2) There are often fatalities, injuries and risk to responders and the public i.e. All of the volunteer Fire Services responding to the above incidents, at a higher level Bhopal and the BP Spill in the Gulf of Mexico
3) The community is immediately affected i.e. following the Paturel incident a worker interviewed cited immediate ripples in the community and a request to government to support 24 month Employment Insurance claims for the 100+ workers, as was the case he recounted, for workers at a similar Newfoundland facility that burned down. In such incidents the ripples continue often resulting on higher demands on health care, mental health services etc.
4) Management of the lost operation will be judged as at least partially responsible for the catastrophe
5) The Corporation will see long term consequences in the public perception for its Community stewardship and customers perceptions around Corporate Brand can be permanently altered. If I say "Exxon" what is the next word you think of.....? That was 1989, that’s a substantial Brand impact!
An Oxford University study by Rory Knight and Debroah Pretty "Impact of Catastrophes on Shareholder Value" quantitatively illustrates the financial complexities of these high impact Corporate losses. As these losses relate to risk mitigation through insurance as a unidimensional strategy to provide for recovery their findings are clear "...catastrophe insurance cover is no protection against shareholder value effects of catastrophe...""...a company's insurance strategy should not be considered in isolation and should not be viewed as a substitute for high quality risk management and contingency planning systems and procedures"
Boards, Regulators and Shareholders have the ability to challenge management within Corporations to demonstrate that there are robust and sustainable programs around Business Continuity, Emergency Management, Security, Cyber Security and Crisis Communications in place and validated. Is the Board or even insurance provider asking the question, Are your risk mitigation programs validated, if so who is doing it and how? Realistic risk planning and investment in mitigation strategies goes beyond protecting the financial impact of re-building. Annual validation of Corporate risk programs change the culture of the organization to take a higher level of ownership in preventing and protecting the investment of shareholders and the interdependent Community.
Lets start a dialogue on this subject, please Share and feel free to Comment to further the discussion.
Mark Gillan BBA, CFO, MIFireE, Emergency Solutions International, 107 Charlotte Street, Saint John, N.B., (506) 333-2555, https://www.esintl.ca @ESIMARK
Certified Executive Coach
6 年Mark. Thank you for sharing this. The blend of your experience and professional wisdom allows you to share an interesting and informed view. Insurance is indeed a mitigation tactic used across the globe at all levels. It is also true that perhaps not all organizations focus on an in-depth risk assessment and understanding because sometimes the results and way forward may not align with the approach insurance strategies may suggest in the alternative. Failure to recognize the downstream / knock on impacts can be significant as you point out. A great read as others have suggested and something worthy for causing corporations to pause.
Cooke Aquaculture
6 年A very good real and at Paturel its there 2th fire in 6 months not 2 years . They have over 100 plus works there and out of the 100 plus workers they have over 80 that are temporary foreign workers and some of them are PR but There work force at Paturel on Deer island are only 20% to 30% CANADIAN AND permanent resident . Another thing is how can you get A government to support 24 month Employment Insurance when you are TFW Thats what sad you have over 70 at paturel that cant get no Employment Insurance Because they are TFW and one more thing why is it the Fire Inspector in NB don't inspect commercial or residential places here only hospitals ,schools and nursing homes. this place Paturel had 80+ foreign workers living in three houses
Sales and Marketing
6 年Good read was very devastating though
Lieutenant/Paramedic Moncton Fire Department
6 年Really good read :-)