In October 2018, a Boeing 737 Max 8 Lion Air jet crashed shortly after takeoff from Jakarta claiming the lives of 189 people. Just last week, a similar model aircraft flying under the Ethiopian Airlines banner plunged from the sky killing all 157 souls on board. The accidents occurred just five months apart, but the aftershocks reverberated around the globe.
Both planes experienced similar problems shortly after takeoff, their noses oscillating rapidly, rendering the planes helpless as they plunged from the sky.
What happened between March 11 and March 13, 2019 is an important lesson for risk managers globally. On March 11, The Civil Aviation Administration of China ordered all airlines operating Boeing 737 Max models to ground the planes indefinitely. On March 12, the EU Aviation Safety Agency followed in China’s footsteps and grounded the jet indefinitely. On March 13, Canada grounded all Max 8 and Max 9 jets and even banned these models from flying over Canadian airspace.
The International President of the Transit Workers Union lobbied for the grounding of the jet by the Federal Aviation Administration (FAA) until the root cause of the Ethiopian Airlines disaster could be determined, and ultimately this action came to fruition via executive order.
Grounding these aircrafts until the root cause is identified was a wise decision. Identifying a problem is always the first step in risk management, and this is a key differentiator from the myopic lens of simple insurance brokerage.
Risk Management Versus Insurance Brokerage
Insurance is the financial payout applied when a claim occurs, whereas risk management is putting processes in place such that a claim is not filed in the first place. It is easy for a risk manager to become stuck in a “get it done now” mindset when addressing the insurance needs of clients.
Risk managers are ultimately compensated via insurance policies placed with insurance carriers, but when designing solutions, it is imperative to follow the risk management framework throughout the process. The aviation authorities made the correct decision by halting the operation of the Max 737 until the problem could be identified.
These authorities not only potentially saved lives but also, secondarily, money. While grounding these jets resulted in a short-term revenue hit from an operational standpoint, imagine the longer-term revenue hit that could have resulted from another potential crash followed by the intangible reputational harm to the airlines involved?
Risk managers, much like these aviation authorities, must resist the urge to think in a one-dimensional mindset when designing solutions. To a hammer, everything looks like a nail and for every peril there is an insurance policy ready to insure against it.
Why not put practices in place to avoid triggering a loss in the first place? Advising clients by conducting ERM annual reviews is an imperative means by which risk managers can instill best practices in the daily operations of their clients. Reviewing hiring/dismissal policies within HR to avoid employer liability claims, conducting cyber hygiene education sessions to prevent future phishing attacks, and advising the use of wellness plans to reduce medical claims are some examples of adopting a risk management mindset.
Learning From the Aviation Industry
Risk managers could stand to learn a lot from the aviation industry. It is a proven fact that a human is far more likely to die in a car accident than in an airline accident, but the media amplifies airline disasters creating an exaggerated frequency of their impacts and occurrences.
The industry has evolved over the decades and has gotten more adept at identifying and eliminating perils that could lead to tragedies. Adopting a mindset of problem identification early in the risk management process will allow risk managers globally to reduce losses and increase client satisfaction.
The results are clear skies ahead for all.