role of insurance for innovative technologies: nanotechnology

127 November 2012, Milano, Role of Insurance for Innovative Technologies: Nanotechnology

© Copyright Allianz SE

Allianz Global Corporate & Specialty

Role of Insurance for Innovative Technologies:

Nanotechnology

AGCS Risk Consulting /Head of R&D, Michael Bruch /Milano 27 November 2012


© Copyright Allianz SE 2

Table of contents 1 Allianz and AGC&S

2 Emerging risk definition

3 What is nanotechnology and where is it used?

4 Opportunities and risks from an insurers perspective

5 Risk assessment of nanorelated applications

6 What is needed to promote nanotechnologies in as sustainable manner?

7 Outlook



AllianzAn Introduction

Allianz Group is one of the world’s leading insurers and financial services providers

Founded in 1890 in Berlin, Allianz companies now extend to over 70 countries with approximately 142,000 employees and 78 million customers

Insurer financial strength rating of AA (‘Very Strong’) from S&P and A+ (‘Superior’) from A.M. Best

International network of strong brands, with first-class products in the fields of:

1. property and casualty insurance

2. life and health insurance

3. asset management

For more information visit www.allianz.com.



Allianz SE Results 2011

In summary

Solid performance despite difficult environment

Stable operating profit of €7.9bn, on target

Revenues of €103.6bn, close to 2010’s record (€106.5bn)

Net income of €2.8bn (2010: €5.2bn) impacted by impairments from Greek sovereign bonds and financial sector investments

P&C business: revenues increased to record high of €44.8bn - profitability also maintained

L&H business remains on high level with €2.4bn operating profit

Asset Management delivers excellent result

Strong capital position further improved: shareholders’ equity rose to €44.9bn, solvency ratio increased to 179% as at Dec 31st 2011

Allianz SE maintains its strong financial ratings

2

3

4

5

Revenues again surpass €100bn mark

€1.8bn in NatCat claims paid or reserved for our customers

Operating profit target achieved despite challenges

Diversified business key to strength

Excellent capital position with strong solvency ratio

1

“These results show the true strength of the Allianz business model.“

Michael Diekmann, CEO of Allianz SE



Allianz Global Corporate & SpecialtyAn Overview

We are one of the few specialist corporate insurers with a genuine global market presence who can provide “one carrier” insurance solutions across the whole spectrum of corporate and specialty risks.

Diversified product portfolio

Wide range of complementary services, including specialist non-traditional risk transfer solutions provided by our subsidiary ART

Financial strength: €4.9 billion GWP (2011)

Global reach: integrated in the Allianz network of more than 150 countries worldwide

Extensive international experience: manages some 1,600 International Insurance Programs

More than 3,400 dedicated employees

Product lines

Alternative Risk Transfer Aviation

Energy Engineering / Construction

Financial Lines Global Programs

Liability / Casualty Marine

Property Risk Consulting



Emerging risk definitions according toCRO ERI members

Full nature and effects are not yet known

May develop or already exist

Difficult to quantify and may have a large loss potential on society and industry

Represent potential business opportunities for the insurance industry as well

Often they are already present in an insurers existing portfolio.









7 Outlook



Electromagnetic fields

Genetic modified organism

Power blackouts

Cyber risks

Endocrine disrupters

Nanotechnology

Obesity

Offshore Wind

Longevity

…

Examples of Emerging Risks….and their drivers

Economy

Legal framework

Innovation

Society



Risk Assessment - Opportunities and Risks of Nanotechnologies

Joint Report with the International Future Program of OECD in 2005

Contents:

What is nanotechnology?

Markets for nanotechnologies

Players

Government programs

Risks

Opportunities and Risks for the AZ Group

Press conferences in London, München,Wien, Madrid



"Dosis facit venenum." (Paracelsus, 1538)









7 Outlook



Sizes of various objects for comparison

Source: VDI TZ / Federal Ministry of Education and Research



New properties of engineered nanoparticles

Quantum-mechanic

behaviour

Increased surface area Molecular recognition

„New“ technical physics through changes in

Colour, transparency

Hardness

Magnetism

Electrical conductivity

„New“ chemical processes through changes in

Melting and boiling point

Chemical reactivity

Catalytic yield

„New“ bio-applications through combination with

Self-organisation

Repairability

Adaptability

Recognition



What is Nanotechnology?

Nanotechnology is the understanding and control of matter at dimensions of roughly 1 to 100 nanometers

Synthesis and Manipulation of matter inNano Scale Dimensions Nanoparticles (e.g. Carbon Black)

Carbon nanotubes / fullerenes

Atomic Force Microscope

...

Materials with tailor-made new physical, chemical andbiological properties.

Fullerene

Carbon NanotubeSources: Universities of Reading, Nagoya



Natural sources of nanoparticles



Consumer Nano-products

Source:http://www.nanotechproject.org/



Automotive

(tires, lacquers)

Number of products according to main categories ( ∑ = 1,393)

8%

53%

9%

15%

4%2%

6% 3%

Health & Fitness(sporting goods, clothing,

cosmetics, sunscreens)

Appliances

(washing machine, air cleaners)

Food & Beverage

(e.g. dietary supplement)

Cross cutting applications (coatings)Goods for ChildrenElectronics and Computers

Home & Garden

(cleaning supplies)

Source: www.nanotechproject.org

Nanoproduct figures 2011



Nanoproducts in the future



Pyrogenic oxides• Silica (1940´s)• Surface-treated silica (1960´s)• Alumina (1950´s)• Titania (1950´s)• Mixed metal oxides (1950‘s)• Zirconia (1990´s)• Zinc dioxide (2000´s)

Nanostructured materials are not new

Ongoing industrial production of nanoparticles

Source: Dechema / VCI



Zinc oxide for UV-A protectionHow does it work? Nanoscale ZnO absorbs and scatters UV-

light

Skin High sun-protection factor

Good feeling

Protects against cancer and skin aging

Wood and polymers Long term UV-protection

Transparency

No leaching

Stable at elevated temperature

Increased outdoor lifetime of woodSourceDechema / VCI



Lotus leaf Microstructures of a lotus leaf with water-repelling nanostructured

wax crystals

Technical realisation of the lotus effect

Beispiel: Facade paint

Surface with lotus effect

Self-cleaning surfaces: Lotus effect

Source: FCI

water

dirt particles



Application principle: Nano-particles are absorbed specifically by the

cancer cells

Special iron oxide nano-particles are super-heated in cancer cells by an external magnetic field thereby killing the cancer cells

Status quo since 2005 clinical trials for glioblastoms

(malignant brain tumors)

in 2011 this treatment has received an EU approval for therapy use

Cancer therapy with nanobiotechnologically modified iron oxide nanoparticles

Source: MagForce



Strongly investigated since the beginning of the 90’s

Extraordinarily active field of research

Carbon Nanotubes

Properties: 6 times lighter than steel—but

100 times stronger

Compressive strength: 2 x Kevlar

Tensile strength: 10 x steel

high electrical conductivity

Applications:

Composite materials (metal, ceramic, polymer matrix)

Field emission displays

CNT-electronics

Bio sensors



Scratch-resistant paint

Dirt-repellent surfaces

Elektrochrome rear-view mirrors (darken upon receiving an

electrical signal)

Carbon Black in tires for less abrasion and better adhesion

Scratch resistantcoating (plastic parts)

Anti-reflection coating (dashboard instruments)

Color dependent on viewing angle

Reduced wear and tear in the engine

Nanotechnology in cars today…

Light-emitting diodes (LEDs) in the headlights

Heat-reflecting and self-cleaning glazing



High-brightness nano-enhanced polymer displays

Sensors monitoring e.g. road conditions, vehicle’s steering

ability

Fast-charge batteries for hybrid cars

Polymer composite panels for greater stiffness and toughness

Lighter, tougher tires; nanoclays to improve tire gas barriers

Distributed solar cells using conformable photovoltaics

…and tomorrow

Carbon nanotube alloys for lighter, tougher frames

Catalysts and nano membranes for better fuel cells

Ceramics with improved catalysts for reduced emissions

Scratches in the paintwork “heal`” by themselves with selforganizing

nanoparticles



Direct benefits for insurers from nanoproducts

Damage-resistant building materials – but

loss patterns with new materials are

unknown

Stronger or more adaptive materials to

absorb crashes (e.g. automotive sector)

Wireless, nano-enabled sensors to report

defects in structural components

Pollution cleanup and prevention

Nanoenabled medical therapies









7 Outlook



The business opportunities from an insurer’s perspective

Growth sector for commercial and industrial insurance cover

Adequate insurance cover as an prerequisite for entrepreneurial activity

especially for small- and medium-sized enterprises



Free nanoparticles

- can travel deep into the lung and reach the alveoli

- can induce inflammation and tissue damage

- can pass the blood brain barrier

- can reach the blood stream and are transported tovarious organs

- can enter the body over various pathways

A few manufactured nanomaterials have shown toxic properties

There is a correlation of the concentration of fine and ultrafine particles inambient air with mortality rates found in epidemiological studies

We cannot exclude unintended long term effects on health and environment

However...

David B Warheit, DuPont Haskell Laboratory



Contamination of the environment, buildings etc. from sudden and accidental releases

Increasing number of work places affected

Increasing deliberate applications in products(Medicine, Pharma, Cosmetics etc.)

Unintended release of nanoparticles from productsduring their life cycle(use, destruction, incineration, disposal ...)

…and the exposure of persons and the release of nanoparticles into the environment will increase

Water droplet / „Lotus“-effect



Why is Nanotechnology an Emerging Riskfor insurers (1)

Existing insurance covers include risks of nanotechnology.

The knowledge is incomplete in terms of emission sources and quantities,

toxicology, ecotoxicology and environmental behaviour.

Reliable standardised methods of measurement and guidelines for testing

are mostly missing.

Involvement of high number of companies from different industries incl.

subsequent processing companies.

Multiple lines of business and multiple classes of insured could see claims

Potential loss scenario resemble major product liability cases from the past.



…why is Nanotechnology an Emerging Riskfor insurers (2)

Regulatory uncertainties

Unclear definition and terminology

Ambiguity in risk perception - significant NGO activity and low consumer knowledge

No loss history available

Imbalance and lack of information

Identification, monitoring and controlling of those few particles and applications which may pose a health or environmental risk is difficult.

=> Even under an optimistic scenario it will take several years until the “knowledge gaps” will be closed

=> Even under an optimistic scenario it will take several years until the “knowledge gaps” will be closed



Emerging Risk Update - Nanotechnology

High Nano related occupational health risks for SMEs and secondary producers…

Occupational health risks1)2)

More than 1,000 nanotechnology firms in US have fewer than 25 people.

Survey on occupational safety and health, University of California:

- Only 46% of Nano firms have nano-specific environmental health and safety programs (EHS).

- Nearly 30% of the companies that did require personal protection only required dust masks.

- Confusion about the right best practice measures in terms of nano workplace safety.

The larger the firm, the more likely it will have nano-specific EHS in place.

1)http://www.newhavenindependent.org/index.php/archives/entry/survey_shows_confusion_on_protecting_nano_workers

2)http://www.genre.com/sharedfile/pdf/InsuranceIssues201111-en.pdf



Emerging risk update - Nanotechnology

Increasing risk perception of Nanotech risks on the part of regulatory bodies, lawyers and research institutes.

EU- operational health and safety experts (OSHA) see nanoparticles as major concern on workers health.http://osha.europa.eu/en/publications/reports/TE3008390ENC_chemical_risks/view

No pending claims known but legal advisers recommend to place nanoproducts into commerce before insurers are able to realise and quantify nanorisks.

Due to toxicity concerns industry will face tougher product testing rules for nanoparticles in cosmetics as of 2013 (e.g. sunscreens).

EU reforms will force food manufacturers (EU’s novel food regulation) to state and to label if products contain nanoparticles.



Potential for exposure to nanomaterials

Degree of regulation

Ability to control exposure

Time for impact

Who/what at risk for exposure

Key form of exposure

Opportunity for exposure to large volumes

Number of individuals at risk

Incentive for produce to invest in countermeasures

Factor for consideration End of lifeUseManufacture

High

Short or long

Workers

Free particles

High

High

Tens to thousands

Frequent

Medium

Long

Consumers

Fixed particles

Medium

High

Thousands to millions

Rare

Low

Long

Environment

Fixed particles

Low

Medium

Millions

Possible over time

Unresolved questions Fewest More Most

Potential for major exposure



Nanotechnology risk landscape

Many voluntary data-gathering systems but no

international nomenclature

practical guidelines

Regulatory Risk




Regulatory Risk

Production Risk

Most of the products seems to be safe

Number of risk studies is increasing but

no clear answers on safety profile of nanoparticles and nanoproducts

The more risk studies we see the higher the (un)certainty gets(?) – disputes among experts can be the basis for future claims




Perceptual Risk

Production Risk

Regulatory Risk

Highest impact on the overall risk, due to the lack of

qualified hazard and exposure data

strong legal framework

harmonised public risk communication (risk-benefit approach)



Nanotechnology headlines

Nanotechnology risks: The new asbestos?The safety risks of nanotechnology use by the food industry could make it “the we asbestos”….

Nanofibres could be as harmful as asbestos

Experts have said that inhaling nanofibres could be equally as damaging as breathing asbestos.

Nanomaterials, sunscreens and cosmetics: Small ingredients, big risks

Friends of the Earth's report “Nanomaterials, sunscreens and cosmetics: Small ingredients, big risks" details the extensive use of nanomaterials in 116 products, from sunscreens and anti-aging creams to shampoos and toothpastes, despite preliminary scientific evidence that many types of nanoparticles can be toxic.

Nanotech-based products offer great potential but unknown risks

Some experts push cautious approach as market keeps expanding

The dangers of nanotechnology, a warning to consumers

Although there is potential benefit to consumers, nanomaterials can also pose new threats to human health and the environment - warns consumer group.

What is the influence of the perceptual risk on nano-technology?









7 Outlook



Risk level for selected Nanomaterials

(Nano)-silver Carbon Nanotubes Carbon Black

Low Risk Medium Risk High Risk



Case study: (Nano)-Silver applications

Perceptual Risk

Production Risk

Regulatory Risk


Products today:• Textiles• Food-packaging• Self-sterilizing medical or

consumer devices • Washing machines

EPA (US) has regulated silver-ion-generating applications as pesticides

but only marketing of these products is affected

Regulation based on environmental risks to be expected

Long-term experience with silver-ion devices

Seems to be a low risk for workers and consumers

Many open questions concerning disposal of products (environmental risk)

More and more products are entering the market

Lack of risk data and categorization as pesticides raise concerns

NGO calls for Samsung “Nano Silver” washing machine recall



Case study: Carbon Nanotubes

Perceptual Risk

Production Risk

Regulatory Risk


Products today:• Composites• Electronic devices

Regualtory framework for CNTs will probably change due to material specifics

Variety of production processes creates CNTs with different properties incl. unclear toxicity effects

Low exposure level (today)

Many safe applications (electronic devices) but also applications with unclear effects over product-life-cycle

Frequently compared with asbestos

Few “close-to-the-consumer” applications(e.g. food, cosmetics, pharmaceuticals)



Case study: Carbon Black

Perceptual Risk

Production Risk

Regulatory Risk


Products today:• Car tires• Toner pigments

No need for regulatory changes due to extensive data

High market relevancy and long time experience in manufacturing

No evidence for specific bodily or environmental harm at manufacturing or disposal

Used since decades without risk concerns coming up

Remaining risk:

Ultra fine dust (e.g. wheel abraison)

Cause of health complaints concerning emissions of office machines still unclear



Technical risk assessment approaches

HazardExposureToxicological perspective

SeverityFrequencyInsuranceperspective



Pollution spill from a nanoparticle production facility

Nanoparticle manufacture workers develop chronic illness

Nanoparticles leach from products to accumulate in the environment

Product recall due to research findings indicating product is a hazard

Liability claims on a company, directors and officers regarding a product that was indicated by research to be unsafe, but subsequently released to the consumer market.

Insurance scenarios

Source: Lloyds



Magic Nano - First Product liability claim with Nano?

Product

Aerosol sealing spray for making glass and ceramic surfaces water- and dirt-repellant

Loss history

100 customers reported respiratory complaints

Media: “First health-related product recall of an alleged nanotechnology consumer product”

Insured product liability event (loss amount < 1 Mio EUR, secondary claims via social insurance agencies)

Damage & loss analysis results

No nano-sized ingredients (silicon dioxide)

Potential cause of loss: Inhalation of very fine airborne droplets

Lack of evidence base



Magic Nano - Lessons learned

Reputational risk

First impressions matter

Incident was a wake-up call for the whole nano community

Negative blast for a hitherto positive image of business

Recommendations

Development of standards for terminology and labeling

More transparency on use of nanomaterials and safety issues

Appropriate research activities into human health and environmental impacts

Risk Management:

- Reputational damage exposure

- Crisis communication









7 Outlook



Risk assessment

Risk identification

Risk assessment

Risk identification

Risk handling

Risk control

Ris

k a

na

lysi

s

Risk avoidance

Risk reduction, loss prevention

(e.g. workplace safety measures)

Risk provisions(e.g. setting up reserves)

Risk transfer (e.g. insurance)

Insurance solutions provides the financial security to ease the bump in the balance sheet.

Risk Management process

5227 November 2012, Milano, Role of Insurance for Innovative Technologies: Nanotechnology© Copyright Allianz SE


insurable risks

insured risks

unknown risks

elusive risks

quantifiable risks

Risk categories



Insurability of nanotechnologies

Criterion Status quo

Assessability:Probability and severity of losses quantifiable

limited evidence base latency effects / long term exposure Randomness:

Time of insured event unpredictable andoccurence independent of will of insured

MutualityRisk community, large number of risks,diversification

wide variety of applications wide variety of chemical substances, sizes, surfaces various industry segments various sizes of clients sub classes of widely used materials Economic feasibility

Premium commensurate with the risk strongly dependent on scenario

CausationCausal relationship between the action oromission of the insured and the resultingdamage / injury / financial loss

Agent in principle analytically provable Signature diseases? Knowledge gaps can lead to legal risks



Predictable issues are positively and

transparently handled

Problematic processes/products do not enter

market

Unique or novel risks are identified early and

managed properly

Existing hazards are actively managed

Assessrisks

Implementmeasures

An insurer provides financial security for remaining risks via insurance cover if:

RM Cycle

Identify risks

Monitor &Control



ManufacturerManufacturer

ConsumerConsumer

RegulatorRegulator

• Access to loans / equity capital• Reliable results from safety/toxicology

studies • Information concerning safe handling of

nanomaterial incl. measuring methods • Support in compiling Material Safety

Data Sheets (MSDS)• Binding character of toxicological results

and impact on regulatory framework

• Access to loans / equity capital• Reliable results from safety/toxicology

studies • Information concerning safe handling of

nanomaterial incl. measuring methods • Support in compiling Material Safety

Data Sheets (MSDS)• Binding character of toxicological results

and impact on regulatory framework

• Open communication and information on both risks and benefits

• Generally understandable risk and ingredients information via media (e.g. internet, TV) incl. labeling

• Convenient for consumers and independent test results

• Open communication and information on both risks and benefits

• Generally understandable risk and ingredients information via media (e.g. internet, TV) incl. labeling

• Convenient for consumers and independent test results

What is needed to promote innovative technologies?

Nanotechnology: Requirement profile of different stakeholders

• Uniform terminology• Acknowledged measuring methods and

standards• Valid toxicological research results

• Uniform terminology• Acknowledged measuring methods and

standards• Valid toxicological research results

• Insurances are a precondition for access to capital markets

• Risk costs can be distributed onto many shoulders which allows (excessive?) risks to be taken

• Transparency via stakeholder dialogues, risk assessments and adequate risk premiums

• Best available technology for loss prevention measures

• Code of practice?

• What is an accepted risk level?



Risk Management/Risk Assessment Risk assessments across the whole product lifecycle

Reliable results from safety/toxicology studies

Information concerning safe handling of nanomaterial incl. measuring methods

Support in compiling Material Safety Data Sheets (MSDS)

Binding character of toxicological results and impact on regulatory framework

PROs:

+ Gives clear guidance how to assess the risk of nanomaterials and nano-enabled products

Limitations Supportive measures

- How much tests/evidence base are required?

- Must include the whole product lifecycle

- Variety of particles, production methodologies, applications

- Limitations concerning adequate and standardised measuring methods and instruments

Development of best practice guidelines for safe production and handling

Stakeholder dialogues?

Funding of risk research

What is needed for a sustainable development of Nanotechnology?



Risk communication and perception Open communication and information on both risks and benefits

Generally understandable risk and ingredients information via media (e.g. internet, TV) incl. labeling

Convenient for consumers and independent test results

PROs:

+ Understandable risk/benefit analyses increase the acceptance level of nanotechnology

Limitations Supportive measures

- What is a general accepted risk level and how to define it?

- Risk/benefit methodology has to bridge the gap between being accurate enough and easy-to-understand

Stakeholder dialogues?

What is needed for a sustainable development of Nanotechnology?



What is generally required to drive innovative technologies sustainable?

Stakeholder dialogues

Risk-/benefit analyses for a

general accepted risk level

How much evidence of risks

does a society need?

Moratorium versus

corporate self-

responsibility

Risk assessment: Is there evidence that a

proactive Environmental, Social,

Governance (ESG) Management signals a

better overall Risk Management of a

company

How much regulation is

needed?

How should a future best-

practice Risk Management

look like?

…and what can be the

contribution of insurers?









7 Outlook



The Outlook

Sustainable exploitation of nanotechnologies will lead to economic and

technical progress that are of major importance to the global economy.

Dedicated research on risks, high-quality risk management and continuous

dialogue will lay foundation for positive public take-up of nanotech.

Positive stewardship, complemented by responsible insurance will support

the sustainable future of nanotech developments.



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.

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