20 March 2006

Critical Infrastructure Protection: Resolve to be Ready...

Insurers say risk of WMD terror is low from the traditional sense of the terrorism definition. Yet what about Madrid, London and the possibility of domestic terrorism? Why does Lockheed Martin currently have the contract to upgrade surveillance and security in the New York mass transit system?

Terrorism Risk includes the risk from attackers both internal and external to the organization. These attackers are using conventional (incendiary explosive devices) and unconventional (digital worms) methods to disrupt the operations and economic well being of corporate organizations, the real estate finance industry and of our critical infrastructures.

The process and systems for managing Terrorism Risk are rapidly changing as the commercial real estate finance and building owners strive to establish new standards. Critical Infrastructure Protection is now a national priority. The key catalysts for change could further motivate infrastructure owners to implement new risk reduction programs and measures.

Some of the key catalysts for change are:

·Insurance – those institutions that are sharing risks that a building owner faces.

·Finance – banks, REIT’s (Real Estate Investment Trusts), and others such as pension funds that provide the capital for investments in commercial infrastructure.

·Regulation – Federal, State and Local jurisdictions that regulate building design, construction and operations.

Overall Terrorism Risk reduction begins with these key catalysts in concert with owners of critical infrastructure, whether that is a corporate office building, a hospital, subway, or a hotel. These soft targets are where the risk management decision-making is already taking new directions. Washington, DC is a prime example with the InfraGard Nations Capital Members Alliance.

In order to introduce new changes in process or design that impacts the physical or operational aspects of critical infrastructures (to reduce terrorism risk), it is important to better understand how these change levers can provide the incentives for owners. Being forced is never as appetizing as being induced to do anything. In order for changes to take place, the environment must reward investments in preparedness and safety. Consistently the conversations are not about “if” something is going to happen, it is about “where” or “when” it is going to happen. Therefore, it is imperative we initiate a proactive hedge against the inevitability of a loss event occurring in the future. First however, we must understand the character of terrorism risk in critical infrastructure and some of the anti-terrorism tools currently available to help manage that risk.

The recognition by insurers that owners will continue to invest in terrorism risk reduction and building safety with the proper incentives is vital to overall risk management of critical infrastructures. The assessment of terrorism vulnerability in key structures identified as soft targets can be a key component of the rating of risk for a specific structure. In order for owners to benefit from the potential of reduced premiums from direct insurers they must be able to demonstrate a combination of risk mitigation measures and programs to help improve the survivability of the infrastructure or to reduce it’s vulnerability to certain threat profiles. These need to be exercised on a continuous timetable with extensive documentation, training and reporting.

In order for insurance brokers to accurately represent their buyers mitigation programs and measures to the direct insurers they must have a foundation of knowledge about the structures physical vulnerabilities. However, even more essential is the understanding of the operational and human attributes of the building that are contributing to the proactive tactics to prevent losses and further exposures to potential terrorism risk. If this step takes place, the insurers can better evaluate these operational and human elements to determine the value and effectiveness of these tactics so that they can be considered for premium reductions. The building itself, two miles from The White House, 10 Downing Street or the Eiffel Tower, has little chance of moving outside the high-risk zone for terrorist events.

The only methods for reducing risk exposures are to dramatically impact the operational and human elements of the building to mitigate hazards and increase the survivability of the people and systems that are resident. As landlords and other interested real estate finance industry partners move towards new standards to mitigate terrorism risk and protect critical infrastructure, the necessity for state-of-the-art tools and systems to mitigate those risks is paramount. CxO’s in corporate enterprises are ever more concerned about emergency preparedness and the continuity of their enterprises. Now that threats to government and business operations are becoming ever more prevalent, organizations must plan for every type of business disruption from hardware and communications failures, to natural disasters, to internal or external acts of terrorism.

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