What Noah Knew: Old Models for New Conditions

This speech was delivered May 9, 2005 at the Lexis-Nexis "Catastrophic Loss" conference, Ritz-Carlton, Amelia Island, Florida.

[ppt: title slide]

Thank you for inviting Halliburton to speak at this conference on "Catastrophic Loss," on this panel on "Disaster Preparedness." A lot of you work with the insurance industry, of course, and that's why today I want to speak about something that's a major preoccupation for all of us here, whether in reconstruction, or insurance, or actually any industry - and that's SAFETY.

And buckle your seatbelts, because we have a real treat for you today. At the end of this talk, my colleague Dr. Goody will unveil a mockup of a brand new solution to one particular safety problem, that could one day prove essential anyone in a position of responsibility, including all of us here.

[ppt: safety noah's ark]

So. First of all, let's define our words: what do we mean when we say "safety"? Well, for us in the corporate world, the most essential form of safety is simply the safety to achieve what we need, as we need it, and how we need it.

[ppt: cop with "go" sign]

Whether I'm in reconstruction, energy, manufacturing, or insurance, if I'm taking a risk, I want the government's hand to be pulling me safely over the obstacles, not laying obstacles in my way. I want to be safe to minimize the risk to my investments as I see fit, without being told what's right and what's wrong.

[slide: guy on beach]

Insurance firms are also concerned with safety, another form of it, a special-case definition: the safety of people and property. Because their own safety depends so much on that special form of safety, insurance has become quite worried about some grave new dangers to people that we're seeing in the world around us. I'm talking about climate change and the "natural" disasters it brings.

[ppt: cost of catastrophe]

[click again to get graph]

Indeed, the numbers could look frightening. In the 1950s insurance had to pay 4 billion dollars per year for disasters. Now it pays about 40 times that, or $150 billion each year.[i] And it's getting worse; Munich Reinsurance has written that "climatic change will lead to natural catastrophes of hitherto unknown force and frequency" triggering losses of "many hundreds of billions of dollars per year."

[ppt: roller coaster]]

To make things worse, there are some who believe that this is only the start. In nature, things often change very suddenly; and so some scientists feel that the things we've seen so far may be minor compared to what could happen.

[ppt: gulf stream diagram]

For example, Arctic melt has slowed the Gulf Stream by 30% in just the last decade; if the Gulf Stream stops, Europe will become just as cold as Alaska.

[ppt: permafrost]

Or it could go the other way - methane released from melting permafrost could cause a heating cycle making human life unliveable outside air-conditioned hotels like this one.

[ppt: flood time lapse]

Or, as the oceans heat up and expand, ice sheets could slip off Antarctica - meaning most of the earth's major cities could flood!

Even if none of this happens, some scientists tell us the changes we're likely to see could greatly increase disease and migration, and could exacerbate growing tensions within our societies possibly to the point of civic unrest or even war.

This sort of thinking has even influenced some insurers. Lloyd's of London has stated that climate change could easily bankrupt the entire insurance industry, and Munich Re suggests it could topple global capital markets as a consequence.

Given the science, these worries cannot be called unreasonable. But panicking isn't the answer.

[don't say "whether we believe this or not"]

[ppt: carbon and GDP]

If we panic and try to stop climate change, 70% of carbon production will have to stop. That'll be a huge blow to our way of doing business:

[ppt: cop with "stop" sign]

government intervention will become the rule, and we'll have thrown out the baby with the bathwater.

[ppt: benefits of GW, with newspaper headline]

To remain profitable in a macroscopic loss situation, we must integrate disaster into our global business vision, and not allow immediate dangers to interfere with our general, longer-term concept of safety.

[ppt: halliburton stock price 2003-2006]

We at Halliburton, for example, assure our safety not despite, but via the ambient danger - in reconstruction, relocation of refugees, peacekeeping. These arenas are synergistic: where there's conflict, there's reconstruction; where there are refugees, there's conflict; where there's conflict or reconstruction, there are bound to be refugees.

[ppt: new orleans decrepit wrecked house]

Sometimes danger presents broad new opportunities. In New Orleans, for example, Katrina pruned the city, removing people from economic black holes and allowing a gratifying new redevelopment process for all of us. Although real estate values plummeted immediately following the disaster, commercial real estate is already 40% over its pre-storm values.

[ppt: new orleans new house]

While we don't suggest that everyone make climate change the core of their business plan, I can personally guarantee you that level heads will always be able to turn lemons into lemonade.

[ppt: black death]

To take an extreme example, consider the Black Plague, an unspeakably rotten event in which one third of Europe's population died in great agony. No one would wish such a thing on any civilization. Yet without the Black Plague, the old business models of medieval Europe would never have been overturned by the entrepreneurs of the Renaissance. [click: mona lisa, etc.] What would the world be without the Mona Lisa?

[ppt: noah's ark]

Or closer to home, how about the Great Deluge? This world-ending disaster was surely seen as a terrible catastrophe by Noah's contemporaries, and even by Noah himself. Yet Noah was ready to seize the day, and at the end of that day, not only was there a whole new world, but Noah found himself with a monopoly of the animals. Not a bad deal!

[ppt: diagram of ark]

But seriously - things aren't as simple for us as they were for Noah. God isn't telling us what kind of an ark we should build, nor how to deploy it - but luckily Science can fill in the blanks, and Science tells us that what we're doing in the world today could lead to much more flooding, drought, hurricanes, tornadoes, or even worse, with consequences including epidemics, human migration, civic unrest or even war.

[ppt: those words superimposed on the ark]

But as Warren Buffet, the oracle of Omaha, so astutely said: you must follow "the Noah rule: predicting rain doesn't count, building arks does."

I can personally guarantee you that we as a society are more than ready to build arks against these conditions - in some cases, we've already done so.

[ppt: dust storm]

Keeping the ark of our interests afloat in a world of increasing disquiet is the job of our defense industries, [ppt: green zone gate] and they do it quite well - here's the Green Zone in Baghdad.

[ppt: secure neighborhood gate]

Likewise, secure neighborhoods protect us against the unknown in our own societies - this security checkpoint built after the Rodney King riots protects a community on the edge of Los Angeles.

[ppt: dutch floating houses]

As for the Dutch, they're building literal arks - houses that float! Many people live in these houses - young families, the elderly, even CEOs! The Dutch have thus found one good way of making a systemic new problem routine, and even turning it into a net contributor to their economy.

But we need to go further. What if you're there in Holland, preparing for a flood, and instead the next event involves extreme heat, extreme cold, disease, unrest, or even a vast new migration - rather than the flooding you've planned for?

[ppt: yurt]

One innovative solution hails from Kyrgyzstan. As unpredictable conditions become more predictably widespread, this form of housing, called a yurt, could become a true lifesaver. It's warm and secure, and, especially, it's mobile: in case of impending disaster, the insured simply moves her house, with no loss of comfort, and little chance of extensive new damages.

[roll eyes]

We're not saying everyone should go live in yurts - but this is some true "outside the box" thinking - and that's just what we need. Innovations like these could turn some major disasters into as humdrum a fact of life as glaucoma, meningitis, or gallstones are to the medical insurance industry today.

[ppt: marsbag]

For those of us in positions of responsibility, however, who might have to take charge in a crisis, even more innovative solutions will be needed. We can't be satisfied with mere survival, but must guarantee, at every instant, the capacity and resources to keep our thumbs firmly on the triggers of progress.

From an insurance perspective, this is more essential than any other safety challenge, since it will guarantee the continuing liquidity of the insured enterprise. And the only way to do this is to maintain a highly sophisticated boots-on-the-ground strategy.

I'd like now to introduce my colleague, Dr. Northrop Goody, who's the head of our Emergency Products Development Unit at Halliburton. Dr. Goody will be showing some mockups that his unit has developed, and will explain the unit's various features.

[brief statement from dr. goody:]

I spoke to some volunteers - could they come up now?

Now I want to stress that what we're going to be showing you here is a prototype. It has none of the sophistication of the final product - and basically it's just a mockup that is intended to convey some of the functionality. So please pardon the rawness of it - it's really just to convey the basic idea.

[as dr. goody helps the others on with suit, mr. wolf reads following; then dr. goody puts mr. wolf in a suit]

[ppt: woman in corp office with tsunami on monitor]

Great. Now as Dr. Goody prepares the suits for demonstration, I want you to do a little thought experiment. Imagine you're sitting in your office, and suddenly you get the reports: there's a catastrophe. Let's say it's a flood with high winds and also some fires, accompanied by an outbreak of dengue, or "breakbone fever." You've been getting the warnings for weeks, but suddenly it's upon you, and boy is it bad.

But you can see that the situation holds promise. You've recently invested in equipment that could be repurposed to address water damage. Much of that stock is offsite - in a warehouse fortunately located well above sea level. Also, you recently invested in a new security force that could be redirected to profitably help impose some semblance of order, especially since 10 million refugees are threatening to arrive from the next country over, which recently experienced an even worse climate event.

[ppt click - start animation]

The only problem is, you aren't sure you can maintain your management structure and data integrity in a condition to safely achieve these results. How will you not only survive, but also continue to function and thrive in the chaos of a disaster?

[interact with panelists in suits if dr. goody not finished yet - hey bob, how does it feel?]

Dr. Goody, would you like to explain the suit?

[dr. goody takes it away]

Totally on board with him

Interact with panelists