Risk consulting – Liability - Allianz Global Corporate ... offices assets/Russia...2015 Scheinwerfer 16 1.318.620,00 82.414 86 EUR 7.087.583 EUR 7.560.088 EUR 2020 Hupe 2 3.911,00

Allianz Global Corporate & Specialty

Risk consulting –Liability

Dr. Klaus BurkhardtJune 2012

© Copyright Allianz Global Corporate & Specialty 12-06-22 2Risk Consulting Liability

Construction6ICT processes & infrastructure5Chemicals & pharmaceuticals4Product tampering3Products liability2Environmental liability1

Table of contents

© Copyright Allianz Global Corporate & Specialty 3Risk Consulting Liability

Liability exposure assessment

We provide risk identification and assessment servicesin the following areas

Environmental LiabilityProducts LiabilityChemicals & PharmaceuticalsICT Processes & InfrastructureProduct TamperingConstruction


Liability exposure assessmentKey task – The risk dialogue

Clarify complex technical material to facilitate business decision makingReduce complexity – focus is on key risk driversAnalysis proportional to exposure:volatility of the risk determines complexity, time and costs of the underlying processes (effective use of risk consulting capacity)Understand risks (downside potential) and opportunities (upside potential)

Service is structured along the liability line of business


Liability exposure assessment (cont.)

Identification and assessment based on

Audits at clients’ sites (documentation, process analysis)DTRs (desk top reviews) of information from clients and third party data providersRisk Assessment Report with risk grading, comments and recommendations

Exposure analysis facilitatesRisk-adequate pricingBenchmarking of clients’ subsidiaries


Unique characteristicsIdentification & assessment of loss exposuresSite-specific exposure analysis

Liability exposure assessmentEnvironmental liability


Environmental liabilityIdentification and assessment of environmental liability exposures

Identify what materials are present (quantities, harmful properties)Identify the routes those materials could take when releasedIdentify the target populations of living entities that could be affected Analyze the technical conditions of the site (maintenance etc.)

Highly specialized following the local legal situation


Environmental liability (cont.)Site-specific exposure analysis

Geographical analysis of clients’ sites via internet-based IT system (aerial photographs and maps available for visualization).Neighborhood analysis for each site (location of wildlife protection areas; bodies of water; exposure to third-party damage).


Environmental liability (cont.)


Exposure assessmentManufacturingAutomotive recall

Liability exposure assessmentProducts liability


Products liability loss exposures

Exposure assessment for products liability involves analyzing:

Planning, designing, and testing of (new) products Manufacturing and assembly – quality controlAdvertising and sales literaturePackagingManuals on how to install, operate, maintain, service and repair products Record keepingProduct recall programs


Products liability loss exposures (cont.)

Example: Toys manufactured in low-wage countriesHealth hazard resulting from the use of a pigment containing impermissibly high levels of toxic substances (lead)Quality control/good manufacturing processes minimize such exposuresRecord keeping and efficient product recall programs are key success factors in situations where the product safety is compromised


Products liability loss exposures (cont.)

Policy holder FORBO Movement SystemNamed insured Forbo Siegling Japan Ltd

Location Fukuroi, Shizuoka JAPANdate: 20th Feb 2012

A1/A2 General information 113%A3 Power supply and IT Security 125%B1 Relationship between enterprise and location 125%B2 Local quality management 115%C1 Human factor 125%C2.1 Customer and user information 100%C2.2 Product purpose 125%C2.3 Traceability - identification - archiving 125%C3 Machines - Facilities & Technology 100%C4 Milieu - market situation - customer 2 113%C5.1 Relationship with supplier 100% 113%C5.2 Research & Development 25% 63%C5.3 Incoming goods process 125% 113%C5.4 Approval process: serial (mass) production 25%C5.5 Production process 125% 113%C5.6 Delivery to customers 125% 100%C5.7 Customer complaint management 125% 100%C5.8 Recall management 75% 25%

18 1815% 4 450% Result: 101%

BRisk Grading:

Result of the Survey

Allianz Global Corporate & Specialty


Products Liability – automotive recall

Code Code Gruppenbezeichnung

Anzahl der Rückrufe der Code Gruppe

Gesamtzahl der zurückgerufenen Teile der Code

Gruppe

Durchschnittliche Anzahl Teile pro

Rückruf

E&A Kosten (Angabe

AZT)

Durchschnittlicher Aufwand pro Rückruf

Durchschnittlicher Jahresschadenaufwand

1001 Befestigung Sicherheitsgurt 97 21.719.062,00 223.908 51 EUR 11.419.301 EUR 73.844.811 EUR1005 Seitenairbag 13 42.412,00 3.262 43 EUR 140.286 EUR 121.581 EUR1006 Sicherheitsgurt incl. -straffer 84 9.963.405,00 118.612 43 EUR 5.100.314 EUR 28.561.761 EUR1007 Steuergerät Airbag 54 8.177.066,00 151.427 87 EUR 13.174.162 EUR 47.426.983 EUR1008 Window Bag 18 649.149,00 36.064 154 EUR 5.553.830 EUR 6.664.596 EUR1010 Lenkradairbag 9 1.254.633,00 139.404 44 EUR 6.133.761 EUR 3.680.257 EUR1011 Airbag allgemein 39 1.562.924,00 40.075 60 EUR 2.404.498 EUR 6.251.696 EUR2002 Gebläse 9 1.961.627,00 217.959 229 EUR 49.912.509 EUR 29.947.506 EUR2003 Generator 13 1.133.861,00 87.220 127 EUR 11.076.950 EUR 9.600.023 EUR2004 Kabelstrang, Stecker 89 7.946.758,00 89.289 110 EUR 9.821.836 EUR 58.276.225 EUR2005 Kombiinstrument 26 1.107.944,00 42.613 54 EUR 2.301.114 EUR 3.988.598 EUR2007 Steuergerät Scheinwerfer 3 4.996,00 1.665 36 EUR 59.952 EUR 11.990 EUR2010 Steuergerät Motor 113 12.597.094,00 111.479 81 EUR 9.029.775 EUR 68.024.308 EUR2011 Steuergerät Fahrwerk 7 66.756,00 9.537 50 EUR 476.829 EUR 222.520 EUR2012 Steuergerät Heizung 4 38.284,00 9.571 26 EUR 248.846 EUR 66.359 EUR2013 Verteilung Sicherungskasten 9 380.692,00 42.299 55 EUR 2.326.451 EUR 1.395.871 EUR2014 Batterie 5 75.743,00 15.149 26 EUR 393.864 EUR 131.288 EUR2015 Scheinwerfer 16 1.318.620,00 82.414 86 EUR 7.087.583 EUR 7.560.088 EUR2020 Hupe 2 3.911,00 1.956 44 EUR 86.042 EUR 11.472 EUR2021 Bremslicht + Warnblinker 26 6.384.286,00 245.549 54 EUR 13.259.671 EUR 22.983.430 EUR2022 Scheinwerferschalter 15 1.917.303,00 127.820 54 EUR 6.902.291 EUR 6.902.291 EUR2023 Heckleuchte 9 492.776,00 54.753 86 EUR 4.708.748 EUR 2.825.249 EUR2025 Waschananlagen Scheibe Scheinwerfer 33 8.468.258,00 256.614 86 EUR 22.068.794 EUR 48.551.346 EUR3001 ABS Ventilblock 32 4.839.271,00 151.227 137 EUR 20.718.129 EUR 44.198.675 EUR3002 Bremsbeläge 1 95.074,00 95.074 52 EUR 4.943.848 EUR 329.590 EUR3003 Bremskraftverstärker 23 865.686,00 37.639 167 EUR 6.285.633 EUR 9.637.971 EUR3004 Bremssattel mit Kolben 28 2.212.517,00 79.018 104 EUR 8.217.920 EUR 15.340.118 EUR3005 Bremsscheibe oder Trommel 22 2.145.508,00 97.523 67 EUR 6.534.047 EUR 9.583.269 EUR3006 Hauptbremszylinder 22 1.437.485,00 65.340 81 EUR 5.292.558 EUR 7.762.419 EUR3007 Hydraulikleitungen 115 7.219.140,00 62.775 70 EUR 4.394.259 EUR 33.689.320 EUR3020 Gaspedal 8 1.264.277,00 158.035 67 EUR 10.588.320 EUR 5.647.104 EUR


Products Liability – automotive risk categories


TamperingCombatRisk assessment

Liability exposure assessmentProduct tampering


Tampering

Tampering involves the deliberate altering or adulteration of a product, package, or system. Solutions may involve all phases of product production, packaging, distribution, logistics, sale, and use. No single solution can be considered as "tamper proof". Often multiple levels of security need to be addressed to reduce the risk of tampering. Some considerations might include:

Identify who a potential tamperer might be: psychopath, misguided joker, saboteur, organized criminals, terrorists. What level of knowledge, materials, tools, etc. might they have? Identify all feasible methods of unauthorized access into a product, package, or system. In addition to the primary means of entry, also consider secondary or "back door" methods.Improve the tamper resistance to make tampering more difficult, time-consuming, etc.Add tamper-evident features to help indicate the existence of tampering. Educate people to watch for evidence of tampering.


Combat

Custom voidable chromedecals and stickers

Seals and tapes Tamper evident security labels


Risk assessment

A risk assessment is a tool for measuring the compliance of an organization with applicable security requirements and is a standardized methodology that can be used to analyze a system or organization to identify vulnerabilities potentially resulting in losses. The standardized methodology is based on the interrelationships of four key factors:

Assets: any useful or valuable resource.Vulnerability: weakness or susceptibility of an asset or a collection of assets to losses of various kinds.Threat: an event, process or act which, when realized has an adverse effect on one or more assets.Safeguard: a countermeasure, control or action taken to decrease the existing level of vulnerability of an asset to one or more threats.

Risk = Threat + Vulnerability


Major risks for pharmaceutical companiesDifferences to other products liability risksThe pharmaceutical products life cycleIntegration of data from different sourcesStandard risk assessment processKey risk drivers

Liability exposure assessmentSpecialized risk assessment process – Pharmaceuticals


Pharmaceutical products liability risks – What makes them different?

Every drug causes adverse drug reactions in some patientsIt is impossible to eliminate all adverse effects by modifying drug’s designDrugs cannot be 100% ‘safe’, they are ‘unavoidably unsafe’; drug regulatory authority decides about the acceptability of adverse drug reactions in relation to benefits (risk/benefit assessment)When drugs are placed on the market they are considered to be ‘safe’ for their intended and ordinary use as based on the instructions and warningsat that timeResearch/medical evidence is constantly changing the state of scientific knowledge different outcome in risk/benefit assessment possibleSafety and risk/benefit of pharmaceutical products is constantly monitoredafter market launch (spontaneous event reporting, new medical evidence)


The pharmaceutical product life cycle

Manufacturing

Quality Control

Marketing

Distribution

AdvertisingDrug Safety Dept.

R&D

Approval

Market Withdrawal

Clinical Trial

GCP SOP‘s

GMPCFR

GLP

Pharmacovigilance

Health Authority

Risk/Benefit Assessment

Risk/Benefit Assessment

Approval

Most processes within drug manufacturers are highly regulated


Key drivers of the pharmaceutical liability riskClinical trials

Patient exposure numbers: numbers of patients exposed to pharmaceutical products in the USAverage loss per claimant: depends on the scenario to be consideredDevelopment risk: new products are assumed to have a higher probability for unexpected safety issues than mature productsScientific dimension: assessment of risk/benefit ratio by health authorities and scientific experts, degree of divergence of assessmentsLegal dimension: US lawyer activities and legal developments in non-US jurisdictions


The pharmaceutical value chain –Business profiles determine prod. liab. Exposure

Risk profile of Pharmaceutical companies

Traditional Pharma Company

Generics Company

R&D Lab, R&D Contractor

CRO

Contract Manufacturer

Contract Manufacturer API

Contract Manufacturer Formul.

Marketing/Distrib. Contractor

Business profile

Research Development Manufacturing Marketing Surveillance

( )

full

API

Formul.

Prod LiabExposure


Initial situationThe risk environmentBenchmark/best practice applications

Liability exposure assessmentICT Processes & infrastructures


ICT Processes & infrastructures

The initial situationInternal and external corporate communication mostly via email and electronical data exchangeIndustrial enterprises present themselves and their products in the wwwCorporate/enterprise management exclusive via IT-NetworkOutsourcing of IT- processes (core/business)Remote control of facilities and utilities


ICT Processes & infrastructures (cont.)

The risk environmentSecurity and compliance risks attract a lot of attention. The reasons are high visibility and significant effects, if a malfunction occurs in these categoriesAvailability risks are taken more and more seriously: even minimum deficits in this area can continue through the downstream value chain andgenerate big lossesIn todays extremely networked world, managers understand that a wide spectrum of IT incidents affect operational sequences, performance and results of the enterpriseIT risk management with the SCAP categories is a never ending process


ICT Maturity level

0 Release ProcessRelease ManagementTest factory

1 Measuring, Analysis, ImprovementCustomer satisfactionMeasuring & Monitoring of Processes, Products & ServicesRevisionInternal AuditsCorrective actions / Preventive actions CAPACIP - Kaizen

1 Cross Sectional ProcessesPersonnel developmentBody of knowledgePurchasingStrategyClaimsPreinsurance: Reports P / E / L

01

X 2345


Subject of construction liabilityAccidentsInjuries

Liability exposure assessmentConstruction


Construction

The subject of Construction Liability covers:

Planning liability, public liability and owners‘ and contractor‘s protective liability - Accidents suffered by workers on

construction sites that do not fall under the ambit of worker’s compensation laws

- Injuries suffered by third parties resulting from the actions of construction workers or dangerous conditions on a construction site: damages neighbourhood/surroundings: infrastructure and environment


Construction (cont.)

Accidents: the most common CausesConstruction site accidents under Construction Liability, just like other accidents, have no sense of timing. Even if caution is already observed and exercised by a construction worker, they can still happen because of the negligence on the part of the business employer. Construction site accidents usually come in different forms. Basically however, they occur as a resultof the following:

ExplosionsEquipment malfunctionsElectrocutionSlip and fallsNegligencePoor safety standards

Falling construction debrisMachine malfunctionUnsafe ladder breakageUnnoticed flooring holesLack of safety equipments



Injuries: The most common CausesThird party injuries under Construction Liability, they mostly occur as a result of the following:- Planning error: statics,

dimension faults- Foundation soil: crack forming - Equipment malfunctions/mishandling:

grouted anchor, uplift



7. Risk visualisation

Tunnel Civil engineering

above ground level Line projects Bridges

low common Increased low common Increased low common Increased low common Increased

Groundwater Soil quality Building ground Overlaying formation Dimension, Length Excavation pit Neighbourhood Air conditioning Face, front Statics Heading under structures Construction period Bridges (if part of line projects) Bearing structure, frame

A B C D

Low risk Average risk High risk Very high risk

Thank you for your attention.

www.agcs.allianz.com


Disclaimer

These assessments are, as always, subject to the disclaimer provided below.

Cautionary Note Regarding Forward-Looking Statements

The statements contained herein may include statements of future

expectations and other forward-looking statements that are based

on management’s current views and assumptions and involve known

and unknown risks and uncertainties that could cause actual results,

performance or events to differ materially from those expressed or

implied in such statements. In addition to statements which are forward-

looking by reason of context, the words “may”, “will”, “should”, “expects”,

“plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”,

“potential”, or “continue” and similar expressions identify forward-looking

statements. Actual results, performance or events may differ materially

from those in such statements due to, without limitation, (i) general economic

conditions, including in particular economic conditions in the Allianz Group’s

core business and core markets, (ii) performance of financial markets,

including emerging markets, and including market volatility, liquidity and

credit events (iii) the frequency and severity of insured loss events,

including from natural catastrophes and including the development of loss

expenses, (iv) mortality and morbidity levels and trends, (v) persistency

levels, (vi) the extent of credit defaults, (vii) interest rate levels, (viii) currency

exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changing

levels of competition, (x) changes in laws and regulations, including monetary

convergence and the European Monetary Union, (xi) changes in the policies

of central banks and/or foreign governments, (xii) the impact of acquisitions,

including related integration issues, (xiii) reorganization measures, and (xiv)

general competitive factors, in each case on a local, regional, national and/or

global basis. Many of these factors may be more likely to occur, or more

pronounced, as a result of terrorist activities and their consequences.

No duty to update.

The company assumes no obligation to update any

information contained herein.

Documents

Risk consulting – Liability - Allianz Global Corporate ... offices assets/Russia...2015 Scheinwerfer 16 1.318.620,00 82.414 86 EUR 7.087.583 EUR 7.560.088 EUR 2020 Hupe 2 3.911,00