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7 Potential Disasters Worse than the BP Spill

If forecasters were attempting to gauge the worst disasters that could happen, a major oil spill gushing for some 90-plus days into the Gulf of Mexico would probably have rated fairly high. By some estimates, this whole mess will cost BP around $60 billion. (Other, more conservative estimates have it costing closer to 1/10th that number.)

But while this might seem like the one of the worst things that possibly could happen on American soil, it isn’t. Forbes, in its latest issue, has a list of seven other incidents that could be even more catastrophic. Here’s a recap of their list.

nuclear plant

1. Nuclear Meltdown

Depending on the severity and location, a disaster at a major plant could wreak unfathomable carnage. Writes Forbes:

The industry has $19 billion set aside to pay for accidents. But what would a Chernobyl-type release of radioactive gases into the air do to death rates and the habitability of some large area? The Institute for Policy Studies says a spent-fuel fire could cost hundreds of billions of dollars.

While nuclear energy very may well be a good option in a country (rhetorically) trying to slow climate change and wean itself off of foreign oil, the possibility of a meltdown can be sobering — even when you realize that it has thus far been very effective and safe in some parts of the world for the past several decades.

gasland

2. Liquefied Natural Gas Explosion

With supertankers out there carrying some 100,000 tons of liquid methane, the explosive potential of a single ship is equivalent to the blast that would occur if two billion sticks of dynamite went off. The last major tanker explosion killed 128 people in Cleveland in 1944. The next one? Well, it would likely be much, much worse.

And anyone who has seen the controversial — and terrifying — documentary Gasland knows that there may be other, more subtle risks involved in natural gas extraction that deserve the attention of regulators and the industry.

Bhopal Union Carbide

3. Chemical Plant Explosion

The Bhopal disaster was the worst industrial accident in history. Recently — and very controversially — seven involved officials were sentenced to two years in prison and fined $2,000 for negligence more than 25 years after the 1984 Union Carbide leak of poisonous gases (mostly methyl isocyanate) that killed some 15,000 people directly (and up to 23,000 by some estimates) while also leaving another 500,000 with injuries and ailments related to exposure. Human rights groups, victims and Bhopal locals were outraged at the leniency given, particularly since proper clean-up efforts were never conducted and that the $470 million settlement paid by Union Carbide in 1989 now looks laughable by any standard.

If something like that were to occur today, it’s almost impossible to predict how much such a politically charged incident with so many casualties would end up costing. But Forbes lists a hypothetical plant explosion in Houston that kills 600 people as totaling $20 billion, according to Risk Management Solutions.

hoover dam

4. Dam Failure

I have never done any research into a major dam failure, but it sure doesn’t sound good at all.

One of the worst scenarios would be a cascading series of failures in the Columbia River Basin of the Pacific Northwest, where the dams start in Canada, pass the Department of Energy’s Hanford Reservation, with its 50 million gallons of plutonium-laced waste, and include the 6.8-gigawatt Grand Coulee Dam, the largest hydroelectric plant in the U.S. The odds of such a catastrophe are extremely low, but the costs would quickly exceed the $85 billion tab for cleaning up Hanford.

Hopefully, someone is looking into lowering the threat for all “one-third of the 80,000” U.S. dams that FEMA claims pose at least a “high” risk.

long island express 1938

5. Category 5 Hurricane Hits New York

A few years ago, I wrote an in-depth feature article for Risk Management about the hurricane potential for New York. Honestly, I’m not really sure a cat 5 hitting NYC is even close to likely over, say, the next 100 years or so, even if ocean sea-surface temperatures continue to rise to alarming extents. But a category 3 storm hitting the area is not only likely — it’s inevitable.

In 1938, the “Long Island Express” raced up the Atlantic coast at a breakneck pace, inundating Long Island, Connecticut and, particularly, Providence, Rhode Island, with floodwaters and storm surge that, while devastating even back then when the areas were sparsely developed, would lead to well over a $100 billion in losses today. The loss of life in this densely populated, frightening unprepared region could be even worse.

Here’s an excerpt from the piece I wrote about “The Northeast Unthinkable”:

Given its geography, population density and general affluence, New York’s Long Island in particular faces a tremendous risk. When the Long Island Express hit in 1938, it was eastern Suffolk County that endured the greatest winds, storm surge and flooding, resulting in approximately 50 deaths. According to 1940 census data, the population at the time was just under 200,000. Today, nearly 1.5 million people live in Suffolk. And another 1.34 million reside in the neighboring Nassau County compared to the roughly 400,000 there in 1938.

“What really drives significant catastrophe losses is a major event hitting a major metropolitan area,” says Clark. “Otherwise, you can have a lot of activity, but you’re not going to have a lot of losses. It’s those chance occurrences where you have major events hit Galveston, Houston, New Orleans, Tampa, Miami, the Mid-Atlantic or the Northeast—those are the real areas where you’re going to get the mega-catastrophes.”

According to a study by AIR, there is some $4.4 trillion worth of commercial exposure and $3.4 trillion in residential property from New Jersey to Maine. And with almost a million households in Long Island alone, this 1,200-square-mile strip of land accounts for over $1 trillion in combined commercial and residential exposure.

It is with this boom in population and wealth in mind that Roger Pielke, Jr., director of the Center for Science and Technology Policy Research at Colorado State University, set out to formulate new projections for the scale of destruction a replay of the Great New England Hurricane would cause now.

In today’s dollars, the 1938 storm caused over $4 billion in insured losses alone. But this adjusted figure only accounts for the elevated currency values and ignores 68 years of regional growth in population, infrastructure, industry and commercial enterprise. “You can’t adjust for the damages that never occurred,” says Pielke.

As someone who lives in New York, this — even more so than terrorism — is the possible disaster that disturbs me the most, in part, because I believe there is actually some sort of official developed to react to the next terrorist attack. I doubt there is any comprehensive, inter-county plan at all that will be effective in the days leading up to an following the category 3 hurricane that will someday hit.

sydney opera house

6. Ferry Capsizing

This one honestly sounds less plausible as a “worse than BP disaster” for the United States than it does elsewhere, but here’s what Forbes wrote:

Ferryboats and riverboats are extremely stable because of their wide, flat design, but they also often travel in dangerous waterways with lots of passengers. As many as 4,300 passengers and crew died after the Philippine ferry MV Dona Paz collided with a tanker, caught fire and sank in 1987.

I suppose that could happen anywhere, but it seems less likely than the others listed in the developed world — especially when compared to this last, but certainly not least, one…

volcano

7. Supervolcano

Forbes quotes a Lloyd’s report that volcanoes pose an $85 billion risk “including disruption and air travel” and includes Mount Vesuvius in Italy and Mount Rainier outside of Seattle as two of the scariest locations for a major eruption.

$85 billion sure is a lot of money, but anyone who has seen the History Channel’s “Mega Disasters” episode on what will happen when the Yellowstone Caldera blows probably has worse fears on their minds. Were this thing to erupt, the only adjusters and insurers left to tally the total will likely be roaches and reptiles.

You’ve been warned.

No Rest for Toyota

As Toyota continues to plagued by safety recalls (this week, the automaker recalled 17,000 Lexus hybrids for faulty gas tanks), the company is facing legal trouble of another matter, this time over a patent controversy that could result in a ban of Toyota hybrids altogether.

This patent fight originally began in 2004, when Paice LLC, a Florida-based hybrid technology company, sued Toyota for using its patented technology in second-generation Prius vehicles. The court ruled that Toyota had infringed on Paice’s patent and Toyota filed multiple appeals, losing each time. According to Forbes, Toyota has paid $5 million in damages and a small fraction of the court-ordered license fee of $98 a car while it challenges future royalties. In the latest case, Paice is claiming that Toyota’s third-generation hybrids are also infringing on its patents and that Toyota is not paying enough in royalties. Paice is ultimately hoping to get the International Trade Commission to ban Toyota hybrids altogether. Toyota has fought to get the case dismissed but to no avail.

According to one expert, who commented on the case last year, a ban is unlikely. But if it does happen, Toyota would be looking at production delays, the inability to sell hybrid vehicles in the United States and millions of dollars in lost revenue while it inevitably tries to work out a licensing agreement.

When taken with the ongoing recall fiasco, this patent infringement mess is further evidence of the difference a year can make in business. This time last year, Toyota was seen as the industry gold standard.

But their ongoing troubles paint a picture of a car company that seems to have gotten caught up in believing its own press and lost sight of key details, like safety and technology, that helped make it great. A company that once was the model for quality is quickly becoming a textbook example of the dangers of complacency.

hybrid

The Risks of Social Media: Legal Limits

social media

As we all know by now, social media can be both a great marketing and networking tool, as well as a good excuse for employment termination if mishandled — or worse, a lawsuit.

For instance, did you know that the Federal Trade Commission is watching those social media sites that promote a product or service? In the FTC’s December 2009 guidelines, it states that, among other things, those promoting a product/service on the internet (via Facebook, Twitter or any other form of social media) must incorporate a disclosure page or statement telling of the financial agreement between those giving testimonials about the product/service and the company itself.

Under the Guidelines, endorsements must reflect the genuine beliefs or opinions of the endorser and cannot otherwise be deceptive. In addition, the endorser must be a bona fide user of anything given of value to the endorser. For example, a blogger who reviews a product given to her for that purpose should disclose that it was provided by the manufacturer, and not purchased. Most do not follow this simple rule.

Understanding the legal implications of what is presented on your social media site can be confusing. To break it all down for us, Law.com issued a nice online article this morning, entitled “Minimizing the Legal Risks of Using Online Social Networks.” In our continuing coverage of the risks of social media, I present you with a breakdown of the piece:

  • Copyright: If you are using text, audio, video or images on your site that you did not create yourself, you may be violating an individual’s or organization’s copyright. However, if your posting qualifies as “fair use,” then use of the content will most likely not be questioned. Common situations of fair use include criticism, comment, news reporting and education.
  • Trademark: As the article states, “If you are using another’s trademark, you may be liable for infringement, where the owner can establish that your use of its mark or a mark similar to it will likely cause consumer confusion as to the source of the material.” And if it is proven that your conduct diluted the strength of the owner’s trademark, there may be potential for further liability.
  • Defamation: This is a huge topic in the realm of social media and the risks involved. In general terms, a defamatory statement is “a false and disparaging statement about another which causes injury to reputation (or in some cases causes emotional distress).” Along with individuals, businesses and products can also be defamed, sometimes causing reputation and financial damage (cue lawsuit).
  • Confidentiality: This section is geared towards those whose profession involves confidentiality agreements (lawyers, doctors, advisers, etc.). If there is proof of a breach of this agreement, possible sanctions “may include termination of employment, loss of professional license, potential significant civil liability (such as in the context of trade secret dissemination), or even criminal liability.”

These are just a few of the potential legal risks of social media. And as society continues to move to even more of an online presence (for both personal and business aspects), we will continue to learn the possible implications of a web 2.0 world.

Mitigating Financial Risk With Tech — Not Regulation

This weekend, the leaders of the world’s 20 largest economies will meet in Toronto to discuss international financial reforms that will — hopefully — help prevent the type of global recession that occurred after the subprime crisis. Particularly on the heels of the Congressional reforms just enacted in Washington, the G-20 discussions will mostly focus on regulation.

Some feel as though a major overhaul is not altogether necessary, however.

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Some think that technology and greater access to better information can provide all the risk management the financial sector needs. Kevin Heffron, deputy managing director of Trayport, Ltd.

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in London is among them. His company provides electronic trading systems to brokers who trade equities, currencies and commodities, and he recently sat down to share his perspective.

tech financial risk

Jared: This weekend in Toronto, G20 leaders will discuss a whole host of financial sector regulation proposals. Generally, their goal will to be develop some standards and rules that will lessen risks – the risk of over-leveraging, the risk of contagion, the risk complicated trading. What measures do you think are most necessary, specifically in the trading and exchanges world?

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Heffron: A proposal to move all trades to exchanges is among the reforms being considered in Toronto. We believe that this is an overreaction to the events and excesses of the recent past and will not necessarily lead to reducing risk. Eliminating OTC trading is not the solution, doing so consolidates trading into less flexible silos and results in less democratic markets. We believe that regulated, well-organized and transparent OTC electronic trading platforms with connections to a variety of centralized clearing counterparties, when appropriate, can be an equally effective tool to reach the G20’s goals to mitigate risk. We only have to think about the recent ‘’Flash Crash’’ to know that the exchange only model has serious flaws.

The key to mitigating risk in the OTC sector, is to broaden access to information and transparency. This approach can achieve the same regulatory goals now being sought by the G20 and the U.S, Congress without requiring the markets to restructure themselves in ways that might have unintended consequences — including potential losses of liquidity leading to higher and more volatile pricing.

Jared: So the best way to lower these risks is not through regulation, but through better information? Through better technology and more real-time, widely available information about trades?

Heffron: We support regulatory efforts, however we believe all the regulation in the world won’t reduce risk unless the information is available and accurate. It comes down to the reliability of the information — no amount of regulation can overcome the lack of accurate data or intentional manipulation. Access to technology simply focuses more eyes on any nascent problems in the financial markets.

We are developing technical solutions that increase opportunities for market users and their regulators to assess risk. Post-trade, we are providing straight-through processing to a variety of clearing houses, price reconciliation and confirmation services so you know the trade has been cleared without risk. Together with calling for a repository of pricing information, we are turning to technology to achieve the goals of the G20 Summit.

Jared: Is it a matter of the public sector being under-educated to provide proper regulation?

Heffron: While most of the non-investment community — including US Congressional leaders  — believes the world would be better off if all assets were to trade on exchanges, it is important to point out some key facts. For instance, there is a large electronic OTC commodities market operating in Europe that sees some of the world’s largest deals go through hybrid trading screens with counterparties being put together by interdealer brokers. This network provides risk management, straight-through processing, clearing capabilities, counterparty credit management, real-time reporting and transparency. If one were to look at this operation and its components, it would look very much like an exchange. In short we are bringing the same level of trading technology and risk reduction to the OTC community.

Jared: Can this concept of “more information, less risk” work in other areas as well? Both in and outside the financial sector?

Heffron: Here is an example. Large international energy companies, whose primary business is to produce and distribute electricity, trade electric power all the time. They are constantly going to the open market to manage their risks. In order to optimize this external market activity, they need to have a full and timely understanding of the risk profiles of the various operating units of their own enterprises. This requires a top-quality internal risk management system allowing them to optimize internally before executing external market transactions. Simply put, lowering the cost and increasing access to real-time data reduces risk across every industrial sector and at every level.