The Kerala flood has brought the focus of the nation towards the havoc it has created, kind of losses it has done, rescue activity that is taking place and restoration cost that is required to bring back life to normalcy. In the hindsight, it looks as if any action taken in advance would not have resulted in 231 losses of lives since 8th August. Unfortunately, we do not have a time machine to rewind the time, make the necessary adjustment and then roll the time forward so that no losses happen. God has kept the time machine with himself, but God has given brain to human to do some advance activity to prevent possible losses.
Risk management is one such field, where you identify risk in advance, assess the possible losses, plan for the mitigation action if an adverse event is to take place and monitor both risk and the mitigation action plan going forward. The unfortunate part is that this side of the science is not used in practice enough in our country, despite knowing that risk cannot be eliminated but can only be managed.
The Kerala flood is estimated to cost the country Rs.2600 Cr and additional borrowing of Rs.10,500 Cr by the state, a proposed increase in GST on goods by 10% to fund for the flood and perhaps many more. Over and above this, the insurance claim is expected to go up to Rs10, 000 Cr as reported by the Surveyor’s Association. This is a cost of crisis management; crisis management is always more expensive than risk management and additionally damages the reputation.
Learning from past losses and cost of crisis flood management is acceptable, however, a repeated loss from floods or excessive rain is not acceptable. Last year, the Mumbai rain caused a similar issue and insurance Companies lost millions of Rupees in few days of rain. Chennai in the past has a similar story. As a country, we are not focusing on the risk management from natural factors. Given than Environmental risk in the present time is top risk rated by almost all the agencies including the World Economic Forum, it is surprising that the focus towards the risk management is not there.
Through this column, I would like to extend the support to the Government of India that we at Risk Management Association of India under its “RMAI Risk Consulting” banner, we are ready to partner with and work towards identifying the areas where risks can be identified and help in preparing the mitigation plan, so that losses can be minimized.
Risk identification is a first step towards the management of the risk. In this particular case, it is not difficult to identify the risks in the current time, when the world is passing through global warming. Excess of rain, extreme summer and winter are not ruled out. Given that the world leaders are slow to address environment, such risk may continue for another many years. A coordination with the metrological department would be very handy in identifying risks emerging from the environment.
Correlated risks from environmental risk cannot be understated or missed. The adverse impact on the economy due to the direct and indirect impact from the environment could be far-reaching and should be identified as a part of the risk identification process.
Risk measurement is often used to assess the impact of the risk on the economic and demographic front so that risks can be prioritized while planning for mitigation action. In this case, the losses would be in million, so the key focus should be on the next step which is risk management.
Risk management is a process where advance action plan is created if the risk materializes. There are four methods in the management of risks, they are, risk avoidance, risk acceptance, risk transfer and risk mitigation.
- Risk Avoidance: Until we are on planet earth, the environmental risk cannot be avoided. This action is only possible if we move to some other planet which does not environment risk. This action cannot be taken to address the risk resulting from nature.
- Risk Acceptance: Risk acceptance is a blanket acceptance of the risk, this could be accepted either with mitigation or without mitigation. Risk acceptance with mitigation will fall under the fourth category of risk management as under “risk mitigation” where action plans are prepared for the accepted risk. However, under this category of risk acceptance, it is generally accepted without any action plan and either money is kept aside to address this risk when it arises or be ready for crisis management.
- Risk Transfer: Risk transfer is another option for the management of risk of flood. In this process, the risk is passed to the third party in lieu of a premium. Insurance is one of the ways through which risk of the flood can be transferred to the insurance companies. This can be developed either through the State Government paying the premium or through individual paying premium at a subsidized cost. Such insurance premium is generally a very small percentage of the cost of crisis management.
- Risk Mitigation: Risk mitigation is perhaps the best option which requires minimal cost and maximum results. This action requires an advance thinking when everything is fine about how to stop the flood if it rains heavily. Scenario development is also required to address what actions will be taken if rain and flood are of different intensity. This in the terminology of risk management is referred to as Stress and Scenario Testing (SST). The action points that can be kept ready to address flood are
- Having a proper drainage system, there are places in the country where, if it rains for one full day, it will get flooded. Gurgaon is perhaps the best example.
- Cleaning of all drains, this will help in draining out all excess water resulting from rain.
- Creating underground reservoir to store the excess water. The excess water can be stored in the underground reservoir to be used in future.
- Such excess water can be traded to other states where there is a shortage of water and cost of building underground reservoir met from this trade.
- Creating cannels linking to other states where there is a water shortage
- This entire water management can be given to the third party with proper oversight from the Government. This will help the government saving the money and tax on the trade will be the earning for them
- There could be other possible solution. The key point is the action taken here should prevent the flood in all the defined scenarios.
- Risk Monitoring: All the above steps are in vain if the above processes are not monitored regularly because the above actions may require dynamic adjustments to address any emerging changes that may happen in future.
It is evident from the above that risk management is a value addition process to reduce the losses that may arise in the future from possible adverse events. This science needs to be used more proactively in all walks of life. The Government of India, in my opinion, must set up the Ministry of Risk Management. I am willing and happy to support in this endeavour.
CMIRM, FRMAI, SIRM, PIOR, CRICP
Author is Head Risk Consultant in ‘RMAI Risk Consulting”
Joint Secretary of Risk Management Association of India (RMAI)
India Ambassador of Institute of Risk Management London