Risk consulting Liability

Allianz Global Corporate & Specialty

Risk consulting –

Liability

Dr. Klaus Burkhardt June 2012

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

Construction

6

ICT processes & infrastructure

5

Chemicals & pharmaceuticals

4

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2

1

Table of

contents

Liability exposure assessment

We provide risk identification and assessment services

in the following areas

ƒ Environmental Liability

ƒ Products Liability

ƒ Chemicals & Pharmaceuticals

ƒ ICT Processes & Infrastructure

ƒ Product Tampering

© Copyright Allianz Global Corporate & Specialty 4 Risk Consulting Liability

Liability exposure assessment

Key task – The risk dialogue

ƒ Clarify complex technical material to facilitate business decision making

ƒ Reduce complexity – focus is on key

risk drivers

ƒ Analysis proportional to exposure:

volatility of the risk determines complexity, time and costs of the

underlying processes (effective use of risk consulting capacity)

ƒ Understand risks (downside potential) and opportunities (upside potential)

Liability exposure assessment (cont.)

Identification and assessment

based on

ƒ Audits at clients’ sites

(documentation, process analysis)

ƒ DTRs (desk top reviews) of

information from clients and third party data providers

ƒ Risk Assessment Report with risk grading, comments and

recommendations

Exposure analysis facilitates

ƒ Risk-adequate pricing

ƒ Benchmarking of clients’

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ƒ Unique characteristics

ƒ Identification & assessment of loss exposures ƒ Site-specific exposure analysis

Liability exposure assessment

Environmental liability

Identification and assessment of environmental liability exposures

ƒ Identify what materials are present (quantities, harmful properties)

ƒ Identify the routes those materials could take when released

ƒ Identify the target populations of living entities that could be affected

ƒ Analyze the technical conditions of the site (maintenance etc.)

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Environmental liability (cont.)

Site-specific exposure analysis

ƒ Geographical analysis of clients’ sites via internet-based IT system (aerial

photographs and maps available for visualization).

ƒ Neighborhood analysis for each site (location of wildlife protection areas;

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ƒ Exposure assessment ƒ Manufacturing

ƒ Automotive recall

Liability exposure assessment

Products liability loss exposures

Exposure assessment for products liability involves analyzing:

ƒ Planning, designing, and testing of (new) products

ƒ Manufacturing and assembly – quality control

ƒ Advertising and sales literature

ƒ Packaging

ƒ Manuals on how to install, operate, maintain, service and repair products

ƒ Record keeping

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Products liability loss exposures (cont.)

Example: Toys manufactured in low-wage countries

ƒ Health hazard resulting from the use of a pigment containing impermissibly high levels of toxic substances (lead)

ƒ Quality control/good manufacturing processes minimize such exposures

ƒ Record 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 System

Named insured Forbo Siegling Japan Ltd

LocationFukuroi, Shizuoka JAPAN

date: 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% B Risk Grading: Result of the Survey

© Copyright Allianz Global Corporate & Specialty 14 Risk Consulting Liability

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 EUR

1005 Seitenairbag 13 42.412,00 3.262 43 EUR 140.286 EUR 121.581 EUR

1006 Sicherheitsgurt incl. -straffer 84 9.963.405,00 118.612 43 EUR 5.100.314 EUR 28.561.761 EUR

1007 Steuergerät Airbag 54 8.177.066,00 151.427 87 EUR 13.174.162 EUR 47.426.983 EUR

1008 Window Bag 18 649.149,00 36.064 154 EUR 5.553.830 EUR 6.664.596 EUR

1010 Lenkradairbag 9 1.254.633,00 139.404 44 EUR 6.133.761 EUR 3.680.257 EUR

1011 Airbag allgemein 39 1.562.924,00 40.075 60 EUR 2.404.498 EUR 6.251.696 EUR

2002 Gebläse 9 1.961.627,00 217.959 229 EUR 49.912.509 EUR 29.947.506 EUR

2003 Generator 13 1.133.861,00 87.220 127 EUR 11.076.950 EUR 9.600.023 EUR

2004 Kabelstrang, Stecker 89 7.946.758,00 89.289 110 EUR 9.821.836 EUR 58.276.225 EUR

2005 Kombiinstrument 26 1.107.944,00 42.613 54 EUR 2.301.114 EUR 3.988.598 EUR

2007 Steuergerät Scheinwerfer 3 4.996,00 1.665 36 EUR 59.952 EUR 11.990 EUR

2010 Steuergerät Motor 113 12.597.094,00 111.479 81 EUR 9.029.775 EUR 68.024.308 EUR

2011 Steuergerät Fahrwerk 7 66.756,00 9.537 50 EUR 476.829 EUR 222.520 EUR

2012 Steuergerät Heizung 4 38.284,00 9.571 26 EUR 248.846 EUR 66.359 EUR

2013 Verteilung Sicherungskasten 9 380.692,00 42.299 55 EUR 2.326.451 EUR 1.395.871 EUR

2014 Batterie 5 75.743,00 15.149 26 EUR 393.864 EUR 131.288 EUR

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 1.956 44 EUR 86.042 EUR 11.472 EUR

2021 Bremslicht + Warnblinker 26 6.384.286,00 245.549 54 EUR 13.259.671 EUR 22.983.430 EUR

2022 Scheinwerferschalter 15 1.917.303,00 127.820 54 EUR 6.902.291 EUR 6.902.291 EUR

2023 Heckleuchte 9 492.776,00 54.753 86 EUR 4.708.748 EUR 2.825.249 EUR

2025 Waschananlagen Scheibe Scheinwerfer 33 8.468.258,00 256.614 86 EUR 22.068.794 EUR 48.551.346 EUR

3001 ABS Ventilblock 32 4.839.271,00 151.227 137 EUR 20.718.129 EUR 44.198.675 EUR

3002 Bremsbeläge 1 95.074,00 95.074 52 EUR 4.943.848 EUR 329.590 EUR

3003 Bremskraftverstärker 23 865.686,00 37.639 167 EUR 6.285.633 EUR 9.637.971 EUR

3004 Bremssattel mit Kolben 28 2.212.517,00 79.018 104 EUR 8.217.920 EUR 15.340.118 EUR

3005 Bremsscheibe oder Trommel 22 2.145.508,00 97.523 67 EUR 6.534.047 EUR 9.583.269 EUR

3006 Hauptbremszylinder 22 1.437.485,00 65.340 81 EUR 5.292.558 EUR 7.762.419 EUR

3007 Hydraulikleitungen 115 7.219.140,00 62.775 70 EUR 4.394.259 EUR 33.689.320 EUR

© Copyright Allianz Global Corporate & Specialty 16 Risk Consulting Liability

ƒ Tampering ƒ Combat

ƒ Risk assessment

Liability exposure assessment

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:

ƒ Identify who a potential tamperer might be: psychopath, misguided joker, saboteur, organized criminals, terrorists. What level of knowledge, materials, tools, etc. might they have?

ƒ 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.

ƒ Improve the tamper resistance to make tampering more difficult, time-consuming, etc.

ƒ Add tamper-evident features to help indicate the existence of tampering.

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Combat

Custom voidable chrome

decals and stickers

Seals and tapes

Tamper evident

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:

ƒ Assets: any useful or valuable resource.

ƒ Vulnerability: weakness or susceptibility of an asset or a collection of assets to losses of various kinds.

ƒ Threat: an event, process or act which, when realized has an adverse effect on one or more assets.

ƒ Safeguard: a countermeasure, control or action taken to decrease the existing level of vulnerability of an asset to one or more threats.

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ƒ Major risks for pharmaceutical companies ƒ Differences to other products liability risks ƒ The pharmaceutical products life cycle ƒ Integration of data from different sources ƒ Standard risk assessment process

ƒ Key risk drivers

Liability exposure assessment

Pharmaceutical products liability risks – What makes

them different?

ƒ Every drug causes adverse drug reactions in some patients

ƒ It is impossible to eliminate all adverse effects by modifying drug’s design

ƒ Drugs 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)

ƒ 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 warnings

at that time

ƒ Research/medical evidence is constantly changing the state of scientific knowledge Æ different outcome in risk/benefit assessment possible

ƒ Safety and risk/benefit of pharmaceutical products is constantly monitored

© Copyright Allianz Global Corporate & Specialty 22 Risk Consulting Liability

The pharmaceutical product life cycle

Manufacturing Quality Control

Marketing Distribution

Advertising Drug Safety Dept.

R&D Approval Market Withdrawal Clinical Trial GCP SOP‘s GMP CFR GLP Pharmacovigilance Health Authority Risk/Benefit Assessment Risk/Benefit Assessment Approval

Key drivers of the pharmaceutical liability risk

Clinical trials

ƒ Patient exposure numbers: numbers of patients exposed to pharmaceutical

products in the US

ƒ Average loss per claimant: depends on the scenario to be considered

ƒ Development risk: new products are assumed to have a higher probability

for unexpected safety issues than mature products

ƒ Scientific dimension: assessment of risk/benefit ratio by health authorities

and scientific experts, degree of divergence of assessments

ƒ Legal dimension: US lawyer activities and legal developments in non-US

© Copyright Allianz Global Corporate & Specialty 12-06-22 24 Risk Consulting Liability

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 Liab Exposure

ƒ Initial situation

ƒ The risk environment

ƒ Benchmark/best practice applications

Liability exposure assessment

© Copyright Allianz Global Corporate & Specialty 26 Risk Consulting Liability

ICT Processes & infrastructures

The initial situation

ƒ Internal and external corporate communication mostly via email and electronical data exchange

ƒ Industrial enterprises present themselves and their products in the www

ƒ Corporate/enterprise management exclusive via IT-Network

ƒ Outsourcing of IT- processes (core/business)

ICT Processes & infrastructures (cont.)

The risk environment

ƒ Security and compliance risks attract a lot of attention. The reasons are

high visibility and significant effects, if a malfunction occurs in these categories

ƒ Availability risks are taken more and more seriously: even minimum deficits

in this area can continue through the downstream value chain and generate big losses

ƒ In todays extremely networked world, managers understand that a wide spectrum of IT incidents affect operational sequences, performance and results of the enterprise

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ICT Maturity level

0 Release Process Release Management Test factory

1 Measuring, Analysis, Improvement Customer satisfaction

Measuring & Monitoring of Processes, Products & Services Revision

Internal Audits

Corrective actions / Preventive actions CAPA CIP - Kaizen

1 Cross Sectional Processes Personnel development Body of knowledge Purchasing Strategy Claims Preinsurance: Reports P / E / L 0 1 X 2 3 4 5

ƒ Subject of construction liability ƒ Accidents

ƒ Injuries

Liability exposure assessment

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Construction

The subject of Construction

Liability covers:

ƒ 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 Causes

Construction 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 result

of the following:

ƒ Explosions

ƒ Equipment malfunctions

ƒ Electrocution

ƒ Slip and falls

ƒ Negligence

ƒ Poor safety standards

ƒ Falling construction debris

ƒ Machine malfunction

ƒ Unsafe ladder breakage

ƒ Unnoticed flooring holes

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Construction (cont.)

Injuries: The most common Causes

ƒ Third 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

Construction (cont.)

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

Thank you for your

attention.

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.