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Risk Management and Insurance: Perspectives in a Global Economy
6. Catastrophe Risk Assessment:
Human Factors
Click Here to Add Professor and Course
Information
Points to Ponder
Terrorism
Critical infrastructure risks
Environmental risks
The role of the precautionary principle
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Terrorism
Terrorism
Terrorism is not new, but its magnitude.
777 different groups caused 19,856 terrorism-related events globally
between January 1968 and January 2005
25,595 deaths and 66,665 injuries caused by
 The Revolutionary Armed Forces of Colombia
 Basque Fatherland and Liberty
 The National Liberation Army of Colombia
 Hamas
 Hezbollah
 al-Fatah
 The Taliban
 al Qaeda
Terrorism is solidly a world problem.
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Terrorism
An act of violence or threat of violence against individuals or
property committed by one or more individuals acting on
behalf on an organization for the purpose of influencing
government policy or action to advance a political, religious
or ideological cause
Chapter 16 also
about terrorism
related to MNC
employees
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What is Terrorism? (Insight 6.2)
General agreement exists that terrorism exhibits:
Involves violence or its threat against people (as opposed to property)
The violence is not an end in itself but rather is aimed at instilling fear
or having a deep psychological impact on others (which means
attacking national symbols shows the terrorists’ power)
Perpetrated to accomplish political goals
Civilians or non-combatants are targeted (usually those who are
identified with the government or offense as perceived by terrorists)
Perpetrated by non-governmental actors or at least governments of
questionable legitimacy
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Terrorism – Use of Nuclear Weapons
Building conventional nuclear weapons
The Nuclear Non-Proliferation Treaty (NPPT)
Building unconventional nuclear weapons
Dirty bomb
Method of controlling the nuclear weapons risk
No national or global network exists
Increased public attentiveness as an important component of societal
risk control of terrorist acts
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Terrorism – Use of Biological Agents
Bioterrorism
The threat of biological weapons use by terrorists
Categories
Contagious
Non-contagious
Preventing and detecting a bioterrorism attack
Limited number of methods available
Quarantines
Drugs
High-efficiency air filters
Development of databases linking medical facilities
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Terrorism – Use of Chemical Agents
The knowledge has been known for decades, and the
equipment and ingredients readily available
Mustard gas since WWI
The sarin attack in Japan
Preventing and detecting attacks
Many first responders said to be inadequately trained and poorly
equipped
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Terrorism – Use of Conventional Explosives
1995 Oklahoma City (U.S.) bombing
Use of airplane and other modes of transportation
Suicide bombers
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Terrorism – Observations
Terrorism is not likely to be defeated completely in the near
future, if ever.
The root causes of terrorism seem a long way from being addressed
sufficiently.
Terrorism is simply too cheap.
The fight against terrorism must continue and be financed.
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Critical Infrastructure Risks
Critical Infrastructures
Systems whose incapacity or destruction would have a
debilitating impact on the defense or economic security of a
nation
Highways, pipelines, communication satellites and network servers
1906 San Francisco earthquakes
1995 Kobe earthquakes
Impact of complex infrastructure system failures on social,
economic and political institutions
Interdependent effects
Occur when a disruption spreads beyond itself to cause appreciable
impact on other systems, which in turn cause more effects on still
other systems
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Critical Infrastructures – Self-Organization
Self organization
Systems are under no direct control but realize uncoordinated results
greater than the sum of individual parts.
Self-organized criticality is probably a more powerful tool than a
probability model for the study of cascading infrastructure failures.
We have self-organized systems as demonstrated by competitive
markets that exhibit higher efficiency than centrally controlled or
managed systems. While such systems are more efficient, they are
also on the verge of criticality and, therefore, can be more vulnerable
to widespread failure.
We have highly efficient but less reliable self-organized systems. On
the other, we have highly managed, reliable but less efficient systems.
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Efficiency and Reliability in Systems
(Figure 6.1)
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Understanding How Complex Systems Behave
Variation in an interactive system, as in a biological
community, reduces the vulnerability to single-point failures.
Interactions between members of the same group or social
framework, while enhancing communication and simplifying
information transfer, can have disastrous consequences if
the jointly held information is wrong.
Selection deals with choosing successful strategies and
rejecting those that lead to failure.
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Environmental Risks
Environmental Risks
Climate change
Genetic engineering
Nuclear-generated electrical energy
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Climate Change – the Problem
Greenhouse gases (GHGs)
Global warming
UN’s Intergovernmental Panel on Climate Change (IPCC)
Global temperatures have risen about 0.6ºC since the 19th
century and human activity has contributed to this result.
Insight 6.4
The trend of increasing global temperatures has continued into the
21st century.
Figure 6.2
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Top Ten Countries in CO2 Emissions from Fossil Fuels
19.97
20
18.92
5,000
15
4,000
3,000
10.57
10.17
9.25
9.36 9.5
7.81
2,000
2.57
0.98
Metric Tons in Millions
Ko
re
a
Ita
ly
0
UK
0
5
S.
1,000
10
Tons per Capita
6,000
The 20 Hottest
Years on Record
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US
A
Ch
ina
Ru
ss
ia
Ja
pa
n
In
di
G
er a
m
an
Ca y
na
da
Metric Tons (Millions)
7,000
Tons per Capita
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Climate Change – the Options
To ensure that any increase in the world’s temperature is
limited to between 2ºC and 3ºC above the current level over
time
To ensure that developed countries use energy much more
efficiently and figure out how to make profits from the very
problem of global warming
Less carbon-intensive fuels for power generation
Energy efficient buildings
Energy efficient transportation modes
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Climate Change – the Role of the Market
Economists contend that the gains achieved in emission
reduction through government mandates come at a
needlessly high price.
Emission trading ranks highly for its potential (Chapter 4)
Production costs include attendant negative externalities.
Externalities are only part of the battle in fixing market distortions. The
other half involves scrapping environmentally harmful subsidies.
Such subsidies do double damage, by distorting markets and by
encouraging behavior that harms the environment.
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Climate Change – the Role of the Market
Many economists note that prices are also distorted because
conventional economic measures (e.g., gross domestic
products, GDP) measure wealth creation improperly, as they
ignore the effects of environmental degradation.
Markets, even if they got everything right, must yield to public
discourse and government policy.
As we learned in Chapter 2, markets are efficient but not always fair.
Check also the 1997 Kyoto
Protocol to the UN
Framework Convention on
Climate Change.
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Genetic Engineering
A branch of biotechnology, which is a discipline that
encompasses all innovative methods, techniques, processes
and products using living organisms or their cellular
constituents
It is not new.
The debate
The benefits from genetically engineered drugs are easily conveyed
to the general public and widely accepted.
Borderline areas involving individuals’ ethical standards and
fundamental beliefs
Uncertainty about residual risks
Chapter 18 covers
the Human
Genome Project.
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Nuclear-generated Electrical Energy
441 commercial nuclear power reactors in 31 countries
Figure 6.3
Operational safety
Insight 6.5 (the Chernobyl Disaster)
The China syndrome
Reactor scram
High-level wastes
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Electrical Power from Nuclear Generation
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Nuclear-generated Electrical Energy – the Future
Safety
The public must believe that existing and especially future power
plants are safe.
Economics
Governments continue to deregulate their power industries worldwide,
resulting in more competition that, in turn, forces greater operational
efficiency.
Politics
In democracies, the future of any science is determined by society’s
perceptions as manifested in political choices.
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Precautionary Principle
Precautionary Principle
The economic-based approach to making societal riskrelated decisions would have policymakers rely on costbenefit analyses, focused on willingness to pay.
Many governments, scientists and others find this approach
unacceptable in assessing technology for which questions exist about
whether it could materially harm the environment or human health.
Precautionary Principle
Where there are threats of serious or irreversible damage, lack of full
scientific certainty about whether damage could ensue should not be
used as a reason for postponing cost-effective measures to prevent
environmental (or other) damage.
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Precautionary Principle
The Treaty of Maastricht in 1992
The 1992 UN Conference on Environment and Development
in Rio de Janeiro
Adoption of 15 principles
The Framework Convention on Climate Change, UN
Biodiversity Convention
The Biosafety Protocol
The European Commission expanded it to ban foods that the
public perceives as a health risk, even in the absence of
scientific evidence of such a risk.
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Discussion Questions
Discussion Question 1
Describe the precautionary principle and relate its differing
degrees of support in the U.S. and the E.U. to the cultural
theory of risk.
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Discussion Question 2
Little disagreement exists today as to whether humans are
contributing to global warming. Disagreement persists,
however, about how important the consequences will be and
what, if anything, to do about it now. Explain the pros and
cons of this disagreement.
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Discussion Question 3
Some students were debating the issue of the “greenhouse
effect” and its impact on the planet. (a) One student argues
that the greenhouse effect was actually beneficial to the
earth’s inhabitants. Do you agree? Explain. (b) Increases in
the greenhouse effect attributable primarily to an increase in
trace gases in the atmosphere have been linked to global
warming. Discuss the impact of global warming on the
physical environment.
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Discussion Question 4
What effect, if any, would you expect changing
demographics, as discussed in Chapter 7, to have on (a)
losses from hurricanes, (b) the risk of terrorism, (c) social
views about climate change, and (d) social views about
genetically modified food?
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