How to accelerate the understanding of disaster risk

Author(s) Daniel Stander, Global Head of the RMS Public Sector Group, Risk Management Solutions
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RMS is delighted in playing an integral role at the United Nations’ Global Platform for Disaster Risk Reduction in Cancun next week.  This is the first time that government stakeholders from all 193 member countries have come together on this subject since the Sendai Framework for Disaster Risk Reduction was adopted in March 2015.  Cancun looks forward to welcoming some 5,000 participants.

Gearing Up for Action

At Sendai, the member states signed up to four priority areas for action and seven global targets.  The delivery date: 2030.

This global convening will act as a “show and tell” for member nations to outline the progress they have made over the last 26 months.  The purpose of the Cancun conference is for UN members to evidence how they are turning their disaster risk reduction (DRR) strategies into actions which substantially reduce disaster risk – and doing so at scale.

Fundamental to the successful implementation of the Sendai Framework is the first of the so-called Four Priorities, namely understanding disaster risk.  My RMS colleague, Robert Muir-Wood and I will be involved in several working sessions and ministerial roundtables at Cancun.  We will focus our contributions on this first priority.  After all, you cannot hope to effectively reduce your risks unless you comprehend them deeply – their frequency, the severity of outcomes and potential changes over time.

It is very encouraging that the United Nations Office for Disaster Risk Reduction (UNISDR) recognizes that organizations working in the private sector have a pivotal role in this endeavor.  In part, this is because the UN understands that the private sector is responsible for 70 to 85 percent of capital investment in most economies.  Ensuring those investments are made with a keen eye on resilience can make a material difference.

But there is another reason that the private sector has become a key stakeholder in the eyes of the UN.  Put simply, it is the recognition that there exists in the private sector a huge amount of expertise and experience in managing catastrophe risk.

A Measured Success

The slogan for the Cancun event speaks to this very point: “From Commitment to Action.”  There is a close link here with the second of the Four Priorities, namely strengthening governance structures around disaster risk reduction. 

In this context, Robert and I will be reminding members of the old adage: if you can’t measure it, you can’t manage it – let alone be held accountable for it.  Further, we’ll be explaining why a decade of disaster data gives no meaningful perspective on the true risk of large and potentially destructive natural disasters, not to mention how that risk may be changing over time. 

Take Haiti as an example. Through the nineteenth century, less than ten people were killed in earthquakes. Then, in a single afternoon in 2010, more than 200,000 died.  Looking only at a decade or two of actual losses prior to that fateful afternoon in 2010 would have provided scant indication of the true nature of the risk.

Equally there is no need to wait for the experience of a disaster to understand the inherent level of disaster risk.  We can take a page from the insurance industry’s book here.  Just as no insurer would base an underwriting decision on recent claims experience alone, so member nations should not allocate scarce DRR capital without due consideration of all the dimensions of risk: hazard, vulnerability, exposure, and capacity to respond. 

Where data from the historical record is insufficient, the private sector uses probabilistic modeling techniques to capture the full range of possible outcomes, both in terms of their frequency and severity, in order to adequately model extreme, ‘tail risk’.  For the Framework to succeed – and, no less importantly, to prove that success – the standard of risk analytics in the public and private sector needs to rise to levels now taken for granted by the financial markets.

Adopting the Currency of Risk Analytics

Thankfully this high standard of risk analytics, widely accepted as a “currency” for risk within the financial markets, does not need to be created.  Member states do not need to start from square one.  The private sector has already invested decades in the science and technology required to analyze the potential impact of extreme events and their likelihood.  Over the years, billions, if not trillions of dollars of private sector investment in risk have relied on such analytics.

There are lots of examples of governments working closely with commercial providers of risk analytics.  I have personally had the privilege of working around the globe at all levels of government (from cities to sovereign states), using the capabilities my organization offers, to help officials – elected and staff – to own a view of the risks they face.  Factors such as independence, reputation, and the ability to talk the language of the markets are all valued, and help to accelerate conversations with providers of risk capital. 

At Cancun, Robert and I will advocate for the wide use of independent risk reports, allowing members and large corporations to regularly disclose their current levels of disaster risk and how that corresponds to their resilience targets.  Such reports are a critical governance tool.  They are central to the objective measurement of progress in achieving Sendai’s stated risk reduction goals.

Aligning Incentives

There is no point in reinventing the wheel here.  Using widely-accepted, objective risk analytics will encourage the public and the private sector alike to strengthen disaster risk governance.  It will also enable governments and corporations to articulate their growing resilience to the financial markets in a language the markets understand.

Given the UN is appropriately focused on low and middle income countries, an interesting challenge emerges, however.  How can these resilience analytics be made available for these government and private sector stakeholders at an economically viable price point?

It is well known that prudent interventions in risk reduction can yield benefits worth multiples in reducing the costs of disasters. According to the details and context of any scheme, these benefit/cost multiples can be ten or more.

Then consider that over the last 15 years, the average amount of humanitarian aid in response to natural disasters in low and low-to-middle income countries was $2.2 billion annually.  I’ve never met a donor who doesn’t wish their money went further.  By redirecting a portion of this capital to understanding and reducing risk before an event hits, donors, aid agencies and NGOs can increase the ROI of their precious dollars.

If you measure it well, you will manage it well.  And if you align commercial incentives, you will inherit the metrics you need.

This will be our mantra for Cancun.  It will focus the member states on implementing effective risk-reducing strategies.  It will enable the UNISDR to monitor the successful implementation of the Sendai Framework.  And it will open the doors to data-driven, science-based investments which reduce risk and lessen losses substantially.

A Global Managing Director at RMS, Daniel has, amongst other duties, overall leadership responsibility for relationships with supranational, sovereign, and local governmental and not-for-profit entities. Over the last 15 years, Daniel has worked with clients on every continent and in almost every sector, advising them on a variety of complex risks, from natural hazards, terrorism, and pandemic to marine, supply chain, and cyber.

He is currently advising public-sector entities in mature and emerging markets alike, helping them articulate their risk appetite, quantify their exposure, develop mitigation strategies, reduce disaster risk, build resilience to extreme events, finance infrastructure projects, and transfer residual risk. A frequent speaker at industry events, Daniel is often quoted in specialist publications. He holds a master's from the University of Oxford, where he graduated double first with honors, and is a graduate of the Center of Creative Leadership in Brussels, Belgium.

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