Integrated risk management framework

Description

Risk is normally managed inside institutional boundaries — a flood authority manages flood risk, a water utility manages supply, a municipality manages drainage, an insurer manages its portfolio. Water does not respect those boundaries. This framework sets out how the separate risk management arrangements in a catchment or a city can be read as a single system, and where they fail to connect.

It brings together the hazard and exposure side with the institutional and social side: who holds the mandate, who carries the residual risk, who benefits from a reduction in risk, and what each of them is able to do about it. Read together, the two sides show where a measure that is technically effective has no institutional home, and where an institution carries a risk it has no instrument to reduce.

Applied at the NAIAD demonstration sites, the framework was used to identify the entry points through which the insurance sector could take part in risk reduction, and the situations in which its incentives and those of the public authorities coincide.

Applications to decision making in the insurance sector

It identifies where a risk carrier's incentives align with an authority's objectives — the cases in which investing in prevention reduces claims — and where they do not, for instance where the party carrying the risk is not the party able to act. That distinction determines whether a partnership is worth pursuing at all.

Added value of this modelling approach

It makes the residual risk visible. Strategies are frequently described by the risk they reduce, without stating who holds what remains; the framework names the holder, which is the fact that determines whether a scheme is fundable.

What decision can be improved with this modelling approach

Where to intervene in an existing institutional arrangement; which actor should lead a strategy; how to structure a risk-sharing agreement; and whether a prevention measure would reduce claims for a particular carrier or merely move the loss to another party.