Home > Articles > Business & Management

  • Print
  • + Share This
This chapter is from the book

Risk-Management Strategies

In developing effective risk-management strategies for reducing losses from natural and unnatural disasters, leaders of public agencies and private and nonprofit organizations will want to appreciate the findings of risk-assessment studies and the factors that influence risk perception and choice. Drawing on that research, we propose six areas for improving risk management:

  1. Risk forecasting. The broadening of disaster losses to include longer-term impacts and indirect costs has made forecasting more complex. Improvement in the precision of these forecasts is critical for both averting disasters and minimizing their impacts. For example, more detailed weather forecasts of the path and severity of a tropical storm can be key to wise evacuation decisions and avoiding unnecessary flight. So, too, would be better data on the systemic risks that little regulated but highly leveraged financial products can invisibly create.
  2. Communicating risk information. Because people generally dismiss low-probability events by assuming that they will not personally experience such events, expanding the time frame over which the likelihood of an extreme event is presented can garner more attention. If a company is considering flood-protection insurance for the 25-year life of a production facility, for example, managers are more likely to take the risk seriously if a 1-in-100-year flood is presented as having a greater than 1-in-5 chance of occurring during a 25-year period rather than a 1-in-100 chance during the coming year.7
  3. Economic incentives. Both positive and negative economic incentives encourage individuals to take protective measures. But here again, the way people process information on the costs and benefits of reducing the risk can play an important role in their decision on whether to adopt the measures.

    What would be the effectiveness, of say, a policy of reducing homeowners' insurance premiums for homeowners who undertake loss-reduction measures along the Mississippi River, or a policy of incentivizing villagers in Bangladesh to avoid migrating into flood-prone areas? Given that people think only about the potential benefits of such measures over the next year or two, not the next decade or two, they may not view these measures as financially attractive if there is a significant up-front cost. Had they considered a longer time period when evaluating the protective measure, the costs may well have been viewed as worthwhile.

    Fines coupled with specific regulations or building standards can also be used to encourage protective measures, but they, too, must be coupled with measures that ensure a high likelihood that negligent individuals will be penalized. If people perceive the probability of detection to be low or the cost of noncompliance as modest, they may conclude that it does not pay to take protective action.

  4. Private-public partnerships. Because the public, private, and nonprofit sectors share in the costs and benefits of preparing for disasters, furthering collaboration among them ahead of time can be vital for building effective leadership and strategies for facing disasters. Public-private partnerships should thus be created before they are needed. Insurance premium reductions should be given to those who invest in risk-reducing measures to reflect the lower losses from a future disaster. Building codes may be desirable when property owners would otherwise not adopt cost-effective mitigation measures because they either misperceive the benefits from them or underestimate the probability of a disaster occurring. This might have been a factor in the widespread loss of life in the Pakistan earthquake, magnitude 7.6, in October 2005, which killed more than 70,000 inhabitants, many buried under poorly constructed schools and homes. So, too, with investment codes: Had there been stronger regulation on derivative products, such as insurance on subprime mortgage securities, investment bankers would have been less likely to contribute to the systemic risks that rocked the world's economy in 2008.
  5. Reinsurance and other financial instruments. The shortage of reinsurance—insurance for insurance companies that allows them to offer greater protection to policyholders than the assets of the insurers would ordinarily permit—following Hurricane Andrew's damage to Florida in 1992 and the Northridge, California, earthquake in 1994, led U.S. financial institutions to market new instruments for providing protection against mega disasters. Known as catastrophe bonds, these were offered at high interest rates to overcome investors' qualms about the likelihood of losing their principal should a major disaster occur. The market for such bonds grew rapidly in the 2000s, with $2.7 billion in new and renewed catastrophe bond issues in 2008.8

    In anticipating exceptionally massive disasters, it may be necessary for the government to provide insurance protection to pay for losses that the private sector is not willing to cover. Florida established the Florida Hurricane Catastrophe Fund following Hurricane Andrew in 1992, for instance, when a number of insurers reported that they could no longer include windstorm damage as part of their standard homeowner coverage. After the Northridge earthquake in 1994, insurers backed off from earthquake coverage, and the state formed the California Earthquake Authority to provide homeowners with earthquake coverage.

    In providing coverage against large-scale catastrophes, it is important that premiums closely reflect risk. Equity and affordability considerations may justify some type of subsidy for those deserving special treatment, such as low-income residents. This subsidy should not be in the form of artificially low premiums, but should preferably take the form of a grant from the public sector. For example, if a risk-based flood insurance premium of $2,000 is considered to be unaffordable to a household in a high hazard area, the family could be provided an insurance voucher to buy a policy in much the way that food stamps are provided to those in need of household staples. If the family reduces its risks by investing in a mitigation measure such as elevating its house, it receives a premium discount.

  6. Resiliency and sustainability. The resilience of a community after a disaster and its sustainability over the long run have important ramifications for estimating the extent of hazard damage and developing risk management policies. Resilience refers to the ability of a business, household, or community to cushion potential losses through inherent or explicit adaptive behavior in the aftermath of a disaster and through a learning process in anticipation of a future one. Businesses may have alternative power generators in place, households may ration their water supply, and communities may open shelters for those forced to evacuate their homes.9

    Resilience also includes the ability to use price signals, such as premium discounts for investing in mitigation measures, to encourage appropriate actions before and after a disaster. And it entails the ability of community, company, and other leaders to remain focused on recovery even as they may be at risk or personally suffering in the immediate aftermath of a disaster. In the wake of Hurricane Katrina, for example, the president and senior administrators of Tulane University in New Orleans were marooned on campus for four days without food, water, power, or regular contact with the outside world. Despite their severe personal circumstances, they plunged into the arduous work of staff rescue and university restoration. After "being stranded for four days," recalled the president, Scott S. Cowen, "I realized that I could either focus on the darkness, or I could try to see beyond it and focus on the light. I chose the latter." In reflecting on the experience and its personal hardships, he said, it "has taught us as an institution to stay focused on our mission and goals even in the face of financial and physical crisis. It has taught us the responsibility that comes with our role as the largest employer in our home city—a responsibility to help rebuild our city and heal its people."10

    Advanced economies are becoming increasingly interlinked and dependent on sophisticated, vulnerable systems—especially infrastructural services such as highways, electric supply, and the Internet—for which substitution is difficult and thus resilience more critical. When the west coast of Japan was hit by a minor earthquake in July 2007, a supplier of auto piston rings was forced to close, and because Japanese auto making was built on a just-in-time inventory system, the supplier's closing forced Toyota and Honda to suspend production.11 Researchers have a role to play here in identifying ways to improve resilience in a more interdependent and interconnected world, such as the establishment of information clearinghouses for suppliers without customers and for customers without suppliers.

    Sustainability refers to the long-run viability and self-sufficiency of the community in the face of hazard threats. The more general definition of the term emanates from economic development and stipulates that decisions taken today should not diminish productive capacity—broadly defined to include natural resources and the environment of a community—in the future. In the case of natural hazards, sustainability implies that land-use decisions made today—such as forest management or strip mining—should not place the community in greater jeopardy in the future or make it more dependent on external assistance to survive. Sustainability emphasizes the importance of integrating mitigation measures into overall economic development policy and eliminating practices that increase a community's exposure to hazards.12

    Many developing countries are especially vulnerable to disasters because of low-quality structures, poor land use, inadequate emergency response, environmental degradation, and limited funds. Climate change may especially increase the likelihood of disasters in these areas, such as flooding in low-lying Bangladesh. Developing countries often lack the infrastructure and institutions that developed countries take for granted in formulating risk management strategies. And in areas where poverty is extreme, the indirect effects of disaster may include a surge in endemic disease, widespread starvation, and human-rights violations. In the wake of the Mozambique flooding in 2000, for instance, families irretrievably lost birth certificates, marriage documents, and land titles because few personal records had been backed up or computerized.

  • + Share This
  • 🔖 Save To Your Account

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020