Are you ready for the next big one?

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Apr 13, 2011 - Federal Reserve Board detailed the supply chain disruptions ..... capabilities (such as ham radio and Twi
Are you ready for the next big one? Zurich Earthquake Risk Management Action Plan Protecting your employees, property and bottom line

Tom Evangelisti is a Senior Strategic Risk Consultant working in Enterprise Risk Management and Business Resilience focusing on global risks. His expertise include natural hazards, supply chain risks, and risk profiling methodologies to help businesses manage their total cost of risk. Tom has over 20 years of global consulting experience with a broad sector of industries and has a BA in Biological Sciences, MPA in Public Administration-Health Services, and Graduate certificates in Safety and Risk Management. Tom has also been a frequent instructor, author and lecturer regarding global and natural hazard risks.

The question of whether earthquakes are increasing in frequency and intensity along the Pacific “Ring of Fire” is something no scientist or expert can precisely answer. But based on a long-term historic analysis of seismic activity along the Cascadian Subduction Zone from Northern California to Southern British Columbia (see image 1), the chance of a magnitude-9.0 or stronger earthquake is likely to occur sooner rather than later in this region. Cities located along the Pacific coast have the potential to experience less magnitude earthquakes that could cause significant physical and financial losses because of their dense populations and aging infrastructure. An earthquake hitting a major metropolitan area in this region, similar in strength to the recent seismic event in Sendai, Japan, would also send ripple effects throughout the North American and global economies. Trade between the U.S., Canada and Mexico (NAFTA) is USD $11.4 trillion a year, making it the world’s largest trading bloc.1 A Sendai-sized earthquake, impacting major shipping ports such as Vancouver, Seattle, Portland and Long Beach, Calif. could cripple the supply chain within North America, as well as between critical trading partners like China and South Korea.

Cascadian Subduction Zone The Cascadian Subduction Zone spans from Northern California to Southern British Columbia and the chance of a magnitude-9.0 or stronger earthquake is likely to occur sooner rather than later in this region.

Contact information: [email protected] U.S.: 512-318-1127 International: +1-512-318-1127

Source: U.S. Geological Survey http://www.usgs.gov/



This Zurich Earthquake Risk Management Action Plan is designed to guide corporate risk managers and brokers in specific action steps to protect employees and mitigate the property losses and business interruption that would come with a magnitude-9.0 earthquake. The plan will also be of interest to Treasurers, CFO and other C-Suite and Board members who recognize the need to protect their enterprise reputation, supply chain and bottom line from the potentially catastrophic impacts of an earthquake.

Wake-up call from the other side The recent earthquakes in New Zealand and Japan have served as a wake-up call to every business located on the North American side of the Pacific “Ring of Fire.” While some companies may have memories of the last major earthquakes in a metropolitan area – 1989 in San Francisco (magnitude-6.9), 1994 in Northridge, California (magnitude-6.7) and 2001 in Seattle (magnitude-6.8) – many have never experienced the effects of major earthquake on North American soil. With decades – or even centuries – between major earthquakes in North America, complacency can overtake many businesses and risk managers when it comes to planning for these seismic events. The severity of earthquake damage in Christchurch, New Zealand, took the entire citizenship by surprise, despite the city’s location on two major fault lines. This magnitude-6.1 earthquake was not as strong as Japan’s, but the damage was extensive because of its shallow depth (3.1 miles), location right under the city of Christchurch, and occurrence during the city’s busy lunchtime. The earthquake proved to be the country’s worst natural disaster in 80 years, resulting in more than 172 deaths, widespread power outages, waterline disruption, hundreds of crumbled buildings and tons of ice sheared off from the country’s biggest glacier. Losses are estimated at somewhere between USD $6 billion and USD $12 billion. The magnitude-9.0 Tohoku earthquake that struck 80 miles (130 km) off Sendai, Japan in March 2011, along with the resulting tsunami and nuclear power plant disaster, have wrought almost unspeakable devastation on that country. This earthquake was the fourth largest in the world since 1900, and Japan’s largest since modern measurements began 130 years ago. The Japanese government has estimated that losses could exceed USD $309 billion, not including supply chain disruption and other business interruption, and that it could take years to rebuild structures and business operations. As of April 2011, there are at least 13,705 deaths, 4,916 injuries, 14,175 missing, more than 500,000 displaced and 200,000 plus buildings partially or totally destroyed. The global interruption to the supply chain is still being felt continents away (see sidebar). The “Ring of Fire” in North America is inclusive of the Cascade Volcanic Arc, which stretches 700 miles (1,110 km) from southwestern British Columbia to northern California. The Cascade volcanoes are some of the most potentially dangerous in North America due to their eruption history and proximity to major population centers. In spring of 2010, the Icelandic volcano Eyjafjallajökull disrupted air traffic and supply chains throughout Europe, another reminder of the risks natural events pose to business operations.

Ripple effect of Japan earthquake on world economy The April 13, 2011 report by the U.S. Federal Reserve Board detailed the supply chain disruptions resulting from the Tohoku earthquake in Japan, noting that: • Electronic components from Japan are expected to continue to be in short supply • Some companies in Southern Japan are experiencing rolling brown-outs which impact production and supply, despite having suffered no physical damage • Auto suppliers are experiencing shortages of electronics and tires • Auto production is being shutdown or severely curtailed • 41 percent of manufacturers surveyed by the Minneapolis Fed said their operations were negatively impacted • Some companies expect shipments from Japan to not return to normal until at least September 2011 • Boston, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis and Dallas all noted actual or expected disruptions to sales and production • Hawaii is experiencing a decline in tourism from Japan

Recent earthquakes and earthquakes occurring in major metropolitan areas in North America with noted intensity level San Francisco - 1989 (magnitude-6.9) Northridge, Calif. - 1994 (magnitude-6.7) Seattle - 2001 (magnitude-6.8) Christchurch, New Zealand 2011 (magnitude-6.1)



Metro areas with concentrated population totals along Pacific “Ring of Fire” region Major international port cities with critical links in global supply chain noted

Sitting On Large and Complex Risks: North America’s “Ring of Fire” The 1,500-mile (2,114 km) stretch of the North American continent from Vancouver, British Columbia, to San Diego, California, includes some of the most beautiful coastline in the world. It is home to hundreds of global companies, including industry leaders in banking, finance, aerospace, technology, entertainment, consumer goods and more. Cities like Vancouver, Seattle, Portland and Long Beach are also major international ports, and critical links in the global supply chain. While the city populations of Christchurch (345,000) and Sendai (1 million) classify them as major population centers, the concentrated populations along the Pacific coast of North America are some of the largest metro areas in the world: Los Angeles (17.7 million), San Francisco (7.4 million), San Diego/Tijuana(5.1 million), Seattle-Tacoma (3.4 million) and Vancouver, B.C. (2.1 million). Businesses and people in these metro areas are literally working and living in one of the largest seismically active regions in the world. Fault lines in this region snake through and around all the major metro areas along the Pacific Northwest. The San Andreas Fault in California alone runs beneath three huge urban centers and most of the state’s economic engine. The last “really big one” (magnitude-9.0 or greater) to strike the Pacific coast occurred on January 27, 1700, affecting the entire coast from northern California to southern British Columbia, and sending a tsunami all the way to Japan._ Scientists put the likelihood of another major seismic event occurring in this region within the next 50 years at one-in-three, based on the accumulating stresses in the areas. In southwest British Columbia alone, there is an average of one earthquake daily, with many too small to be noticed on the surface. But if another magnitude-7.3 earthquake hit Vancouver Island today, like the one that hit in 1946, damage would be in the billions of Canadian dollars because of the increased population and structural density. Each year, southern California has 10,000 earthquakes according to the U.S. Geological Survey. It estimates that over the next 30 years, the probability of a major earthquake of magnitude-8.0 or greater occurring in California is 99 percent.

Los Angeles, CA USA Metro (17.7 million) – major international port San Francisco Bay Area, CA USA Metro (7.4 million) – major international port San Diego, CA USA / Tijuana, BC Mexico Metro (5.1 million) – major international port Seattle/Tacoma, WA USA Metro (3.4 million) – major international port Portland, OR USA Metro (2.2 million) – major international port Vancouver, BC Canada Metro (2.1 million) – major international port



Like many other cities in North America, those in the Pacific region are struggling to maintain aging buildings and infrastructure, as well as fragile energy and water supplies. Seattle’s Alaskan Way Viaduct, the city’s double-decked elevated highway, was built in the 1950s and narrowly survived the 2001 magnitude-6.8 quake. This viaduct is scheduled for replacement within a few years, and hopefully before the next “big one.” California receives most of its water through extensive supply lines that cross or are located near active fault zones. If a strong seismic event damaged this system, businesses and residences could be without water, making any earthquake-sparked fires difficult to contain. Similar water supply issues exist for Vancouver, B.C., due to soft soils that could liquefy during a large earthquake. The combination of this seismically active area, dense population centers, and aging or fragile infrastructure has the potential to create a massive catastrophe for businesses located along the Pacific “Ring of Fire” region. Loss of life and property damage are the first and foremost concerns for businesses, but the ripple effects of a major seismic event, including business interruption and supply chain disruption, could take months or even years of recovery.

Magnitude-9.0 Earthquake Risks Infrastructure

Property

Geological • Tsunamis • Landslides • Avalanches • Flash Floods

Operations • Gas line break, leakage and explosion • Fire and domestic water line break, leakage, lack of supply • Domestic water supply contamination • Reservoir, levee and dam damage • Sewage treatment plant shutdown and damage

• Structural damage • Nonstructural damage • Fire and Explosion • Pipe rupture-fire sprinkler, gas, waste water, water supply • Water damage • Power loss

• Loss of building or facility use • Fire/Explosion Flooding • Fatalities and injuries of employees • Complete shut down of production • Site not accessible • Loss of utilities including water and power

• Sewage lines damaged

• Environmental contamination

• Damaged highways, bridges, harbors, airport, rail lines

• Key employees not available or leave area

• Power plant damage and contamination (nuclear)

• Inventory and key equipment damaged or non functional

• Power grid and substation damage

• Business Interruption

• Telecommunication system damage • Refinery and petroleum pipe damage

• Supply chain disruption • Telecommunications • Major suppliers or customers severely impacted • Site and facility security risks



Protection for employees traveling in earthquake zones Even if a magnitude-9.0 earthquake doesn’t strike near a company’s office or facilities, its employees could be travelling in an earthquake-prone region when a seismic event occurs. That’s why many companies opt for global travel assistance coverage for their employees. This coverage provides emergency services all around the world such as medical evacuation and security alerts. For example, Zurich offers Nomadz®, which connects employees to a global emergency travel center through mobile devices. The center then assists the employee in locating a hospital, ground and air transport, or other health and security needs during an emergency like an earthquake.

First Priority: Protection of People People are any company’s most valuable assets. An organization will depend on its employee’s intellectual capital to get operations up and running again after a major seismic event. The first priority in creating an earthquake risk mitigation plan is keeping employees safe during and after an earthquake. Training employees on safety procedures and practicing for an earthquake emergency and evacuation should also be a key part of your plan. Earthquake-preparation events like the Great Shakeout (www.shakeout.org) are designed to provide awareness and training for businesses in earthquake-prone regions through onsite drills with employees. Some steps a business can take to protect employees include: • Secure large pieces of equipment such as boilers, tanks, and machines for stability during an earthquake • Heavy furniture such as bookshelves and file cabinets should be strapped or attached to the wall • Keep doors, exits, and aisle ways clear at all times for quick access evacuations • Areas under desks and tables should be uncluttered to make room to take cover in an earthquake • Fire extinguishers should be charged and inspected monthly so they are always ready to use • Periodically test fire alarms, sprinklers, and emergency lighting

• Keep flashlights, a radio, extra batteries, and a first aid kit on hand at all times • Consider stockpiling food, water, blankets, and sanitary supplies such as toilet paper and portable toilets • Keep enough supplies for the number of workers that may need to shelter or work at your facility after an earthquake • Create an emergency evacuation plan that details how employees will evacuate from the building, where they will meet, how to account for everyone, and how to get further instructions to act • Current emergency contact phone numbers for all employees and management are critical in an emergency

Please see the appendix for a more detailed list of employee protection steps before, during and after an earthquake.

Employees should commit these three words to memory, and shout them out to coworkers when the first shaking is felt:

Duck or drop down on the floor.



Cover yourself under a sturdy desk

Hold onto the desk or table so

or table

that you can move with it during the shaking.

Risk Mitigation Techniques for Property When it comes to protecting a company’s physical structures from an earthquake, there is a wide range of risk mitigation techniques to consider and adopt. An experienced structural and soils engineer, working in conjunction with the architect, can assess your building to determine the level of property and related building earthquake risk. A risk engineer can work with these professionals to develop an overall risk mitigation plan. Some common risk mitigation considerations include an automatic seismic shut-off valve for gas lines. These seismic gas valves can reduce your risk of a fire and explosion after an earthquake. To reduce the risk of water damage from fire sprinkler systems, a fire protection engineer may recommend additional bracing for the fire sprinkler system.. This bracing reduces the risk of the sprinkler system rupturing during an earthquake. Strengthening older buildings that may not meet current building codes or risk tolerance is another common practice, which may be required by municipalities or by proactive risk managers. Remember that building codes are minimal standards for design and updated on a regular basis.

Beyond the Epicenter: Business Interruption and Supply Chain Risks The effects of a magnitude-9.0 earthquake along the North American “Ring of Fire” are likely to stretch well beyond property damage, disrupting business operations and supply chains for weeks or even months. The aftermath of such an event, as witnessed in the recent Japan earthquake, could include long-term power outages, diminished or nonexistent water supply, crumbled highways, uprooted rail tracks, tsunami destruction of ports, and more.

A Company’s Supply Chain Dependencies and Level of Risk Is your supply chain and business operation at risk from a magnitude-9.0 or greater earthquake or other disruption? Compare your company’s sourcing and manufacturing strategy using the chart below. A Supply Chain Health Check assessment can also be found in the appendix.

High-risk supply chain and operations • Sources key parts from one supplier • Manufactures in one factory • Locations in one geographic region • Uses proprietary, customized parts • Tight manufacturing capacity • Factories produce single product • Just in time manufacturing • Single IT system and data center • One transportation mode

Normal business operations throughout North America could be severely diminished as the manufacturing and transportation of vital supplies and parts come to a halt. The economic damage could be enormous, as USD $9 billion of goods and services cross the Canada-U.S. border every day, the largest trading relationship in the world. Both Canada and Mexico send more than 80 percent of their exports within North America, and depend on their NAFTA partners for a large majority of their imports.4 Delivery of critical parts and supplies between North America and China could also be affected if ports cities like Vancouver, Oakland, and Long Beach are heavily damaged.

• Supplier contributes to more than one product line

The recent Tokohu earthquake in Japan and its devastating impact on people and property and has changed the “normal” expectations about earthquake damage. This seismic event also exposed the vulnerability of companies to the approach of just-in-time manufacturing and single-source supply for supplies and parts.

• Sources key parts from multiple suppliers

Business continuity plans now need to be redesigned with an eye toward long-term business interruption and supply chain disruption.

• Products flow through a distribution center which is a pinch-point • Supplier does not have an updated business continuity plan

Lower-risk supply chain and operations • Manufactures in multiple factories • Locations in multiple and geographicallyseparated regions • Uses standard components • Keeps excess manufacturing capacity in their factories • Maintains excess inventory • Factories with multiple product production capability • Redundant IT systems and data center • Multiple modes of transportation • Developed a joint business continuity plan with supplier



Planning Pays Off: Business Continuity In Action The 1989 San Francisco earthquake gave a large national brokerage firm the opportunity to assess how well its business continuity planning held up during an actual emergency. Prior to the earthquake, the firm devoted five full-time staff to developing a plan that focused on both employee safety and customer service as top priorities. A key feature of the plan allowed senior management the freedom to decide on how to meet those priorities based on the existing conditions after the event. Because of this extensive operational and personnel planning, this firm was the only brokerage company to be in operation the day after the quake. Highlights of the business continuity plan included: • Running quarterly tests with IT system’s staff and vendors to practice managing through power outages, limited or no access to buildings, and sporadic communication lines • Providing senior management with a concise, but detailed information on operational requirements and strategies, resources, telecommunications, and emergency financial arrangements • A daily briefing format for media and public relations needs • A checklist of how to handle customer service issues, including keeping records during an emergency • Organizing assistance to employees who lost their homes

Creating A Comprehensive Business Continuity Plan An earthquake of 9.0 magnitude or greater can result in multiple and wide-ranging damages to tangible assets of your organization such as people, property, and environment, as well as intangible assets, such as data security, knowledge management and brand reputation. Business continuity is a proactive strategy that improves a company’s ability to react proactively to disruptive events like earthquakes. It is also a critical enterprise risk management tool to help prevent or minimize negative impacts to stakeholder value. Companies without a business continuity plan typically suffer the effects of a crisis 2.5 times longer than businesses that have one. In fact, 40 percent of companies who suffer extended disruptions will eventually go out of business. Creation of a business continuity plan typically starts with an audit of existing crisis recovery plans to provide the basis for improvement. The audit benchmarks current business continuity management against standards and best practice, and summarizes the key performance gaps in an organization’s current approach. Once the audit it is completed, development of the plan consists of three phases: Phase 1: Identify vulnerabilities A holistic, 360-degree understanding of the range and depth of a company’s vulnerabilities is critical to understanding the potential threats to the balance sheet and even the survival of the business. With the extensive interdependencies that exist in today’s global business structure, earthquake exposures are much more serious than in the past.

Phase 2: Gap analysis The next phase is to list the potential disaster scenarios to the enterprise, and conduct a gap analysis to determine the level of risk they pose. Risks should be evaluated based on a range of competitive and tactical contexts. This determines the action needed for risk prevention and mitigation.

Phase 3: Develop tactical plans This phase is putting pen to paper, and developing tactical plans designed for the specific risks of the organization, and assigning resources as needed. Best practices in developing tactical plans include keeping them simple to execute for managers, making them flexible to adapt to changing conditions, and designing mechanisms for ongoing testing and improvement. Not all companies require the same level of robust assessments to develop a business continuity plan. But generally, the process of creating one should include such assessments as risk profiling, supply chain risk assessment, business impact modeling, and business impact analysis. This comprehensive approach will ensure that the business is being protected from all potential loss scenarios, and provide guidance on the development of the tactical plans. See the appendix for a full list of best practices in business continuity planning.



FEMA 389 Flow Chart for Earthquakes

Determine Risk Identify and Quantify Potential Losses

Identify Strategies

First Cost / Design Strategies

Operating Cost / Business Strategies

Event Response Strategies

Reduce hazards

Reduce visibility

Diversify operations

Maintain procedures and materials

Relocate to better soil

Reduce response

Purchase insurance

Train inspectors

Relocate to lower seismic zone

Increase capacity

Utilize securitization instruments

Set up retainer agreements

Engineer soil material

Mirror operations

Emergency operations centers

Evaluate and Select Optimal Combination of Strategies

Implement Strategies



Are You Covered? Coverage Questions for Your Broker Surprisingly, many businesses located near the Ring of Fire do not carry earthquake or supply chain insurance. Part of the reason may be that earthquake insurance typically has limited coverage for property, contents and equipment and comes with a high deductible. Beyond coverage for property risks, companies also have the option to purchase business interruption insurance and supply chain insurance, two products that can help prevent and protect an organization from financial effects of diminished business operations in the days or weeks following an earthquake. It’s important to discuss all risk management approaches and risk transfer solutions with your broker: 1. Does my broker and/or insurer have an idea of what my earthquake exposures are and my potential loss estimates? What are my potential loss scenarios? Do they align with the Risk Manager’s assessments? Do they align with the board of directors expectations? 2. What local and regional exposures to my locations would present a significant impact on my operations even if I don’t have a direct loss? 3. Does my broker and/or client have the ability to help me review my business continuity plan and offer suggestions? Can they help with a business continuity plan? What have other companies done? 4. Part of my business continuity plan is supply chain. What resources does my carrier have to help me identify my supply chain exposures? How about resources/ideas to mitigate those exposures? 5. What parts of my insurance program will respond to an earthquake loss and what parts am I self insured? What exactly is my earthquake deductible if it says it’s a percentage of value and/or time limit? How exactly is that calculated so it can be funded? 6. What resources can you provide to reduce our overall risk from an earthquake? 7. What ideas do you have for funding my deductibles and other self insured parts of an earthquake loss? What have your other clients done? 8. How and who do we work with should we have a claim, anything special to look for? How have they responded in other mega disasters and were they there quickly? 9. How has my insurer accounted for its exposure in catastrophic areas? Is my insurer able to meet its financial responsibilities? What is my insurer’s financial strength rating? 10. How strong will my insurers’ claim paying response be after a mega earthquake? How able is my insurer to meet its financial claims playing obligations after a mega earthquake? Could I actually get stuck paying for things my insurer should pay?

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Appendix: Earthquake Risk Management Toolkit EMPLOYEE PROTECTION CHECKLIST Pre-Earthquake Planning • Review emergency procedures with co-workers

• Practice utility shutoffs. Show several co-workers where and how utilities are to be shut off

• Conduct an employee survey of special skills and capabilities (such as ham radio and Twitter)

• Conduct an earthquake vulnerability study to determine potential damage to your building, and un-reinforced masonry or concrete structures

• Develop personnel records that include family contacts, schools, doctors, and medical needs • Pre-designate floor-wardens and/or disaster buddies for persons with physical disabilities • Practice drop cover and hold as if an earthquake were taking place, encouraging people to find the safest place in their immediate environment • Practice evacuating the work place. Walk through the evacuation routes and periodically inspect those routes to make certain they are not cluttered and or can be blocked by falling debris

• Review and practice first aid and CPR skills • Check and refresh emergency supply kits • Develop a mitigation plan that addresses emergency needs, including loss of utilities, and potential business loss and recovery • Map out your value chain and assess the potential impact and extra recovery expenses of a disruption in your supplies • Work with your key suppliers to determine back-up plans and alternatives

During the Earthquake • Command co-workers to DROP – COVER – HOLD ON and stay in that position until the ground stops moving

Post Earthquake • Once the shaking stops, have everyone check themselves and the people surrounding them for injuries

• Determine whether employees will re-enter facility or can go home to check on family (if roads are accessible)

• Remind co-workers of evacuation plans. Have floor warden check the evacuation routes while others grab their personal things (coats and keys)

• If facility can be re-entered, have clean up team go in first to clear debris, clean up spills and check for other possible hazards

• Evacuate

• Remind co-workers of possible after-shocks and to once again follow procedures if they occur

• Assist co-workers with evacuation to pre-designated assembly point • Account for all employees • Give first aid where appropriate • Call 911 for life threatening emergencies • Conduct building survey and check utilities • Listen to portable radio for information regarding the incident

• Assist co-workers back into the facility – conduct an employee meeting to talk about fears and emotions • Provide ongoing employee assistance to those who need it • Contact key supplies to resume production and delivery, or to activate the back-up alternate plans you have developed in advance

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Appendix: Earthquake Risk Management Toolkit KNOW YOUR PROPERTY RISKS Questions to ask to understand the risks to your operations if they are located in a seismic zone Property/site • Is there an active fault on or adjacent to site? • Does the site ground composition consist of fill which could increase shaking? • Is the ground stable or subject to liquefaction ground failure? • Are adjacent upslope or down slope soils stable? • Are post earthquake aggress and egress secure? • Are transportation, communication and utility life lines vulnerable to disruption? • Are there adjacent land uses that could be hazardous after an earthquake? • Are hazardous materials stored or used in close proximity? • Are building setbacks adequate to prevent pounding from adjacent buildings during an earthquake? • Is the site subject to inundation from a tsunami, seiche,* dam or reservoir failure or flooding? • Are there areas of new site construction that should be left underdeveloped to reduce earthquake risk from landslide potential, inundation potential, high liquefaction, surface faulting, intensive shaking or separation from other buildings? • Is there adequate space on the site for safe and defensible acres of refuge from hazards for building occupants? • Does the site have the potential for earthquake induced landslides, by cutting unstable slopes, increasing the surface run-off, or increasing the soil water content? Building • Are you aware of earthquake design weakness that may cause your building to be heavily damaged in an earthquake? • Are you in an older building which may not have used adequate building codes for life safety and current earthquake risks? • What is the structural condition of your building? • Does your building have any construction quality issues that may make it vulnerable to earthquake damage? • Is your building adequately retrofitted for an earthquake? • Could your building survive the largest credible earthquake for your area and be functional afterwards? • Can you distinguish between nonstructural, structural and settlement damage? • What are your risks for fire following an Earthquake? • Has your fire sprinkler system been designed to handle an earthquake? • What are your response and protection plans for fire fighting, building damage and security after an earthquake? • What contingency plans do you have in case of fire sprinkler leakage after an earthquake? • Are your utility feeds into the building designed to handle an earthquake? • Have you considered using seismic gas valves for utilities, and monitoring systems for critical operations?

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Appendix: Earthquake Risk Management Toolkit KNOW YOUR PROPERTY RISKS (continued) Operations Preparedness • Is your business earthquake resilient by having an adequate business continuity plan that works? • Have you considered nonstructural hazards such as file cabinets, rack storage units, book shelves, light fixtures, HVAC equipment and ducts, and your facility’s additional operating equipment? • Once you have identified the nonstructural hazards, what plans to you have to mitigate the risks? • Have steps been taken to protect your computer operations and equipment including vital records? • Have procedures been developed for immediately stopping processes after an earthquake, which could endanger employees or the general public? • Have hazardous materials been identified and secured including liquids and gases? • How would you deal with a spill or leak of hazardous materials? • Have agreements been made with vendors and suppliers to assure continuity of business regarding your supply chains? • Have inventories been developed and maintained to critical supplies, equipment and employee skills? • Have supplier and product flows been mapped out, and alternate supply arrangements drafted? • Are there company policies to inform the public about the continued delivery of services and goods after an earthquake? • Has your company trained in businesses resiliency and business continuity management? Response • Are there plans for conducting initial damage assessments and identifying hazardous conditions? • Are there plans to provide continuous communications with employees and other building occupants? • Is emergency power available to supply critical operations, processes and emergency equipment? • Have evacuation plans been developed and tested? • Have you considered having First Responder training in First Aid and CPR? • Have you worked with your local Police and Fire department regarding community response plans and services? • Have plans been established to provide for emergency housing, food and medical care of employees for the first 72 hours after the earthquake? • Who has been assigned to liaison with the media after an earthquake to make sure accurate information is given? Recovery • Have plans been established to conduct a damage survey of your facilities to determine the need for temporary relocation or timing of reoccupancy? • Are there plans for the clean up of company properties including securing of contractors support to supplement crews in the repair of damaged facilities? • Are there plans for business restoration including essential facilities and or establishing temporary facilities for key personnel, alternate headquarters, damaged utility systems to minimal operating levels and security? • Have you identified alternate sources of essential supplies and replacement parts if your normal vendors are unable to function after an earthquake? • Have long term plans been developed to provide for re-establishing the function of the company? *A seiche is the sloshing of a closed body of water from shaking. Swimming pools often have seiches during earthquakes.

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Appendix: Earthquake Risk Management Toolkit BUSINESS CONTINUITY BEST PRACTICES Communication • Develop relationships with governmental and private recovery groups prior to needing them and include these on the contact list • Create multiple methods to access business continuity plan (online, hard copy, etc.) • Articulate responsibility, authority, and expectations plan to enhance implementation efficiency • Establish redundant communication methods with employees, critical suppliers, governmental agencies, etc., with special attention to cross-border communication requirements • Create inside and outside the organization communication templates/checklists by groups. Contact List • Include individuals with essential specialized knowledge on the contact list • Create contact lists that, in addition to standard contact information, contain essential business continuity plan information on succession, responsibilities, and extent of specialized knowledge • Update contact lists at least every three months. Planning • Establish more than one back up for important data and services (especially important during an extended crisis) • Update HR policies to reflect business and employee needs during a crisis • Align communication and decision strategy with the official definition of alerts, ratings, etc. (e.g., WHO pandemic level 5 defined as spread and not severity) • Prioritize supplies/materials that you will need based on operations and competition for these supplies by other entities • Make provisions to provide the basics for crisis and recovery personnel — this includes childcare • Include instructions and resources needed to set up temporary facilities including inspections, jurisdiction information, permits, safety checklists, etc. • Consider infrastructure risks when developing the business continuity plan. It may be prudent to locate alternative sites within another electrical grid or transportation region • Develop several recovery time and output volume scenarios with their resource requirements to facilitate matching crisis response to situational realities • Establish an early alert process to monitor critical vendors and the regions where they are located through resources such as news feeds Testing • Emphasize internal departmental, customer, vendor, and recovery interface processes during plan testing to uncover unknown dependencies • Stress the testing of plans by incorporating unexpected scenario obstacles (e.g., material short-ages, inadequate staffing, conflicting guidance, etc.).

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Appendix: Earthquake Risk Management Toolkit SUPPLY CHAIN HEALTH CHECK Will your supply chain stand up to a magnitude-9.0 earthquake or greater? Take this assessment to find out: 1. Do you know who your critical suppliers are, and how much their failure would impact your company’s profits? 2. Have you fully mapped your critical supply chains upstream to the raw material level and downstream to the customer level? 3. Have you integrated risk management processes into your supply chain management approaches? 4. Do you have routine, timely systems for measuring the financial stability of critical suppliers? 5. Do you understand your tier 1 production facilities and logistic hub exposures to natural catastrophes? 6. Is supply chain risk management integrated into your enterprise risk management approach? 7. Do you record the details of supply chain incidents and the actions you have put in place to avoid future incidents? 8. Do your tier 1 suppliers have business continuity plans that have been tested in terms of their viability? 9. Have you provided risk training to your supply chain management team? 10. Is risk on the agenda at performance meetings with your strategic suppliers? How many “Yes” answers did you score? 8 – 10: You probably have a good understanding and control over the risks you face. 5 – 7: You may have a number of key gaps which could impact your brand or profitability 3 – 4: There may be some major risk exposures within your supply chain which should be addressed 0 – 2: Proactive supply chain risk assessment and management is needed immediately

Learn more Zurich wants to help risk managers have the tools to prepare for and cope with the consequences of natural catastrophes. To learn more about the services available to help risk managers manage risks from catastrophes, check out the following Zurich resources: • To find out additional information about how to prepare for a natural disaster, go to http://www.zurich.com/naturaldisasters/ home/ • Follow @ZurichAlert on Twitter to receive up-to-date notifications about catastrophes taking place around the world. • To learn more about how Zurich Risk Engineering can work with you to improve your business performance through effective risk management, go to http://www.zurich.com/riskengineering. • To learn more about the insurance products and services that Zurich offers to help businesses mitigate earthquake risks, contact a Regional Executive in your area. Find a complete listing of Regional Executives at http://www.zurichna.com/zna/ aboutzurich/regionalexecutives/regionalexecutives.htm • To learn about how Zurich’s Enterprise Risk Management (ERM) solutions can provide assistance in achieving a broad view of the entire risk portfolio, go to http://www.ZurichERM.com. • To learn about Zurich’s Supply Chain Risk Assessment and Insurance, go to http://www.zurichna.com/zna/corporatebusiness/ supplychain. • To learn more about World Travel Protection, go to http://www.wtp.ca. • To learn more about Nomadz, go to http://www.getnomadz.com.

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The information in this publication was compiled by Zurich Services Corporation from sources believed to be reliable. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication, including any information, methods or safety suggestions contained herein. Moreover, Zurich Services Corporation reminds you that this publication cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances. The subject matter of this publication is not tied to any specific insurance product nor will adopting these procedures insure coverage under any insurance policy. 1

”NAFTA @10: Preliminary Report, Foreign Affairs and National Trade Canada http://www.international. gc.ca/economist-economiste/analysis-analyse/research-recherche/10_pre.aspx?lang=eng#part

2

Natural Resources Canada http://geoscape.nrcan.gc.ca/vancouver/earth_e.php

3

Federal Reserve Board, The Beige Book, April 13, 2011 http://www.federalreserve.gov/fomc/ beigebook/2011/20110413/FullReport.htm

4

NAFTA @10: Preliminary Report, Foreign Affairs and National Trade Canada http://www.international.gc.ca/ economist-economiste/analysis-analyse/research-recherche/10_pre.aspx?lang=eng#part

5

”Business Continuity Planning: Lessons Learned from a Decade of Mega-Disasters” Victor Gordon, The John Liner Review, Fall 2010

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