NLC-RISC Comments to Securities Industry Association

Securities Industry Association Meeting
Comments by Claire Reiss, Program Director of NLC-RISC
W Hotel, Washington, D.C., June 3, 2014

I want to thank you all for inviting me to be with you. I work for NLC's Risk Information Sharing Consortium. We serve a membership comprised of public entity risk pools, which provide insurance and risk management services for small to medium sized local entities. Without getting into all the details of our business, Risk Pools provide insurance that includes property damage, third party liability, and workers' compensation coverage, which means they are very interested in issues of security and safety. Working with pools gives us at NLC-RISC the opportunity to see first hand not only what is causing losses at the present time, but what may be coming down the road. My goal here today is to talk about a few of our concerns for the future, which may suggest to you areas where your industries can be of assistance.

Security for Buildings and Operations

Safety and security for buildings and operations has been a concern for a long time, but the threats continue to evolve. Even medium sized local governments have a wide variety of assets and operations; more than most private entities. They operate in a high visibility environment, where they can be subject to a great deal of criticism when things don't go well. And they do it all with shrinking resources.

Local governments are concerned about life safety and security for all of their facilities, but here are some facilities that may warrant special consideration.

  • Government administrative buildings are basically a collection of business offices, but as the visible seat of the government, these offices must be accessible to the public, even though they are also potential targets for violent attack. And even in the absence of an attack, if those offices are rendered inaccessible due to an ordinary peril like a fire or flood, the government will need a business continuity plan and access to alternative resources if it is to continue to serve its citizens.
  • Local governments also operate schools. Because they are entrusted with the care of the community's children, schools need good security. But they also need to be accessible to parents. The all too frequent active shooter events at schools are understandably pushing schools toward ever-greater levels of physical security, even as some events have demonstrated that physical security is not always enough.
  • Police departments and jails are beginning to be concerned about the possibility of attacks targeted at their facilities. And if an event renders a jail uninhabitable, the government has to have a plan for housing prisoners elsewhere.
  • As we all know, transit systems are one of the greatest vulnerabilities in our society. In the absence of rider screening, anyone can get on with a concealed weapon or bomb. Protecting the property and human lives exposed in operating these systems is a huge challenge and the stakes are high. Many metropolitan areas would be paralyzed without their mass transit systems. A few well-placed attacks could reduce ridership, prevent service workers from getting to work, and ultimately cause serious economic damage to a community or region.
  • Utilities are another lifeblood of the community, and they are vulnerable to natural and human caused disasters. These events can damage the community by depriving it of critical services, but also by serving as a vector to transmit harmful substances, especially through the water supply. One specific problem that is plaguing the electrical industry right now is theft of copper from plants. Electrical utilities' connection to the Internet is another potential threat.
  • Other critical infrastructure can include structures such as dams, bridges and levees, which can cause enormous damage and loss of life if they are compromised.

Many of the threats to these assets remain the same. But some threats are new or increasing in frequency or severity. Active shooter situations are an increasing concern, and not just for schools. Police departments are training for these events. The problem comes in balancing security against access, especially in government administrative offices, schools and on transit systems. Accessibility is an important feature of these government operations, but how can the simultaneous goals of accessibility and security be achieved?

Natural disasters are also evolving. Earthquakes are appearing in geographical areas where they have not previously been common. The deep injection of wastewater used in fracking is believed to play a role. The risk of flooding is increasing due to the rise in the sea level, torrential rains, and development that limits runoff opportunities for precipitation. Wildfire is an increasing problem in drought stricken areas of the western U.S., and as we learned last year, we still don't have adequate means to protect firefighters who are trapped by unexpected changes in the direction of a fire.

Human caused disasters continue to be a matter of concern. These disasters may be caused by terrorism, but they may also be an industrial accident, like the January leak of industrial chemicals into the Elk River in West Virginia, which left Charleston area residents without potable water for days. Water contamination can come from simpler exposures, like the urination into a Portland, Oregon reservoir, which resulted in the draining of millions of gallons of water, even though the water tested clean. Portland also had to issue a boil water alert when e-coli bacteria were found in two open reservoirs. The public is extraordinarily sensitive to issues of water cleanliness, so governments usually err on the side of caution when addressing potential contamination.

Train Derailments

Another area of emerging risk is train derailments. American railroads are legally required to carry toxic materials, such as oil. With the increase in North American oil production, there has been an increase in shipments of oil by rail through communities without notice of the risk involved. Many of these shipments take place in old tanker cars that are legal, but not as safe as newer generations. The oil being transported is of a particularly viscous nature, which makes clean up more difficult.

There have been several high profile derailments of trains in Quebec, Virginia, Alabama, North Dakota and Pennsylvania, with some resulting in fire, contamination of land and water, injuries and deaths. Costs include fire suppression and clean up, restoration, and potential third party liability. But there is no certainty that all of the rail companies can pay for these costs because they cannot obtain insurance with sufficiently high limits for the potential severity of these events. If the losses are too high, the railroad can simply go bankrupt. To some extent, the community will be left to bear the costs if that happens. In addition to better communication to communities about what is being transported through their boundaries, railroad cars and other railroad infrastructure need to be strengthened and well maintained to reduce the chances of a derailment.

Infrastructure Inadequacy

Finally a major emerging concern is infrastructure inadequacy - the inability of the public infrastructure to serve its function. Inadequacy of these systems results in damage to property, injuries, loss of life, and impairment of economic activity.

The infrastructure that is affected includes bridges and roads, sewer lines, water mains, the power grid and dams and levees. We see failures in these systems on a regular basis. Sewers back up and water mains fail. Bridges and roads collapse or cannot be used to their intended capacity due to the threat of failure. Failure of the power grid threatens life, property and economic activity. Dams and levees fail, flooding property and threatening life.

Infrastructure inadequacy can be caused by deterioration due to inadequate maintenance or exhaustion of its useful life. This is very common in the U.S. Many of our systems are far beyond their designed useful life, and the expenditure to replace them is huge. Sewers and water mains are a great example. Aging water lines suffer spectacular breaks, especially during the winter, resulting in significant damage, often to other infrastructure such as roads. Sanitary sewers back-up due to blockages resulting from aging or excessive load from new development. Sewers may also back-up or overflow due to infiltration of storm water into the sewers during the heavier rain events we are seeing.

Many local governments are financially strapped, and they are managing these problems on a piecemeal basis. But inadequate infrastructure contributes to limited economic growth and inability to compete for new industry, which limits tax revenue and further hinders the government economically. Recovery from this spiral requires creative thinking by the community, and can be assisted by creative solutions from their vendors.

And with that I want to thank you for the opportunity to speak with you today.