Accountability

Ask any one of two million grumbling Californians who were recently suject to power blackouts as to why they are not currently overly fond of their local politicians and civil servants, and you will find that the list of complaints of ineptitude and negligence are long. The short of the story is that the state of California deregulated its power utility monopoly several years ago to cut state budget costs, but in the process of privatization slapped rate freeze controls on the new power service providers (to win voter brownie points). The end result of subsequent infrastructural expenditure cutbacks eventually culminated in large parts of Los Angeles being subject to blackouts in the beginning of this year as the power grid was unable to sustain demand. At the height of the chaos, the politicians stepped back into the fray with a temporary financial subsidization plan (courtesy of taxpayers) which has kept the wolves at bay for the time being – although California’s reputation as a business location has been seriously dented. Needless to say, the politicians and bureaucrats have kept their jobs.

Charges of negligence and inept management on part of government departments and bodies have also featured more frequently in newspaper headlines in Canada. The tragic incident of Walkerton, Ontario is perhaps the freshest on our minds, and then there is the mega-loss of the ice storm which hit Quebec and parts of Eastern Ontario in January 1998. While liability for Walkerton is still very much “up in the air”, several insurers recently took legal action against Hydro Quebec to recover approximately a quarter of a billion dollars in losses which allegedly arose due to negligence by the utility provider in ensuring the functional ability of its electricity grid/infrastructure against weather conditions. One of the main charges leveled against Hydro Quebec by the insurance companies in question is the fact that the utility company is a state-run monopoly and therefore controls the “competitive quality” of both the service and means through which it services its customers. Essentially, one might view the legal actions as being a message from the insurance industry to the government(s) that the time has come for accountability, particularly in disaster mitigation efforts.

It is in that vein of thought that the Insurance Bureau of Canada (IBC) is pleased with the federal government’s recent announcement to create a new disaster response and mitigation body – the Office of Critical Infrastructure Protection and Emergency Preparedness (OCIPEP), says the bureau’s director of policy and research Jane Voll. The OCIPEP has focused attention on mitigation and risk management, she notes, and will play a critical role toward attaining the IBC’s goal of creating a government-backed national disaster mitigation plan supported by a $750 million project investment fund (see MarketWatch of this issue for further details on the OCIPEP’s launch).

Another important piece of legislation is Quebec’s Bill 173 Civil Protection Act which was passed last year, Voll adds. The legislation is a first in Canada at outlining the accountability of all parties, natural and legal, in preventing or reducing the risk of disasters. The bill’s opening statement claims its purpose to be: “…the protection of human life and property against disasters and other events of a similar nature. The bill establishes an organizational framework for the four main aspects of civil protection, namely mitigation, emergency response planning, response in actual or imminent emergency situations and recovery”. Bill 173 also outlines penalties which can be taken against individuals or organizations either hindering or obscuring recovery initiatives or investigations.

“This legislation really creates accountability for risk management,” Voll observes, which hopefully will serve as a basis for similar legislative development in the other provinces. The IBC is also hopeful that the new life breathed into disaster mitigation at the federal government level will feed down to provincial political corridors. All in all, holding governments accountable for their socio-economic responsibilities will increasingly become an issue at the forefront of the insurance industry’s concerns, Voll affirms. But, while past experience suggests that the political wheels of progress will turn slowly, insurers do have the courts to drive home the fact that “enough is enough” – insurance is not a form of alternative tax for funding political screw-ups.