The field of enterprise risk management involves identifying and classifying hazards according to their likelihood of occurrence and the level of impact to the organisation should they occur. This yields a matrix view of risks, with differing treatment or control approaches depending on which quadrant they fall into. These approaches include acceptance (of low probability, low impact risks) and controls that reduce either the likelihood of occurrence or level of impact.
Risk transfer mechanisms such as insurance have also been a mainstay of organisations’ risk mitigation strategies. Insurance coverage is often effective for risks where the main impact is financial loss and the inherent likelihood of the risk is low and unpredictable.
Meanwhile, business continuity planning has traditionally focused on lower probability / higher impact contingencies that can’t easily be treated with other mechanisms, but is always complemented by insurance.
Add climate change into the mix and the scenario changes. The scientific consensus is that our atmosphere and oceans are warming due to the sharply increasing concentration of greenhouse gases (which have increased by over 25% since consistent record keeping began a mere 50 odd years ago). A range of human activities are blamed for this incredibly sudden rise including the burning of fossil fuels (chiefly coal, oil and gas), emissions of various other greenhouse gases used in industrial and manufacturing processes, deforestation and other deleterious changes in land use.
Climatic changes are lagging the build up of GHGs but we are already starting to see noticeable increases in the frequency and severity of extreme weather events such as storms, heat waves, droughts and so on. Global mean sea levels are also on the rise, while water supplies and other critical infrastructures are looking increasingly fragile. Ocean acidification from atmospheric GHGs dissolving in sea water and a range of other impacts are adversely affecting eco systems that currently feed billions of people.
The US National Climate Assessment Report released earlier this month puts it bluntly: “Climate change, once considered an issue for a distant future, has moved firmly into the present”.
Global reinsurers’ data tells the story starkly with record numbers of disaster events and (inflation adjusted) damage bills in the last decade.
It is only a matter of time before this becomes unsustainable and the insurance industry moves to deny – or make unaffordable – cover for events that are increasingly likely and predictable as a consequence of climate change. Indeed, in many parts of the world insurance premiums have risen at well beyond the pace of inflation over the last decade.
Operational resilience and business continuity planning in a world without affordable or effective insurance cover suddenly takes on a whole new dimension of strategic importance.
Talk to Adaptive Capability today about safeguarding your business’ future.
