Performance-Based Engineering and Resilience Management for Your Risk Control Program Speakers: (RIC010) Jamie Bloom - Insurance Manager, Sonoma County, California Evan Reis - Co-founder, US Resiliency Council
Learning Objectives At the end of this session, you will learn how to: Incorporate engineering-based techniques to quantify, prioritize and manage risks Form a plan to communicate the value of engineering and nontraditional risk management strategies
Situation Natural Hazards Your largest pure risk Possibly your largest risk period.
What will we do today? Jamie Bloom will provide an overview of the natural disaster related challenges facing risk managers. Evan Reis will explain various modeling tools and concepts that can help meet these challenges.
We have all been here:
Complication Complexity of Subject Pure Risk harder to sell the mitigation High Consequence / Low Frequency the risk is intangible
Complication Degrees of risk tolerance Ignorance / Denial how does a decision maker know her risk tolerance if she doesn t understand the problem? Organizational Inertia / Silos Fires of the day consume majority of resources
Consequence Incomplete Mitigation Severe Economic and Reputation Cost
Strategy Form Relationships Define Risk / Mitigation Educate Stakeholders Develop Strategy Accept long term time-line Partner with an expert who can do the science AND who can effectively educate and communicate with stakeholders.
INSURANCE Output More to Risk Management than Insurance Avoid Assign Adaptation Adapt Avoidance Assignment Time STRATEGIC PREPAREDNESS R E S P O N S E RECOVERY
Resilience Resilience is the ability not only to survive a disaster but to thrive afterwards LEED certified buildings in Hurricane Sandy were designed to have lower impacts on the environment 2012 Superstorm Sandy Deaths > 200 in 7 countries Damaged buildings > 380,000 Cost > $71 billion but not for the environment to have lower impacts on them. Insured losses Business losses Homes without power Debris $16 - $22 billion. > $25 billion 8.51 million 10 million cu. yards
Why Resilience Matters Hurricane Katrina - 2005 Thailand Floods - 2011
Performance Based Engineering PBE looks beyond safety at asset protection and business continuity PBE is a risk management tool that compliments insurance PBE allows owners to quantify performance, optimize risk, achieve resilience
Safety, Damage, Recovery (Death, Dollars and Downtime) $ Performance Based Design allows stakeholders to ASSESS, DESIGN and COMMUNICATE building performance in QUANTIFIABLE TERMS
The Value of Resilience San Bernardino Courthouse
Return on Investment CONVENTIONAL BRACED FRAME BASE ISOLATION $70 $60 $50 $40 $30 $20 $10 $0 Building Operations Total Estimated Loss (MFL, 250yr) $70 $60 $50 $40 $30 $20 $10 $0 Building Operations Total AAL: $700,000 $70,000 Additional Cost $3,000,000 Mean ROI over 25 years $630,000 (~20%)
You vs the Insurance Industry Individual building risk can vary greatly depending on design When aggregated in a portfolio the variation all but disappears Individual Risk -20 +20 Portfolio Risk -100-80 -60-40 -20 0 20 40 60 80 100 Risk -0.5 +0.5 0.0-100 -80-60 -40-20 0 20 40 60 80 100 Risk Insurance companies have no actuarial incentives to promote good performance
Probability of loss exceeding deductible Optimizing Insurance Programs Off Campus Case Study: Nor Cal Hospital Network - $2 Billion+ assets 1997 2010 Campus 1 1997 1972 1972 1991 Campus 2 1963 Portfolio All Buildings New construction Exclude New Acute Care Wings TIV (normalized) $1,000,000 $620,000 Premium @ $0.15/$100 $1,500 $930 Mean annual retention $862 $1,060 X X X X X X X X X X X X X X X X X X X X X X X X X X Total Annual Cost $2,362 $1,990 Building
Communicating Resilience with Building Ratings Quantifying SAFETY, DAMAGE and RECOVERY Ratings are used to make decisions about: Financial due diligence Real estate purchase or leases Long term capital planning Insurance purchasing Emergency preparedness Increasing market value STRATEGIC PREPAREDNESS R E S P O N S E RECOVERY
The US Resiliency Council MISSION Establish and implement rating systems that describe and quantify the performance of buildings during earthquakes and other natural hazard events.
The US Resiliency Council Uses state of the art engineering tools to evaluate building performance along three resilience dimensions Safety 5 4 3 2 1 D&D Injuries and blocking of exit paths unlikely Serious injuries unlikely Loss of life unlikely Loss of life possible in isolated locations Loss of life likely in the building Damage 5 4 3 2 1 NE Minimal damage (< 5%) Moderate damage (< 10%) Significant damage (< 20%) Substantial damage (< 40%) Severe damage (40%+) Not Evaluated Recovery 5 4 3 2 1 NE Immediately to days Within days to weeks Within weeks to months Within months to a year More than one year Not evaluated
Toward Risk Resilience Management Resilience Management strategizes about, prepares for, responds to and recovers from, disasters Resilience Managers use engineering, planning and business continuity tools in addition to traditional insurance
Action Decide who in your organization you will partner with. Include these ideas, tools and lessons into your strategic plan. Identify what studies and data you can take to your stakeholders and decision makers.
Benefits You will assess your current program from a position of knowledge. Your stakeholders will have the education and facts to support your recommendations.
Our Hazard Mitigation and Continuity of Operations Plans will take focus, if we keep the course and embrace the science.