A Note to the User of This File

1. A Note to the User of This File Visit http://facpub.stjohns.edu/~kwonw/Blackwell.html to check updates for this chapter. This file as well as all other Power Point files for the book, “Risk Management and Insurance: Perspectives in a Global Economy” authored by Skipper and Kwon and published by Blackwell (2007), has been created solely for classes where the book is used as a text. Use or reproduction of the file by any means, known or to be known, is prohibited without prior written permission by the authors who can be contacted at Kwonw@stjohns.edu.

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3. Risk Management and Insurance: Perspectives in a Global Economy6. Catastrophe Risk Assessment: Human Factors Click Here to Add Professor and Course Information

4. Points to Ponder • Terrorism • Critical infrastructure risks • Environmental risks • The role of the precautionary principle

5. Terrorism

6. Terrorism • Terrorism is not new, but its magnitude. • 777 different groups caused 19,856 terrorism-related events globally between January 1968 and January 2005 • 25,595 deaths and 66,665 injuries caused by • The Revolutionary Armed Forces of Colombia • Basque Fatherland and Liberty • The National Liberation Army of Colombia • Hamas • Hezbollah • al-Fatah • The Taliban • al Qaeda • Terrorism is solidly a world problem.

7. Terrorism • An act of violence or threat of violence against individuals or property committed by one or more individuals acting on behalf on an organization for the purpose of influencing government policy or action to advance a political, religious or ideological cause Chapter 16 also about terrorism related to MNC employees

8. What is Terrorism? (Insight 6.2) • General agreement exists that terrorism exhibits: • Involves violence or its threat against people (as opposed to property) • The violence is not an end in itself but rather is aimed at instilling fear or having a deep psychological impact on others (which means attacking national symbols shows the terrorists’ power) • Perpetrated to accomplish political goals • Civilians or non-combatants are targeted (usually those who are identified with the government or offense as perceived by terrorists) • Perpetrated by non-governmental actors or at least governments of questionable legitimacy

9. Terrorism – Use of Nuclear Weapons • Building conventional nuclear weapons • The Nuclear Non-Proliferation Treaty (NPPT) • Building unconventional nuclear weapons • Dirty bomb • Method of controlling the nuclear weapons risk • No national or global network exists • Increased public attentiveness as an important component of societal risk control of terrorist acts

10. Terrorism – Use of Biological Agents • Bioterrorism • The threat of biological weapons use by terrorists • Categories • Contagious • Non-contagious • Preventing and detecting a bioterrorism attack • Limited number of methods available • Quarantines • Drugs • High-efficiency air filters • Development of databases linking medical facilities

11. Terrorism – Use of Chemical Agents • The knowledge has been known for decades, and the equipment and ingredients readily available • Mustard gas since WWI • The sarin attack in Japan • Preventing and detecting attacks • Many first responders said to be inadequately trained and poorly equipped

12. Terrorism – Use of Conventional Explosives • 1995 Oklahoma City (U.S.) bombing • Use of airplane and other modes of transportation • Suicide bombers

13. Terrorism – Observations • Terrorism is not likely to be defeated completely in the near future, if ever. • The root causes of terrorism seem a long way from being addressed sufficiently. • Terrorism is simply too cheap. • The fight against terrorism must continue and be financed.

14. Critical Infrastructure Risks

15. Critical Infrastructures • Systems whose incapacity or destruction would have a debilitating impact on the defense or economic security of a nation • Highways, pipelines, communication satellites and network servers • 1906 San Francisco earthquakes • 1995 Kobe earthquakes • Impact of complex infrastructure system failures on social, economic and political institutions • Interdependent effects • Occur when a disruption spreads beyond itself to cause appreciable impact on other systems, which in turn cause more effects on still other systems

16. Critical Infrastructures – Self-Organization • Self organization • Systems are under no direct control but realize uncoordinated results greater than the sum of individual parts. • Self-organized criticality is probably a more powerful tool than a probability model for the study of cascading infrastructure failures. • We have self-organized systems as demonstrated by competitive markets that exhibit higher efficiency than centrally controlled or managed systems. While such systems are more efficient, they are also on the verge of criticality and, therefore, can be more vulnerable to widespread failure. • We have highly efficient but less reliable self-organized systems. On the other, we have highly managed, reliable but less efficient systems.

17. Efficiency and Reliability in Systems (Figure 6.1)

18. Understanding How Complex Systems Behave • Variation in an interactive system, as in a biological community, reduces the vulnerability to single-point failures. • Interactions between members of the same group or social framework, while enhancing communication and simplifying information transfer, can have disastrous consequences if the jointly held information is wrong. • Selection deals with choosing successful strategies and rejecting those that lead to failure.

19. Environmental Risks

20. Environmental Risks • Climate change • Genetic engineering • Nuclear-generated electrical energy

21. Climate Change – the Problem • Greenhouse gases (GHGs) • Global warming • UN’s Intergovernmental Panel on Climate Change (IPCC) • Global temperatures have risen about 0.6ºC since the 19th century and human activity has contributed to this result. • Insight 6.4 • The trend of increasing global temperatures has continued into the 21st century. • Figure 6.2

22. Top Ten Countries in CO2 Emissions from Fossil Fuels The 20 Hottest Years on Record

23. Climate Change – the Options • To ensure that any increase in the world’s temperature is limited to between 2ºC and 3ºC above the current level over time • To ensure that developed countries use energy much more efficiently and figure out how to make profits from the very problem of global warming • Less carbon-intensive fuels for power generation • Energy efficient buildings • Energy efficient transportation modes

24. Climate Change – the Role of the Market • Economists contend that the gains achieved in emission reduction through government mandates come at a needlessly high price. • Emission trading ranks highly for its potential (Chapter 4) • Production costs include attendant negative externalities. • Externalities are only part of the battle in fixing market distortions. The other half involves scrapping environmentally harmful subsidies. • Such subsidies do double damage, by distorting markets and by encouraging behavior that harms the environment.

25. Climate Change – the Role of the Market • Many economists note that prices are also distorted because conventional economic measures (e.g., gross domestic products, GDP) measure wealth creation improperly, as they ignore the effects of environmental degradation. • Markets, even if they got everything right, must yield to public discourse and government policy. • As we learned in Chapter 2, markets are efficient but not always fair. Check also the 1997 Kyoto Protocol to the UN Framework Convention on Climate Change.

26. Genetic Engineering • A branch of biotechnology, which is a discipline that encompasses all innovative methods, techniques, processes and products using living organisms or their cellular constituents • It is not new. • The debate • The benefits from genetically engineered drugs are easily conveyed to the general public and widely accepted. • Borderline areas involving individuals’ ethical standards and fundamental beliefs • Uncertainty about residual risks Chapter 18 covers the Human Genome Project.

27. Nuclear-generated Electrical Energy • 441 commercial nuclear power reactors in 31 countries • Figure 6.3 • Operational safety • Insight 6.5 (the Chernobyl Disaster) • The China syndrome • Reactor scram • High-level wastes

28. Electrical Power from Nuclear Generation

29. Nuclear-generated Electrical Energy – the Future • Safety • The public must believe that existing and especially future power plants are safe. • Economics • Governments continue to deregulate their power industries worldwide, resulting in more competition that, in turn, forces greater operational efficiency. • Politics • In democracies, the future of any science is determined by society’s perceptions as manifested in political choices.

30. Precautionary Principle

31. Precautionary Principle • The economic-based approach to making societal risk-related decisions would have policymakers rely on cost-benefit analyses, focused on willingness to pay. • Many governments, scientists and others find this approach unacceptable in assessing technology for which questions exist about whether it could materially harm the environment or human health. • Precautionary Principle • Where there are threats of serious or irreversible damage, lack of full scientific certainty about whether damage could ensue should not be used as a reason for postponing cost-effective measures to prevent environmental (or other) damage.

32. Precautionary Principle • The Treaty of Maastricht in 1992 • The 1992 UN Conference on Environment and Development in Rio de Janeiro • Adoption of 15 principles • The Framework Convention on Climate Change, UN Biodiversity Convention • The Biosafety Protocol • The European Commission expanded it to ban foods that the public perceives as a health risk, even in the absence of scientific evidence of such a risk.

33. Discussion Questions

34. Discussion Question 1 • Describe the precautionary principle and relate its differing degrees of support in the U.S. and the E.U. to the cultural theory of risk.

35. Discussion Question 2 • Little disagreement exists today as to whether humans are contributing to global warming. Disagreement persists, however, about how important the consequences will be and what, if anything, to do about it now. Explain the pros and cons of this disagreement.

36. Discussion Question 3 • Some students were debating the issue of the “greenhouse effect” and its impact on the planet. (a) One student argues that the greenhouse effect was actually beneficial to the earth’s inhabitants. Do you agree? Explain. (b) Increases in the greenhouse effect attributable primarily to an increase in trace gases in the atmosphere have been linked to global warming. Discuss the impact of global warming on the physical environment.

37. Discussion Question 4 • What effect, if any, would you expect changing demographics, as discussed in Chapter 7, to have on (a) losses from hurricanes, (b) the risk of terrorism, (c) social views about climate change, and (d) social views about genetically modified food?