The Economy

Rebuilding New York’s Business Resilience

With damage estimates up to $62 billion from superstorm Sandy, the New York area faces some tough but critical decisions in its rebuilding efforts.
Shivan S. SubramaniamNovember 28, 2012

With New York Governor Cuomo’s announced plan to ask the federal government for more than $30 billion in disaster aid, the public debate is filled with a vast array of schemes to protect vulnerable areas of New York from ever again being exposed to the violence and destruction of a superstorm such as Sandy.

Current estimates of $62 billion in damage now place it as the nation’s second-costliest natural disaster after Hurricane Katrina.

For businesses, it is critical that this public debate, as important as it is, does not distract attention from what they need to do today to reestablish operations and ensure adequate business continuity in the future. As they contemplate the potential impact of Sandy on the busiest retail season of the year, companies also need to plan for the long term.

Some advocates of sweeping protection have pointed to the Dutch, who, after a series of devastating floods in the 1950s, invested in a flood-management system damming all of the river mouths and sea inlets along their coast. It was a 20-year undertaking.

Others have created similarly imaginative and expensive defenses. For example, the Thames Barrier, located just downstream of London, was built to prevent that city from being flooded by high tides and storm surge; the billion-dollar barrier has been raised 119 times in the past 30 years.

On the other side of the argument are the policy pragmatists, who concede that changes must be made. But they shake their head at the fantasy that there is either the financial capacity or public will for such ambitious solutions. Indeed, as Mayor Bloomberg observed recently with respect to costs for New York, the Thames is a single river and the New York area has an immense coastline and tidal harbor to protect.

For businesses, however, the issue should not be about a showdown between flood-protection absolutists and policy defeatists. “How much protection do we need?” and “How much protection can we afford?” are the wrong questions.

The first questions businesses need to ask themselves are: Do my facilities, currently in vulnerable areas, truly need to be there? Is there a purpose for my buildings being on or near the water? These are critical questions even for well-insured businesses. Business owners and leaders who have been affected by natural disasters know all too well that an insurance policy is not enough to make an organization economically whole, nor will it adequately protect them against things such as a damaged reputation or loss of market share.

The question is, of course, a different one for public infrastructure. The Holland Tunnel can only do what it does in its current location — and it needs to be fortified for its essential task. So do subway lines that must run under both ground and water. But what about the several hundred buildings in Lower Manhattan owned by major corporations that are still uninhabitable? The debate over how to rebuild for businesses will be an empty echo chamber until we start to ask not only how to “harden” our facilities to resist the water when they absolutely must be near water but also how to reshape our footprint to avoid a storm’s predictable path.

What is clear is this: Sandy was not an outlier. Nine out of the 10 costliest hurricanes in U.S. history have occurred in the past decade. New Yorkers may have felt insulated from these kinds of disasters before Sandy, but now there is no denying what has always been true: this grand metropolis lies in a flood zone and the water levels around it are rising each year. Until we grapple with the question of what belongs where, we are only prolonging the denial that brought us to our present predicament and inviting future risk.

We have faith in the resilience of Americans to bounce back from catastrophe.  But we believe resilience is also the wisdom to know how best to prepare for the next disaster and where best to place the resources to do so.

Shivan S. Subramaniam is chairman and CEO of FM Global, a mutual property insurance company based on mitigating risk through preventive engineering. Headquartered in Johnston, Rhode Island, FM Global is one of the world’s largest commercial property insurance companies, insuring $9.5 trillion in business property worldwide.