MOST DANGEROUS EMERGING RISKS
Climate Change as a Business Interruption
and bridges isolate
companies and trigger
By Katie Dwyer
America’s infrastructure is in greater peril than ever, and its failure could pose uninsured business interruption risk.
A string of winter storms dropped more than 60 inches of rain on California’s Central Coast this year, washing out roads, triggering massive mudslides and threatening the integrity of already-fragile bridges. The Pfeiffer Canyon Bridge is one such structure. As the ground beneath gave way, the bridge slid downhill several feet and
developed a sizable crack, making it too unsafe for travel.
The Pfeiffer Canyon Bridge is also the only link between popular vacation
destination Big Sur and the rest of the world to its north. To its south, a landslide
left Highway 1 — the only road in from that direction — covered with boulders
and hills of dirt. Four hundred and thirty-five people were left trapped in between.
Businesses scurried to arrange other ways to bring in needed supplies while
dealing with a shortage of workers who were blocked out by the rubble. Hotels
would obviously not be greeting any new guests for some time — that stretch of
Highway 1 is set to be closed for 18 months.
Failing infrastructure increasingly poses business interruption risk. Collapsed
bridges and mudslide-barred highways may be extreme examples, but more
commonplace events like burst pipes and sinkholes can shut down streets and
leave the businesses populating them stranded, disconnected from suppliers,
distributors, employees and customers.
The American Society of Civil Engineers (ASCE) has evaluated the state of
the nation’s infrastructure since 1988, when the congressionally-commissioned
National Council on Public Works Improvement put out its first “report card.”
Even then, the marks weren’t good.
“After two years of study, the National Council on Public Works Improvement
has found convincing evidence that the quality of America’s infrastructure is barely
adequate to fulfill current requirements, and insufficient to meet the demands of
future economic growth and development,” the 1988 report said.
Since then, the ASCE has given U.S. infrastructure a “D” grade in every
subsequent report card.
In 2016, “ 9.1 percent of the nation’s bridges were structurally deficient,”
according to the latest report card. The ASCE estimates that rehabilitation
and improvements to highways and bridges alone will require $836 billion — a
number that doesn’t include repairs to railways, airports, dams, levees, ports, or
energy, water or waste systems.
“The elephant in the room is the funding,” said Adrian Pellen, North American
infrastructure leader, Marsh’s construction practice. “Governments have deferred
maintenance on infrastructure forever, and we’re at this critical juncture where we
need the investment, and the funding mechanisms just aren’t there.”
The gas tax — the primary revenue source for government-sponsored
infrastructure projects — is not adjusted for inflation and has not risen in more
than 25 years. And with more electric and fuel-efficient vehicles replacing gas-
guzzlers, the tax is yielding less than ever.
“Getting a gas tax increase right now would be very difficult. And there is
a political divide over how to fund large projects that is causing further delay,”
Democrats call for more federal investment, while Republicans want to pass
the bulk of responsibility to the private sector. Public-private partnerships (P3)
have been successful on some large projects.
“P3s push design, construction, financing and the operation and maintenance
of infrastructure down to the private sector,” Pellen said. “These can be a very
efficient way to deliver infrastructure on time and on budget, but they aren’t the
magic bullet for all of our infrastructure needs. There are still politicians on both
sides of the aisle who aren’t fond of them.”
Amid the political and financial delays, climate change and increasingly severe
weather patterns are adding more and more pressure to aging structures not
equipped to handle it. This exposure will get worse before it gets better and is
going to create business interruption losses in the millions for some, knocking
other businesses out altogether.
“Governments have deferred
maintenance on infrastructure
forever, and we’re at this
critical juncture where we need
the investment, and the funding
mechanisms just aren’t there.”
—Adrian Pellen, North American infrastructure
leader, construction, Marsh