Posted on: 7/5/2012
Timothy D. Christ, LWG Consulting Inc.
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The recent Thailand flooding, which began in late July 2011 and extended to mid-January 2012, illustrated the devastation and ensuing response difficulties that accompany a natural disaster.
The Thailand flooding was the worst ever natural disaster in Southeast Asia, claiming 815 lives. Sixty-five of Thailand's 77 provinces were flooded. Seven major industrial parks suffered flood damage that affected more than 1,500 factories and 350,000 workers.
The impact on global supply chains was substantial. Twenty-five percent of the world's computer hard drives are manufactured in Thailand. The country is a major supplier of eyeglasses. Approximately 7.5 percent of the world's rice supply was affected by the flooding. Thailand also is known as the "Detroit of the East" because so many automotive products are manufactured there.
For Lloyd's of London, the Thailand flood represented the market's third largest insurance loss in history, surpassed only by the losses that followed Hurricane Katrina and 9/11. The flood response served as a very complex test of resources for using experts overseas to assist in evaluating the extent of damage. The response accentuated the importance of planning, communication and close supervision for successful international operations.
While the Thailand devastation was so severe, those who responded to the damage benefitted from the advance notice of impending danger. Warnings of potential severe flooding were first issued on July 25, 2011. That notification allowed expert firms to plan and strategize for effective damage responses in ways that are not possible when a hurricane or earthquake occurs with little or no prior notice.
The advance notification allowed experts to undertake comprehensive preparation measures. For medical safety purposes, each individual dispatched to Bangkok needed a series of immunizations that included vaccinations for Hepatitis A, Hepatitis B, Typhoid, Malaria, and Japanese Encephalitis. Each dispatched person also received a Measles, Mumps, and Rubella (MMR) booster shot.
Rubber boots and/or waders were necessary during the initial round of inspections because many of the industrial parks still had standing water in them. As with many countries' water supplies, Thailand's tap water presents health risks to foreign individuals; bottled water was necessary. Due to several factors associated with the local cuisine, it was also necessary to add a daily anti-diarrheal medication to the experts' regimen.
A single point of communication and a well-established hierarchy were crucial for responding to the Thailand catastrophe and are crucial for any disaster response. Appointing a Catastrophe Manager is the first step for ensuring a successful response and excellent customer service to clients.
The Catastrophe Manager should make multiple trips in advance of the Response Team to gain a personal understanding of local conditions. The Catastrophe Manager should meet with the client representatives to determine what specific projects they want experts to evaluate. The Catastrophe Manager should then devise a thoughtful plan that maximizes the efficiency of the expert response team and meets the client's goals and objectives. Among other items, the Catastrophe Manager should identify:
- What immunization or special medical concerns exist,
- How business visas can be obtained,
- The ideal method of travel for the expert team,
- A base of operations,
- What equipment will be needed and where it can be obtained, and
- What, if any local conditions/regulations exist that necessitate additional planning or alternate methodology for on-site investigation/analysis.
The Catastrophe Manager also needs to identify what local medical providers are available in case of injury or sickness. How such medical coverage will be paid for – either through international medical insurance policies, or as a cost borne by the company – needs to be determined as well.
The base of operations, be it a hotel, rented office space, or a combination of such venues, is critically important. That base needs to be in a secure environment where any concern for criminal activity is minimal. It is extremely important to consider the security situation for the particular area, and to have kidnap-and-ransom (KNR) coverage. High-speed internet service is essential. Wired internet connectivity is preferable, but wireless service is an acceptable option. Dedicated phone lines may be a good option, too, as international cell phone plans can be very expensive.
Travel is always an issue, and the Thailand response highlighted the difficulties teams may face in reaching a specific location. In one instance, a response team took a rental car, then took a boat, and then waded through standing water to arrive at the damaged plant. For general overviews of damage to multiple sites, helicopter or plane rental might be a cost-effective option.
There needs to be a plan in place for accounting for such travel expenses and passing those costs along to the client. Those costs can be incorporated in a higher hourly rate, listed as a line-item expense cost, or accounted for in some other manner.
For the Thailand response, a 13-hour difference in time zones separated corporate headquarters and the response team. That made conference call planning more difficult. Such situations illustrate the value of email and utilizing collaborative websites such as SharePoint, where a response team can upload photos, documents, reports, and other information for use by the support team back home.
During the client interactions in-country, the response team needs to be aware of various factors that can complicate negotiations. In Thailand, for example, there was a serious problem with industrial facilities being under-insured. The replacement cost for a particular plant and equipment in the event of a total loss was around $1 billion USD. However, the facility had a $50 million flood sub-limit for its policy coverage. So, if the facility was determined to be a total loss due to the flood, the insurer would only pay the facility owner $50 million USD.
That left the facility owner to determine what to do about the gap in coverage. To further complicate matters, many of the local insurance companies that these policies have been written through only retain about one percent of the total risk. After they write a $50 million flood policy, for example, they re-insure 99 percent of the potential exposure through the international or Lloyd's market. This adds additional parties to the investigation, and necessitates additional lines of communication.
The methodology of the on-site investigation may need to be approached differently as well. An expert may identify evidence that needs to be preserved or moved off-site for laboratory analysis, destructive inspections, or other evaluation. Local regulations, though, may govern how such evidence needs to be accounted for in the event litigation ensues. In Mexico, for example, an investigator must use a Notario Publico, a public official appointed by the governor for the given geographical location, to oversee and officially record evidence collection. It can be difficult to find specialized laboratories for various types of analysis in certain countries, too. A "technical university" in a particular country typically may offer the best opportunity for high-quality laboratory facilities. It takes negotiation with the appropriate professor to assure the tests are conducted in accordance with (ideally) both national and international standards. It takes discussion as well to verify the professor understands what questions the testing is designed to answer.
Close coordination of the response team is critical to ensure that clients' goals and objectives are met or exceeded. With the Catastrophe Manager responsible for a detailed list of prioritized and scheduled objectives, the response team can focus on the individual tasks they have been assigned.
The Catastrophe Manager should follow up with each team member daily to determine whether or not necessary work is being completed on schedule and if there are any situations/concerns that need to be addressed. The Catastrophe Manager also should make sure each team member is clear on what objectives he is responsible for accomplishing the next day.
Each team member's information can then be organized by the Catastrophe Manager for inclusion in progress reports prepared for clients. A shared website, where both experts and clients can utilize a common platform for uploading or viewing documents, photographs and other items, allows for close communication/interaction between the various parties. That keeps everyone on the same page.
Any expert firm interested in doing business internationally should consider the significant time investment that will be required to ensure the safety of its personnel, to perform the work correctly, to meet the clients' goals and objectives, and to realize a reasonable profit. A firm with extensive past experience conducting business internationally has a substantial competitive advantage because that experience provides considerable leverage when discussing capabilities with clients.
Timothy D. Christ, M.B.A. is a Director for LWG Consulting, Inc. with 17 offices throughout the US and three international locations, including Toronto, London, and Singapore. Mr. Christ has been in the forensic engineering and insurance claims consulting industry for more than a decade and has successfully managed large, complex projects globally. He has been involved with various young lawyer associations since 2001 as an expert witness and can be reached at tchrist@lwgconsulting.com