Why Are We Under-Prepared When Disaster Strikes?
Perhaps it’s a feature of working with so many Financial Services clients, but I’m surprised how often talk of investing in data turns to risk and preparing for disaster.
How important is it to prepare for high-likelihood/low-severity risks (the ‘day-to-day‘, if you like) verses low-likelihood/high-severity risks (potential disasters)? Is it worth only investing in the data needed to operate as you currently do, or should data plans be more ambitious?
So, a post that caught my eye this week was again published in a newsletter from Paul Carroll (Insurance Thought Leadership). Particularly because the topic has wider application than just insurance. It should be of concern for leaders everywhere.
We’ve shared in recent weeks on GDPR and the data implications of that regulation.
Even from that perspective, do you struggle to prepare for potential disasters?
In this short post, Professors Howard Kunreuther & Robert Meyer (from University of Pennsylvania) share 6 reasons why leaders fail to prepare for disasters…
When disaster strikes
When dawn broke on the morning of Sept. 8, 1900, the people of Galveston, Texas, had no inkling of the disaster that was about to befall them. The thickening clouds and rising surf hinted that a storm was on the way, but few were worried. The local Weather Bureau office, for its part, gave no reason to worry; no urgent warnings were issued, and no calls were made to evacuate. But by late afternoon it became clear that this was no ordinary storm. Hurricane-force winds of more than 100 mph were soon taking the city, driving a massive storm surge that devoured almost everything in its path. Many tried to flee, but it was too late. By the next day, more than 8,000 people were dead, the greatest loss of life from a natural disaster in U.S. history.
Fast-forward to September 2008 when Hurricane Ike threatened the same part of the Texas coast — but this time it was greeted by a well-informed populace. Ike had been under constant surveillance by satellites, aircraft reconnaissance, and land-based radar for more than a week, with the media blasting a nonstop cacophony of reports and warnings, urging those in coastal areas to leave. The city of Galveston was also well-prepared: A 17-foot-high seawall that had been constructed after the 1900 storm stood ready to protect the city, and government flood insurance policies were available to residents who were at risk of property loss. Unlike in 1900, Texas residents really should have had little reason to fear. On their side was a century of advances in meteorology, engineering and economics designed to ensure that Ike would, indeed, pass as a forgettable summer storm.
Failing to prepare for disaster
It didn’t quite work out that way. Warnings were issued, but many in low-lying coastal communities ignored them — even when told that failing to heed the warnings meant they faced death. Galveston’s aging seawall turned out to be vulnerable; it was breached in multiple places, damaging roughly 80% of the homes and businesses in the city. The resort communities to the north on the Bolivar Peninsula, which never saw the need for a seawall, fared even worse, witnessing almost complete destruction. And among the thousands of homeowners who suffered flood losses, only 39% had seen fit to purchase flood insurance. In the end, Ike caused more than $14 billion in property damage and 100 deaths — almost all of it needless.
Why are we underprepared for disasters?
The gap between protective technology and protective action illustrated by the losses in Hurricane Ike is, of course, hardly limited to Galveston or to hurricanes. While our ability to foresee and protect against natural catastrophes has increased dramatically over the course of the past century, it has done little to reduce material losses from such events.
Rather than seeing decreases in damage and fatalities because of the aid of science, we’ve instead seen the worldwide economic cost and impact on people’s lives as hazards increased exponentially through the early 21st century, with five of the 10 costliest natural disasters in history with respect to property damage occurring since 2005. While scientific and technological advances have allowed deaths to decrease on average, horrific calamities still occur, as in the case of the 230,000 people estimated to have lost their lives in the 2004 Indian Ocean earthquake and tsunami; the 87,000 who died in the 2008 Sichuan earthquake in China; the 160,000 who lost their lives in Haiti from an earthquake in 2010; and the 8,000 fatalities that occurred in the 2015 Nepalese earthquake. Even in the U.S., Hurricane Katrina in 2005 caused more than 1,800 fatalities, making it the third-most deadly such storm in U.S. history.
In our book “The Ostrich Paradox,” we explore six reasons that individuals, communities and institutions often under-invest in protection against low-probability, high consequence events. They are:
- Myopia: a tendency to focus on overly short future time horizons when appraising immediate costs and the potential benefits of protective investments;
- Amnesia: a tendency to forget too quickly the lessons of past disasters;
- Optimism: a tendency to underestimate the likelihood that losses will occur from future hazards;
- Inertia: a tendency to maintain the status quo or adopt a default option when there is uncertainty about the potential benefits of investing in alternative protective measures;
- Simplification: a tendency to selectively attend to only a subset of the relevant factors to consider when making choices involving risk; and
- Herding: a tendency to base choices on the observed actions of others.
What can you do differently next time?
We need to recognize that, when making decisions, our biases are part of our cognitive DNA. While we may not be able to alter our cognitive wiring, we may be able to improve preparedness by recognising these specific biases and designing strategies that anticipate them.
China's Push Toward Excellence Delivers a Global Robotics Investment Opportunity
Written by: Jeremie Capron
China is on a mission to change its reputation from a manufacturer of cheap, mass-produced goods to a world leader in high quality manufacturing. If that surprises you, you’re not the only one.
For decades, China has been synonymous with the word cheap. But times are changing, and much of that change is reliant on the adoption of robotics, automation, and artificial intelligence, or RAAI (pronounced “ray”). For investors, this shift is driving a major opportunity to capture growth and returns rooted in China’s rapidly increasing demand for RAAI technologies.
You may have heard of ‘Made in China 2025,’ the strategy announced in 2015 by the central government aimed at remaking its industrial sector into a global leader in high-technology products and advanced manufacturing techniques. Unlike some public relations announcements, this one is much more than just a marketing tagline. Heavily subsidized by the Chinese government, the program is focused on generating major investments in automated manufacturing processes, also referred to as Industry 4.0 technologies, in an effort to drive a massive transformation across every sector of manufacturing. The program aims to overhaul the infrastructure of China’s manufacturing industry by not only driving down costs, but also—and perhaps most importantly—by improving the quality of everything it manufactures, from textiles to automobiles to electronic components.
Already, China has become what is arguably the most exciting robotics market in the world. The numbers speak for themselves. In 2016 alone, more than 87,000 robots were sold in the country, representing a year-over-year increase of 27%, according to the International Federation of Robotics. Last month’s World Robot Conference 2017 in Beijing brought together nearly 300 artificial intelligence (AI) specialists and representatives of over 150 robotics enterprises, making it one of the world’s largest robotics-focused conference in the world to date. That’s quite a transition for a country that wasn’t even on the map in the area of robotics only a decade ago.
As impressive as that may be, what’s even more exciting for anyone with an eye on the robotics industry is the fact that this growth represents only a tiny fraction of the potential for robotics penetration across China’s manufacturing facilities—and for investors in the companies that are delivering or are poised to deliver on the promise of RAAI-driven manufacturing advancements.
Despite its commitment to leverage the power of robotics, automation and AI to meet its aggressive ‘Made in China 2025’ goals, at the moment China has only 1 robot in place for every 250 manufacturing workers. Compare that to countries like Germany and Japan, where manufacturers utilize an average of one robot for every 30 human workers. Even if China were simply trying to catch up to other countries’ use of robotics, those numbers would signal immense near-term growth. But China is on a mission to do much more than achieve the status quo. The result? According to a recent report by the International Federation of Robotics (IFR), in 2019 as much as 40% of the worldwide market volume of industrial robots could be sold in China alone.
To understand how the country can support such grand growth, just take a look at where and why robotics is being applied today. While the automotive sector has historically been the largest buyer of robots, China’s strategy reaches far and wide to include a wide variety of future-oriented manufacturing processes and industries.
Electronics is a key example. In fact, the electrical and electronics industry surpassed the automotive industry as the top buyer of robotics in 2016, with sales up 75% to almost 30,000 units. Assemblers such as Foxconn rely on thousands of workers to assemble today’s new iPhones. Until recently, the assembly of these highly delicate components required a level of human dexterity that robots simply could not match, as well as human vision to help ensure accuracy and quality. But recent advancements in robotics are changing all that. Industrial robots already have the ability to handle many of the miniature components in today’s smart phones. Very soon, these robots are expected to have the skills to bolster the human workforce, significantly increasing manufacturing capacity. Newer, more dexterous industrial robots are expected to significantly reduce human error during the assembly process of even the most fragile components, including the recently announced OLED (organic light-emitting diode) screens that Samsung and Apple introduced on their latest mobile devices including the iPhone X. Advancements in computer vision are transforming how critical quality checks are performed on these and many other electronic devices. All of these innovations are coming together at just the right time for a country that is striving to create the world’s most advanced manufacturing climate.
Clearly, China’s trajectory in the area of RAAI is in hyper drive. For investors who are seeking a tool to leverage this opportunity in an intelligent and perhaps unexpected way, the ROBO Global Robotics & Automation Index may help. The ROBO Index already offers a vast exposure to China’s potential growth due to the depth and breadth of the robotics and automation supply chain. As China continues to improve its manufacturing processes to meet its 2025 initiative, every supplier across China’s far-reaching supply chains will benefit. Wherever they are located, suppliers of RAAI-related components—reduction gears, sensors, linear motion systems, controllers, and so much more—are bracing for spikes in demand as China pushes to turn its dream into a reality.
Today, around 13% of the revenues generated by the ROBO Global Index members are driven by China’s investments in robotics and automation. Tomorrow? It’s hard to say. But one thing is for certain: China’s commitment to improving the quality and cost-efficiency of its manufacturing facilities is showing no signs of slowing down—and its reliance on robotics, automation, and artificial intelligence is vital to its success.
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