On 25 October 2023, the Risk Management Institute of Australia hosted a conversation in partnership with Lockton, a risk consultancy and international broking house and Battleground Group, a risk management and crisis management consultancy. Ahead of an alarming hot and dry summer, here’s a recap and seven key takeaways from the event so organisations can prepare for and respond more effectively to the looming bushfire season.
Key takeaway one: treat every crisis/risk event simulation as it’s genuinely happening in real-time
Practice makes perfect. There is a core principle in successful sports teams: “treat training with the same intensity as game day.” The same applies to bushfire risk management and crisis simulation exercises, however they are not always done as well as they could be.
For example, in the construction industry, a fatality might occur with a subcontractor who is two-three contracts away from you. When you have an incident that is so far separated from you, it becomes complex quickly. In simulations, sometimes organisations don’t want to include the reality that a fatality can occur. So when a tragic real-life event occurs, lessons that would have otherwise been identified, such as the importance of including general counsel as part of the crisis management team, are only then realised. This is too late and can impact the response.
Key takeaway two: information sharing is imperative - understand stakeholder communication and prioritisation
In the event of a crisis, it’s important to understand stakeholder engagement and prioritisation. For example, in the event of X, who do you tell first? Executives should be focused on strategic elements and don’t need to know everything in a Business Continuity Plan, but they need to have confidence you’ve worked through the process before the event occurs. Only then can they stay focused on the strategic elements such as advising shareholders, the board, media.
Notification escalation is activation is key. Focus on leveraging normal management lines of communication. People always tell the boss when there’s a problem, so don’t undermine that practice in the event of a crisis: leverage it. High-performing organisations understand incident management should enhance existing communication arrangements rather than create an alternative process for communication when the pressure is on.
In simulations, ask questions such as: In the event of X, who do we tell first? Who decides if it’s a crisis? How and when do you activate the crisis plan? How do we share information up, down and across the organisation? How do we share information with emergency services?
Key takeaway three: a CEO is separate and distinct from the crisis management role - a director is not always the right person to be your crisis leader
Crisis management is about maintaining overall management and coordination of a response to the crisis. There can sometimes be a cast of thousands in the situation room which doesn’t help the situation. Your CEO should be focused at a strategic level on focusing on the broader impacts to the business over time. Risk professionals need to be brave enough to have this conversation with the CEO or executive team.
Ask: who is the right crisis leader for the job?
Key takeaway four: simplicity beats complexity - have a simple briefing structure in place
At the start of a crisis, it can be a nerve-racking time. When determining the stakeholder briefing and operating tempo, have a simple plan on a page. Don’t get caught in the strategy either. Allow people to commit to some of the actions and present back on their progress. As the saying goes, “no plan survives first contact with the enemy.” Have simple prompts and a structure to get started so you can manage the dynamic impacts as the situation evolves.
When conducting briefings, ask: what do we know/what are the facts? What’s new information since the last briefing? What’s changed? What are the impacts? What do we need to do now? What key decisions do we need to make? Who’s responsible for those actions and when? What are our key messages and who should talk to these?
Key takeaway five: supply chain risk is just as important as your own
What if your aerial service provider performing bushfire inspections is impacted by bushfires themselves? It’s important to demonstrate your genuine commitment to regulators and underwriters by sharing your comprehensive bushfire risk and supply chain continuity programs.
Ask: what contingencies do you have in place to perform essential inspections and continue operating? When was the last time you exercised your supply chain continuity program? Was this exercised with emergency services as well?
Key takeaway six: All insurance is risk, but not all risk is insurable
There is not an infinite availability of liability insurance capacity for bushfire risk. When competing for limited bushfire insurance capital in the market, insurance buyers must transition away from simply buying insurance to selling risk. This includes face-to-face engagement with insurers and presenting their risk to gain their confidence, understanding and comfort with the ultimate view of obtaining better outcomes.
As identified in Lockton’s 2023 Blazing Trails Report, (opens a new window) identifying bushfire risk and expecting to purchase off the shelf insurance is no longer a sensible strategy as insurance is not always not readily available, or cost effective. Increasingly, organisations are also not being successful in demonstrating their risk management programs to the insurance market which would otherwise lead to better outcomes.
Start by getting back to basics and first asking: why am I buying insurance in the first place? Is it balance sheet protection or to remain solvent in the event of a catastrophe? Or perhaps something else? After buying insurance, if an organisation is still asking itself: “we purchased insurance because it is what we have always done and/or it’s all we could get”, then reconsideration in strategy and approach may be required.
Looking at your industry peers and how they are purchasing insurance is not the answer either. Don’t look at your competitors, for example, the insurance limits they are buying, as the benchmark for what good looks like.
High-performing organisations are those who are running reputable catastrophe modelling to guide their decisions. Data is king in the insurance industry, it always has been and bushfire exposure is no different. Despite the notable challenges in the market, it is still possible to achieve premium savings, but this requires program restructuring based on modelling, creating competitive tension between insurance buyers, etc.
Pleasingly, there have been new entrants from the London market in recent times, leading to more capacity. For certain Australian underwriters, it’s important to consider that sometimes decisions are dictated by their head office in other parts of the world. These types of approvals can lead to increased costs and poor outcomes.
To get better outcomes, ask questions such as: are we articulating the latest systems we have put in place to insurers? Are we telling insurers about the risk management training we have invested in? Are we effectively selling our risk?
Key takeaway seven: you can have all the technology in the world to mitigate bushfire risk, but demonstrating its effectiveness over time is key
Technology to reduce the exposure, likelihood and resulting severity of bushfire risk is increasing. Technology can have a notable impact on insurance terms and conditions. However, the key is to objectively demonstrate the effectiveness of leading-edge technology such as rapid earth fault current limiters (REFCL) (which work like a large safety switch when a powerline has fallen to the ground), over time. Also, every organisation may have this technology, but it’s your insurance broker’s role to make sure the story of its adoption and implementation is sold to insurers.
Helpful resources to build bushfire organisational resilience
Download Lockton’s 2023 Blazing Trails Bushfire Liability Market Report. (opens a new window)
Explore the Australian Disaster Resilience Knowledge Hub’s Handbook Collection, (opens a new window) including playbooks for Incident Management and Lessons Management.
