Lessons From New Orleans: Are We Ready?

It’s sometimes hard to imagine that just one fierce storm, or an infinitesimal shift in the Earth’s crust, has the power to wipe out everything we know. Our history is replete with stories about Mother Nature flattening cities and bringing civilizations to their knees. Indeed, scientists have also warned us for decades about pending disasters, and yet we continue to build our homes in well-documented storm paths and along fault lines. Insurers are increasingly concerned that people are concentrating their wealth, cities and livelihoods squarely in the middle of climatic bulls-eyes. They make this observation knowing all too well the hurricane-related destruction that flooded the City of New Orleans.

The devastating aftermath of the 2005 hurricanes has people in the insurance industry raising the obvious question: Can the same disaster that befell New Orleans happen here? More specifically, have we as Canadians learned lessons from what happened in New Orleans, so that we might be better-prepared to weather similar natural disasters?

Of course Canadian perils are different than those on the Gulf of Mexico seaboard. Hurricanes are nothing new to those who call the southern United States home. Some argue Hurricane Katrina was a predictable reminder not to get lackadaisical about the destructive potential of the storms. But here in Canada, the greatest natural catastrophe risk facing Canadians is more likely to be an earthquake. Industry sources say the proverbial ‘Big One’ on the West Coast, or even a moderate quake in eastern Canada, might generate damages that make 1998’s Ice Storm in eastern Ontario and Quebec — which generated almost 800,000 insurance claims and Cdn$1.7 billion in insured damages — look like a drop in the bucket.

Are we implementing effective risk management strategies, using the knowledge we’ve gained from the 2005 U.S. storms? Or are we choosing to ignore the obvious, telling ourselves in the meantime: “It can’t happen here. And if it does, I’ll be just fine.” Canadian Underwriter talked to a number of North American risk managers and insurance industry sources to see where we stand in the event of a Canadian earthquake in a post-Katrina world.

FALSE ALARMS, FINAL WARNINGS

Elvin Thibodeaux knows all too well the frustrations of sounding alarms to deaf ears. He has lived in Southern Louisiana for more than half of his life and has worked as risk and safety manager at Cox Communications, a major telecommunications company based in The Big Easy, since 1999.

Thibodeaux worked through evacuation orders twice before Katrina. But he said he really encountered frustration when he tried to convince the citizens of his city, as well as the decision makers, that Hurricane Katrina was going to be different.

In the week leading up to the storm, Thibodeaux recalled, “I was looking at it with sophisticated equipment and software. The first time that I looked at it, the first time that the documents came to me and they ran a surge model — which measures the amount of water that comes in — I looked at the colour of the print and I think I looked at it three times.” Thibodeaux made his recollections over a coffee in New Orleans’ Ernest Morial Convention Centre. Once a hub for the displaced and dying after Hurricane Katrina, the centre bustled with RIMS 2007 conference delegates in April, when Thibodeaux agreed to meet with Canadian Underwriter.

“I paused for about two minutes,” Thibodeaux remembers, after reading the charts predicting Katrina’s strength. “I looked at the engineer that ran it. He said: ‘Yeaaahhhh. This is bad.'”

Thibodeaux pinpoints this moment as the origin of his subsequent frustration as a risk manager. “I had to keep saying: ‘This is going to happen. This is not a typical tropical storm.'”

And yet key decision-makers and policymakers kept coming back to him, asking: “How do we know that this is going to happen?” Time and time again, Thibodeaux assured them Katrina was not an “if” scenario, but a “when” scenario. “It was frustrating to see them spend their time doing that instead of trying to gather their citizens,” he said of the key officials’ hesitation.

Sure enough, Katrina walloped New Orleans shortly thereafter. The storm and the floods that ensued as a result of the city’s damaged levy system generated estimated insured losses of between US$40 billion and $50 billion dollars. It was the most expensive natural catastrophe to ever hit the United States.

CANADA’S KATRINA

Thibodeaux’s frustration two years ago may well mirror that of Canadian risk managers or insurers now. Many are still meeting with an obstinate refusal to believe that what happened in New Orleans cannot also happen here. True, Canada is not subject to the same natural perils as the southern United States, but that doesn’t mean Canada’s major cities are immune from the potential effects of a mega-catastrophe, sources say. In fact, in Canada, a natural peril most likely to cause damage akin to that in New Orleans is a different breed of monster altogether. According to Kristy Tiampo, the industrial research chair in earthquake hazard assessment for Benfield and The Institute for Catastrophic Loss Reduction (ICLR), Canada’s Top 4 natural perils are all earthquakes — with Vancouver, Montreal, Quebec City and Ottawa being designated as the primary hot spots.

“Often the seismic hazard in the East gets underplayed because the seismic hazard in the West is likely to be more damaging,” Tiampo explains. “But we do have significant urban risk in eastern Canada because there are so many people that live in an area that has moderate-sized earthquakes — not large earthquakes, but rare moderate events.”

But these so-called “rare, moderate events” carry a great potential for damage for two reasons, Tiampo adds. First, the greater amount of infrastructure and higher population density in the eastern part of the country present a risk for enormous damage losses. Second, the soil in the eastern part of Canada is harder than it is in the West; as a result, the shockwaves from an eastern quake will transmit further than if, for example, the soil was soft and not tightly-packed. Thus, while a quake on Canada’s west coast would likely “be larger and have more of a vertical bounce” than an eastern tremor, Tiampo says, “out East, a smaller quake will tend to have a wider radius of influence, because the ground is harder and the waves travel further because they do not dissipate as fast.”

In western Canada, the most threatening event may well be a large subduction event along the Cascadia vein, off the coast of Vancouver Island, says Mariagiovanna Guatteri, vice president of Swiss Re’s capital markets unit. “If you think in terms of return periods of large events, in a Cascadia event, we have to think in order of about a 500-year return period,” she observes. “But if they do occur, the potential is that they would be very large, with a magnitude of 8.” The last quake of such a magnitude to occur in Canada struck in 1700, according to evidence gathered by researchers and Native Canadian oral histories. Earthquakes Canada, a department of Natural Resources Canada, describes the event as a Magnitude 9 earthquake, opening up a 1,000-km-long fault rupture along the Cascadia vein. Shaking collapsed the houses of the Cowichan people on Vancouver Island and triggered numerous landslides. “The shaking was so violent that people could not stand, and so prolonged that it made them sick,” Earthquakes Canada information observes. On Vancouver Island, a tsunami associated with the quake completely obliterated an entire village of Pachena Bay, with no survivors.

Guatteri estimates there is a 70% probability that a subduction quake similar to the 1700 event will occur in British Columbia sometime within the next 200 years. The primary difference between the 1700 Cascadia event and the forecasted quake is that the area in question has an exponentially higher population density now than in 1700, with extremely expens
ive infrastructure.

HEFTY PRICE TAG

Since Canada has not experienced a natural disaster on the order of Cascadia during the 20th century, Guatteri says it is difficult to estimate what the insured losses would be from such a catastrophe. ICLR’s executive director, Paul Kovacs, believes a major earthquake in any of the four cities listed as being high risk areas has the potential of being “10 or 20 times larger in terms of the number of people who will die, the number of properties that will be affected, the amount of damage that will happen, the number of insurance claims generated … than any weather-related event to ever occur in Canada.”

The difficulty in communicating this, Kovacs says, is that although New Orleans has grown accustomed to expect hurricanes, Canadian earthquakes are rare. The result is a lack of preparation that might well exacerbate the losses. “When the very big earthquake happens in one of those communities, it will be very catastrophic,” Kovacs predicts.

Andy Castaldi, head of Swiss Re’s cat perils unit, points to a Swiss Re study, in which the reinsurer compared insured losses of 30 of the most catastrophic events in the world relative to the size of the insurance industry in which the event occurred. He notes that after Katrina, the 1998 Ice Storm in eastern Ontario and Quebec ranked as the most expensive catastrophe relative to the industry.

Kovacs notes insured losses from the 1998 Ice Storm amounted to about Cdn$1.7 billion. According to Guatteri’s estimates, a major quake on the West Coast, given extremely high insurance uptake in British Columbia — roughly 65% of home and business owners in B.C. have quake coverage, and more than 80% have coverage for fire-following, compared with only 20-25% of Californians taking up quake coverage — insured losses resulting from a B.C.-based quake could hit the $25-billion mark. Insurance Bureau of Canada (IBC) catastrophe models peg potential earthquake insured damages of a 340-year event on the West Coast at just over Cdn$6 billion.

How much capacity does the Canadian industry have to absorb such a mega-catastrophe? A researcher at the IBC says that in 2005, the industry conservatively estimated (after all of the caveats were taken into account) that it had more than Cdn$23.2 billion in catastrophe capacity — including PML reserving, catastrophe reinsurance and additional capital available above regulatory minimums.

REALITY CHECK

It’s one thing to calculate numbers and project potential damages, but when the catastrophe hits, very little can prepare you for the devastation, Thibodeaux cautions.

He recalls saying good-bye to his family as they left for safe haven in Baton Rouge on Fri. Aug. 19, 2005. Afterwards, he packed his sleeping bag and headed downtown to the City Hall’s Office of Emergency Preparedness, alongside a FEMA [Federal Emergency Management Agency] officer and mayor Ray Negan. He describes the hordes of people he saw on his way there, seemingly left behind and in a state of confusion. Huge crowds waited to take shelter in the Super Dome, on high ground, while the clouds gathered overhead and the first pitter of rain began to fall.

In the early hours of Monday morning, the storm hit. “I didn’t sleep,” recalled Thibodeaux. “You’ve got a 10-storey building that was built in the 1960s and the whole entire building was swaying.”

Lance Ewing, vice president of risk management at Harrah’s Entertainment, also worked through Katrina. He described his experience to a packed hall at the RIMS 2007 Conference. He said Harrah’s, the world’s largest gaming company, had crisis management manuals and procedures in place, but nothing could prepare them for the ensuing devastation.

“I am a firm believer in having a crisis management plan, but I can tell you that there’s no way you can have a crisis management plan for what we saw on the ground two days after we got down there,” he said, shaking his head.

As he clicked through a series of slides, Ewing related several poignant scenes. He described industrial-sized HVAC units thrown metres from the buildings on which they were once perched. Floating casinos were thrown onshore; one lay across Highway 90 in Mississippi. A parking lot was littered with tractor-trailers and bananas. Prior to Katrina, the tractor-trailers “were actually offshore about a quarter of a mile on a barge in the bay, and they were filled with Gold bananas,” he said. “The storm picked them up and threw them like projectiles into our casinos, parking lots and hotels.” Yet another slide showed a tattered casino parking lot, covered in brown slime. “That’s chicken effluence,” Ewing said. “There was a chicken manufacturing plant nearby and it just let loose.”

For Thibodeaux, communicating in the aftermath of Katrina recalled the days of the old ‘Pony Express’ in the Wild West, with messengers running communications back and forth between officials. There was no electricity or reliable means of communication — landlines and cell phones were useless, and the infrastructure used to run these means of communication had been destroyed. Satellite phones worked sporadically, he said. The mayor communicated with state officials via Blackberry pins. The absence of a functioning communications structure seemed to catch people by surprise, despite exhaustive meetings and planning sessions with federal and state government officials.

Thibodeaux said the federal government assured his crisis management planning team that resources would be ready and accessible within two or three days after any hurricane catastrophe, “but it didn’t happen.”

What went wrong? Planners didn’t take into account that not just the city, but an entire region would be wiped out. Resources weren’t restored right away because “it wasn’t just a local situation,” Thibodeaux said. “No city or municipality could go through that without outside help. We’re all joined at the hip. You can’t cut out one area of civilization, have it devastated, and expect it to come back by itself.”

But there’s a silver lining, he insists. “You learn a lot of lessons from that,” he says. “You need to beef up certain things. As you drive to the airport, you can see the cell towers are better-enforced. The generators are up and away from the water now. The city has satellite phone capabilities. A lot of things have been improved that are going to beef up communications. Does it help you 100%? No. But any little bit helps.”

LESSONS LEARNED: THE CANADIAN CONTEXT

Kovacs says the different Canadian communities facing earthquake risk have shown different approaches to preparing for the catastrophe. But for some cities, he says, it doesn’t seem to be a very big blip on their radar.

In particular, Kovacs said he was unaware of any governmental earthquake catastrophe plans or awareness programs in place in the corridor between Ottawa, Montreal and Quebec City. The City of Ottawa’s emergency planning unit says earthquakes were identified in a 2002 vulnerability assessment. Although the city does not have a dedicated, earthquake-specific risk management plan, earthquakes are included in an all-hazard plan.

“In my view, the preparedness for a large earthquake in British Columbia is better-understood, better-acted-upon and there’s greater awareness” than in eastern Canada, Kovacs suggests. “There are more actions [taken] by risk managers, government authorities, individual homeowners and business owners in BC because I think that they are very well aware of the risks.”

For example, B.C. municipal governments have regular drills and simulations, he notes. By doing run-throughs with children in schools, they take this information home and discuss it with their families, and it proves to be an effective means of spreading the word, Kovacs believes.

Shaking causes damage during earthquakes, but fire following earthquakes also requires attention, Kovacs says. “It’s the fires that keep going, and Vancouver has made a significant investment in specia
lized water supply for the fire department.” He notes Vancouver is one of only two communities in the world that has a dedicated, earthquake-proof fire suppressant system running through its downtown core. “It’s very expensive — that was anticipated — but an earthquake is inevitable; there will be a major earthquake in Vancouver one day,” Kovacs notes. “Research from the 1923 Tokyo quake and the 1906 San Fransisco earthquake – and many others – shows it’s very common after an earthquake for fires to start and you need to put them out.”

Despite having a dedicated system downtown supplied with salt water, Vancouver’s general water-supply infrastructure is not failsafe. The area’s freshwater supply comes from one pipe, running from Whistler, Kovacs notes. Should this pipe become damaged, the city would be without water for either human consumption or fighting fires [notwithstanding the dedicated system in the financial district].

Many of B.C.’s fire halls have made their garage doors “shake proof,” so that trucks will be able to respond to ensuing fires, Kovacs observes. But not all fire halls have been upgraded.

As Thibodeaux pointed out, Katrina exemplified the importance of ensuring that communications infrastructure is bolstered and able to withstand a catastrophe. In the comparable Canadian earthquake scenario, ICLR managing director Glenn McGillivray observes that whereas cities in western Canada are moving to strengthen their buildings, he has not heard much about telecommunications infrastructure being bolstered or companies and governments investing in satellite phone technologies.

Another lesson learned from Katrina is the need to overcome predictable failures in the transportation infrastructure. Tiampo says some kind of emergency transportation infrastructure needs to be in place to move people to safety. In New Orleans, Thibodeaux admits the bus systems and evacuation procedures did not work nearly as well as they had hoped, leaving room for improvement.

EXPECT THE UNEXPECTED

McGillivray says there’s no doubt that in preparing for one of Canada’s ultimate perils, earthquakes, Canadian governments and organizations need to be considering lessons learned from Katrina. “Whether they’re doing it, frankly, I would be surprised,” he says. “Except for the West Coast, I don’t think anybody else in the country really foresees a wide-spread event that would require such a move.” McGillivray leaves open the possibility that he is wrong, and adds that he hopes that he is.

Castaldi believes planning and anticipating what can and will go wrong in a major catastrophe situation is more of an art than a science. The Katrina situation in New Orleans was full of surprises, he adds, and perhaps this is one of the greatest lessons that we can take from it. “Especially in highly-populated areas, events cascade and take on new dimensions — especially if the events are significant in size.”

Some companies have extensive manuals to cope with different scenarios, Ewing says, while others may have a prayer card and a band-aid. “You can’t be prepared for everything,” he cautions risk managers. “Nowhere in the crisis management manual that I had did I find how to remove a 640-pound dead sea-lion in our parking lot,” he said, clicking to a slide of the beast decomposing in the hot southern sun. “But if there’s a 640-lb dead sea-lion in your parking lot, you have to do something with it.”

One thing Ewing said he learned is that when panic sets in, chances are that the crisis management manual will fall to the wayside and non-existent protocols addressing things such as gas line shut-off and dealing with looters will become the order of the day. “You can have a crisis management manual, but no one will follow it,” he warns. “We had a safety director down in Biloxi who was going to handle the crisis management, but he mentally checked out. He was walking around with a gun threatening to shoot looters.”

His advice to other risk managers facing a major peril: maintain communication with everyone from the top down. Investors, analysts, board of directors, media, chairmen and employees all need to be kept in the loop, he stressed.

First and foremost, focus on employees and their families, Ewing advises. Ensure they receive their pay cheques and benefits throughout the event. Be on the ground early and often to maintain control of the situation, and leverage relationships to ensure advance payments from insurers so that generators, food and water can be maintained.

“Bear in mind that your performance can lead to crisis,” he warned. “What you do can make it worse.”

Ewing left his audience of risk managers in New Orleans with the following advice: “Please make sure that you have hired excellent resources and have them lined up ahead of time. Don’t wait for the day of the crisis. It wasn’t raining when Noah built the Ark.”

Hopefully, those of us north of the border will heed these warnings, Kovacs says, because as far as he is concerned, it’s inevitable that a large earthquake is going to strike the West Coast again. “But this time there will be many more people and many more structures affected,” he says. Likewise, although there has not been an earthquake in an urban, eastern Canadian setting in recent history, the risk will inevitably become a reality there, too, Kovacs says. And so Canadian cities would be well-advised to learn from what happened in New Orleans and act on it quickly.