Adam Rose, USC Price School of Public Policy research professor, was one of 10 speakers at the Federal Reserve Bank of New York conference on “Managing the Risk of Catastrophes: Protecting Critical Infrastructure in Urban Areas.” The event was spurred by the need for an examination of key issues in risk management at the one-year anniversary of Superstorm Sandy.
Rose, coordinator for economics at USC’s National Center for Risk and Economic Analysis of Terrorism Events, shared insights at the conference from 15 years of research on resilience to disasters, including studies in the Los Angeles area.
One of Rose’s main points was that it is not only physical damage to infrastructure that must be managed effectively, but also the services they provide as well as the contributions of these services to the economy. Thus, while much of the focus is on pre-event mitigation, he said, much can be done cost-effectively to reduce post-event business interruption, especially on the customer side
Economic resilience refers to using remaining resources efficiently and recovering quickly. Mitigation refers to pre-event actions such as building seawalls and power system redundancies, which are typically very expensive. However, demand-side options, such as conservation, using backup generators, shifting operations to branch offices/factories, are relatively inexpensive.
Resilience capacity can be built up prior to disasters but needs only to actually be implemented afterward. In addition, a good portion of resilience can come from building flexibility into systems so they are more adaptable after a disaster.
Other recommendations were to enhance the offering of contingent business interruption insurance, which covers loss of profits resulting from disruptions of infrastructure services, even if the business incurs no structural damage. This provides much-needed working capital for recovery.
Rose cited examples of high levels of resilience due to rapid relocation of businesses following the 2001 World Trade Center terrorist attacks in New York, a range of resilience tactics in the simulation of a disruption to a major Texas seaport and a range of tactics in response to simulated terrorist attacks on the Los Angeles water power system.
Much of customer-side resilience is self-motivated and should be nurtured, he said. Government needs to take care not duplicate these efforts or undercut them through disincentives, according to Rose.
Mitigation is still key, in part because it is essential in preventing loss of life and other irreversible effects such as ecological damage. However, resilience is a worthy second line of defense, he noted.
Rose will be advising the Federal Reserve Bank on the development of economic resilience indicators. He is currently advising the United Nations Development Programme on resilience aspects of its Human Development Report 2014.
Other conference participants included Robert Stavins of Harvard University, Stephane Hallegate of the World Bank, Cynthia Rosenzweig of Columbia University and Howard Kunreuther of the University of Pennsylvania’s Wharton School.