TRIA Resolved - For Now...

While we find ourselves busily engaged on a project that addresses the operational risks associated with a potential outbreak of avian flu, we need to step back and provide a progress report on an old subject. TRIA, or the Terrorism Risk Insurance Act, was to expire at the end of this past December. Had this issue not been resolved (which it was just two weeks prior to its expiration), insurers would have lost their last valuable resort to protect against the risk of a catastrophic terror attack. Indeed, many insurers who had to have collectively been holding their breath before this issue was resolved were openly grateful when President Bush put the issue to bed. Sentiments such as these expressed by The Hartford Financial Services Group were pretty common:

The Hartford Financial Services Group, Inc. (NYSE: HIG) , one of the nation's leading providers of investment and insurance products, commends Congress and President Bush for enacting critical legislation today that will extend the Terrorism Risk Insurance Act of 2002 (TRIA).

Soon after the euphoria settled down, the question soon became, what exactly was accomplished? Seems that this is not as much a case of putting this issue to bed, as much as it is creating an interim solution until a more permanent solution can be found. Make no mistake about it, this is an interim solution, and far from being resolved. Why has this become so complicated? Much of it has to do with the fact that when TRIA was first signed, it was supposed to be nothing more than a stop-gap solution until something more permanent was found:

Three or four years ago, recalls Leigh Anne Pusey, senior vice president for government affairs for the American Insurance Association, Washington insiders used to joke that President Bush ended every speech with "God Bless America and pass the terrorism bill."

However in 2005 when it came time to renew TRIA, that full backing of the Bush Administration was missing. Why?

"…(B)ecause they bought this program thinking it was temporary, a three-year program, a bridge…," says Pusey. When the industry came back and said it needed the government program renewed, conservatives with power in Washington balked.

Policy makers now have two years to hash this out and come to a final conclusion as to where this policy will go. If it does have a future, it will probably have to take on a new form, and this might very well require more involvement from the insurance industry itself:

Arguing that the federal government can't take sole responsibility for guarding against terrorism, some homeland security experts want another entity to contribute its clout and expertise: the insurance business.

Insurers should offer chemical plants, utilities and other at-risk businesses lower premiums in return for tighter security, experts said. The idea borrows from the successful use of insurance-based incentives to cut down on car accidents, fires and smoking-related deaths.

A common set of standards to prevent terrorist attacks would be developed, with insurers rewarding clients who comply, said Frank Cilluffo, who served as a top aide to former Homeland Security Secretary Tom Ridge.

This whole discussion seems to be traversing the same path as a boomerang.

HSBC Projects Avian Flu Absenteeism Rates to top 50%

Seems as though the initial estimates we discussed in our December webcast on economic effects of a pandemic outbreak were conservative. During that event, we projected employee absenteeism to be anywhere between 25 and 40%. HSBC has gone even further. In a report released yesterday, the world's third largest bank sees this number exceeding 50%:

HSBC, the world's third largest bank, is estimating that up to half of its staff could fall ill or be absent from work at the peak of the next flu pandemic, as Europe began to come to terms with the first human cases of the H5N1 bird flu virus on its doorstep.

The 50 per cent figure is double the rate forecast in draft guidelines for businesses being drawn up by the World Health Organisation. They will advise planning for 25 per cent absence, and the HSBC estimate is the most explicit warning yet that governments may be underestimating possible disruption.

As we start hearing about more cases sprouting up in Europe, we are bound to read more about not only how these numbers might be expected to change, but about what companies are doing to prepare. Indeed, the economic effects are where the discussion is moving - a noticeable change in position from earlier when it seemed like a far-away problem.

The magnitude of these numbers cannot be minimized as the article points out:

The figures are important as a rare public insight into estimates made by a top company – one that has considerable experience, given its activities across 77 countries including those in Asia and Canada affected by the Sars crisis in 2003.

They stand in sharp contrast to official calculations, with the UK government recently downgrading its estimate to an average of 8 per cent of the workforce absent at any one time and 25 per cent cumulatively throughout the pandemic.

Only time will tell what the next phases of this outbreak might be.

BCP Strategies for 2006: Swapping Fear for Logic

Okay, okay I know I've been a tad lazy over the last week getting over the fact that the holidays are actually over, so in order to get the old wheels greased again, I thought why not make a prediction about where business continuity and emergency management will be going in the new year.

In order for things to move along in a productive way, I believe planners will begin to make fundamental ways in which they approach continuity-based issues. We will see a move away from an orientation that is skewed toward a security guard mindset (i.e. "okay everyone, this is how we evacuate the building, and where we meet for a headcount"), to one that is positioned more like a CFO (i.e. "the return on investment if you opt for this strategy is $x"). When it comes down to it, the sale is always predicated on the return. Selling an idea based on fear does very well when the fear factor is spread all over the front page, but becomes challenging when people move their minds in other directions.

Let's see how this prediction pans out, shall we?

Happy New Year

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