Too often do organisations find themselves subjected to another organisation’s (or individual’s) careless mistakes. For Nelson, it was supposedly a spark from some machinery in the wrong place at the wrong time.
Due to a series of consistent and significant events in 2017, insurance providers paid out $280+ billion in pay-outs; the most expensive on record. By 2018, many organisations in high-risk industries were not able to obtain enough cover with some subjected to know cover at all.
Specifically, the forestry industry.
On February 5th, a significant fire took ablaze in the hills of Pigeon Valley (about 50ks from Nelson City). The following day, a state of emergency was declared in the Nelson – Tasman region.
By day four, Wakefield, the local township of the fire is evacuated and up to 23 helicopters, 47 incident management staff and 150+ firefighters are called in to deal with the escalating crisis.
Jump forward a few days to the 10th of February and news breaks that Civil Defence Controller, Rob Smith uses his power under Section 91 of the Civil Defence Emergency Management Act to prohibit any activity in which “stone meets metals”. This included: harrowing, stump grinding, dicing, cultivation, angle grinding, welding, and gas cutting.
It was this decision, not the fires, that topped insurance claims to an all-time high for that region. How does such a decision impact a community, organisations and the future for the region though?
A 15-year call
No doubt Civil Defence Controller, Rob Smith will be long moved on in 15 years, but it’s unlikely the affected organisations will be. In fact, it is reported that the financial impact of stopping such a considerable level of forestry work won’t immerse itself for near 15 years.
With no trees being cut, no contractors were getting paid. Many made their way south to find more work and this resulted in an empty log book when on the 14th, a very small selection of industry groups were granted access; albeit if they followed strict guidelines and signed a declaration.
The take away from this is to ask a few questions; was it the right decision to force stop all forestry work (given that the region’s sole profit comes from this); was the decision part of a crisis plan; was this plan communicated to the contractors and forestry works in advance; was this a last minute, desperate measure; how good were the communications?
The icing on the cake
Despite its beauty, Nelson-Tasman is not the place to be right now. They’re sitting through a significant water crisis breaking records in the region. This comes almost 12 months to the day the region was subjected to Cyclone Fehi and Gita which tore through leaving the outlying areas of Motueka swamped with a king tide and buried under a river of mud – of which they’re still rebuilding.
The financial impact on the region from the big dry is expected to run into the millions, potentially outstripping the cost of the fire twofold. The cost to the economy has been assessed at $100m from a 35 per cent water restriction. That’s a significant bill for a region of only 52,000 people.
It’s never been a more relevant time to get out the crisis plans than it is for Nelson-Tasman right now. But, we often see the best and worst of organisations when they are subjected to an event.
For the forestry contractors, no doubt they had an action plan for Forest fires, but did that involve the denial of access to other areas of work?
At RiskLogic, we regularly play this out in our scenario exercises – and you should too. A scenario should be:
An alarm has broken out next door in your neighbour’s office block. Although there is enough space between the two, you’ve been told by police and firefighters to evacuate. Your building is now affected by their crisis.
Now consider the implications of what an insurance policy can cover.
After a few hours, a cordon has been set which includes the entire area of your building. No staff can get in and all of their belongings and laptops are left behind – resulting in lost revenue every hour. As this is a crisis caused by another organisation, and “access to your building” is not in your premium, your insurer cannot pay out.
This is the reality in Nelson right now to many contractors.
Major supply chain concerns
For the larger forestry companies, their contractors headed south until they were told the all-clear had been made (250 or so contractors).
It’s predicted that the surrounding 170,000ha forest that is either being burnt or not accessed is costing the businesses up to 2 million dollars a day. The supply chain from this region affects around 1,500 people.
Because forestry was a long-term business with three harvests happening at 25-30 years, the financial impact, aside from immediate salvage and clean-up costs, would not be felt until the land was cleared, replanted and the tree age gap hole appeared down the line.
Their insurance will not cover them for a problem that is due to happen in 30 years, but a Business Continuity and Crisis Plan might.
The question is, would you put this risk, this impact on the region as part of your crisis plan and part of your renewal period? You certainly should. It’s time New Zealand organisations became innovative and used other methods to get better outcomes through a crisis event.
We will be discussing this and much more around the negotiations and implementations of better insurance premiums in our webinar this March 14th.
Alongside Aon, we’ll be looking at the changing insurance market and providing solutions to prepare in 2019.