Construction Advisory Board Houston October 2016 Client Risk

Construction Advisory Board Houston October 2016 Client Risk

Construction Advisory Board Houston October 2016 Client Risk Solutions Stephen McKay Tony Lyons Total Cost Of Loss Direct Costs Scope of Loss Extends Across RT Products: Worker Safety Financial Impact Property Damage Business Interruption Environmental Impact Customer Impact Increased Cost of Working Regulatory Costs Recovery Costs Clean-up Costs Indirect Costs: Management Time Opportunity Cost Impacts on Productivity Loss of Customers Reputation Impacts Client Risk Solutions draws on the full resources of AIG to support client needs. Risk Engineering and Consulting Partner to address client needs and exposures

Data-driven insights Programs to protect your people, your property and to maintain your business continuity. Analytics and Modeling Over 250 analysts and modelers With Clemson supercomputin g weve created advanced predictive models Industry Specialists Services and Technology Manufacturing Specialist teams for: travel security & extraction, fraud, crisis response, ERM. Technology to support cyber protection, VR training, IoT/

sensors for workplace safety Education Construction Energy Chemical Financial Institutions Healthcare Manufacturing Public Entities Real Estate and Hospitality Transportation AIGs Client Risk Solutions has been established to harness the full capabilities across AIG to assist our clients in reducing their cost of risk and maintaining business continuity WHY AIG Over A global network of consultants and engineers >5 0 Countries 25 0 analysts and modelers available to help clients analyze claims and loss data, model natural

catastrophe exposures, major hazards, terrorism and supply chain risks Over 70 0 Engineers and consultants working with clients to reduce their cost of risk Specialized focus areas in travel security and extraction, fraud detection, crisis response, business recovery, cyber protections, virtual reality training, and IoT/sensor technology In 2016, helped identify $215 In fraud to the benefit of our clients m Analytics and Modeling Analytics and Modeling Crisis Response Services that will be there when you need them the most following major loss events: Environmental containment, Cyber attacks, fire and property damage. All designed to expedite

business recovery and reduce reputational exposure. risk management techniques applied to our customers' aviation operations, with a goal of reducing loss exposures and advancing safety initiatives Leveraging one of the worlds largest claims, engineering and location databases and proprietary catastrophe models using super computer processing we provide comprehensive risk insights that will help reduce the total cost of Cyber risk. Cyber (Reduce trade and transport risk and minimize costly delays with proactive risk analysis from AIGs professional marine loss control engineering services. Our Cyber security experts are well-versed in the mitigation and prevention of the most sophisticated tactics, attacks and incidents. This includes: Environmental Environmental risk management program evaluation including environmental health, safety programs, risk management, emergency response and hazard communication plans .

Cyber Risk Assessments Secure Design Engineering Identity Lifecycle Management Security Operations Safety, Incident Response &Product Threat Intelligence Forensics Security Road Safety A modern, more effective approach to road safety beyond standard audit checklists. Knowledge of the latest safe driving technologies to improve fleet efficiency and road safety. Aviation and Enhancing aviation safety through operational Marine Security risk capabilities range from extraction services, travel security, active shooter programs, cyber, cargo, and analytics. Consultants review security systems and emergency procedures in place to prevent, react and recover from credible events.

Terrorism Help our clients to assess terrorism threats to people and property and to implement programs and protective measures to reduce the risk from those Recall and Product Safety, Recall Liability and Liability risk Services to help assess risk and pinpoint loss drivers with the greatest potential impact on your business and customers. Supply Chain Property Worldwide, world class loss prevention and engineering capabilities that serve all disciplines and occupancies, including a full suite of High Hazard and Highly Protected Risk (HPR) services, natural catastrophe engineering and equipment breakdown Using proprietary models to quantify supply chain risks our Consultants

conduct assessments to identify weaknesses in supplier and distributor relationships and create appropriate risk strategies. Worker Safety Hazard assessments and exposure models to help pinpoint loss drivers and potential severity. Best practice assessments and benchmarking to evaluate operational processes and measure performance against industry standards. Technical resources enable inspection-oriented tasks such as OSHA audits, ergonomic task analysis, industrial hygiene testing, and perception surveys. Client Risk Solutions Organizational Chart Robert Klepper Client Risk Solutions President, Ruth Calabrese Anthony Lyons Head of Operations Head of & Strategic Technical & Partnerships, Analytic Solutions, CRS Stephen McKay Head of Client Engagement, CRS Marc Lehmann

Head of Client Services Development, CRS Kim Kramer Head of Liability Risk Consulting, CRS Hal Bernson Chief Engineering Officer, Property & Special Risks, CRS Client Engagement Client Service Model Analytics to Risk Consulting Solutions Appendix 1 8 Construction Case Studies LNG Import terminal project in Canada short season for construction of offshore jetty required deliveries of jacket structures from Newfoundland to New Brunswick, across the Cabot Strait. We assisted in developing a plan where the jacket tows could be transferred to the smaller tug once the larger tug had made the main crossing and there were adequate ports of refuge for the smaller tug to operate safely. Larger tug could return to Newfoundland for the next jacket; while the smaller tug made the delivery and stood by for the discharge of the jacket at the project site. Major Tunnel Project - AIG reviewed the proposed designs and identified weaknesses in the shafts that could lead to a major loss. For

similar costs, adjustments were made to account for local soil properties. I. E. A thick bottom slab was replaced by jet grouting columns plus a thinner concrete matt. Solar Power Plant in US Avoided loss / damage to heat exchangers due to improper stowage on barge - original stowage would not allow vessel crane to pick offshore unit up without heavy listing and potential damage to adjacent unit (or capsizing of the barge) Mining project in Peru losses occurring to sensitive electrical components due to heavy vibration during inland transit to project site. To avoid delays/damages we created additional protection that was applied in staging area prior to delivery via the access roads Airport - Runways built using a high performance asphaltic concrete. AIG identified active volcanoes in the vicinity and the potential for contamination of the aggregates. Any contamination of the aggregate would reduce load bearing capacity of runways. Measures taken to protect the aggregate deposits on site and being transported. Our knowledge of experience at Santiago Airport was 9 critical. Property Services Construction Property Inspections Wind, Flood and Water Mitigation procedural reviews and training

Nat Cat Evaluations Fire Prevention training Safety Management Process Reviews Crane Management Procedural Reviews Pre-Construction Fire Protection Plan Review Assistance Delay in Start-Up Business Impact Analysis Operational Testing of fixed fire protection equipment. Testing and Commissioning Contingency Reviews

Transformer Oil & Gas Analysis Testing. Site Security Assessments Electrical Thermographic Inspections. Off sight storage location exposure inspections & reviews Incoming Material QA & QC Assessments 10 Casualty Services Hazard Assessments & Inspections Workplace IoT/Sensors

Motor Fleet Loss Control Services Remedial Technology Assessments Pier ( Pollution Incident and Environmental Response ) Training Services Best Practice and Behavior Safety Training Safety Management Process Reviews & Incident Response Protocol services

Industrial Hygiene and Ergonomics Services Gap Analysis 360 (Risk Management Gap Risk Analysis) Regulatory Compliance Assessments Client Centric Analytics Benchmarking and Safety Concierge Services Risk Tool & On-Line Training Resources 11 Marine and Inland Services Marine Inspections Warehouse Risk Assessments Packaging Consultation / Cargo Condition

Assessments. Handling, Stowage and Securing Guidelines for general cargo, bulk commodities, dangerous goods and heavy lift shipments. Ramp and Hanger Safety. Code Guidance packaging, securing, solids and chemicals. ( IMDG, CSS, IMSBC, IBC Codes) Cradle to Grave Monitoring of critical cargo project shipments Guidance and Route Assessments Training Seminars Transport, Motor

Truck Carriers Legal Liability Cargo Handling Warehouse Legal Liability Contractor or Land Based Equipment Crane & Riggers Legal Liability Emergency Response Program Reviews Guidance on methods in detecting hazards and liability exposures 12 Driving Innovative Solutions CCA is designed to partner with clients to improve safety and reduce loss costs by implementing actionable solutions based on data driven insights 13 14 Levels of CCA Reports Basic and Standard reports focus on differentiating AIG in the marketplace and deepening client interactions

Key Differentiator Insightful Informational Custom analysis leads to actionable solutions to reduce loss costs and improve safety 15 CASUALTY / CCA HIGHLY CONFIDENTIAL DO NOT COPY Claim Frequency Benchmark Frequency is defined as the number of reported claims greater than $1, per $million of payroll. Based on Company As payroll composition by NCCI Class Code, State and Policy Year, the Benchmark claim frequency is estimated using a statistical model leveraging the entire AIG data with similar composition. Claim Frequency and Payroll $24 0.48 $18 0.36 $12 0.24 $6 0.12 $0

2009 2010 2011 2012 2013 2014 Claim Frequency Payroll Amount ($B) Across all policy years, Company As overall claim frequency is below the benchmark. 0 Policy Year Payroll Client Benchmark 17 Frequency & Severity Benchmark Medical only claims frequency has been significantly below the benchmark, which contributes to total frequency being better than the benchmark. However, the average severity of the Med Only is higher than the benchmark and has been trending up. P a y ro ll A m o u n t ($ B ) $20 Lost Time Claims Frequency

0.20 $15 0.15 $10 0.10 $5 0.05 $0 2009 2010 2011 2012 2013 2014 C la im F re q u e n c y Both the loss time claims frequency and severity are on-par or higher than the benchmark. 0.00 Lost Time Severity $65K $60K $55K $50K $45K $40K $35K $30K 2009 2010 Policy Year Med Only Claims Frequency $20

0.28 0.21 $15 0.14 $10 0.07 $5 $0 0.00 2009 2010 2011 2012 2013 2014 Payroll Client Benchmark -0.07 2011 Client 2012 2013 2014 2013 2014 Benchmark

Med Only Severity $2K $2K $1K $1K $0K 2009 2010 Client 2011 2012 Benchmark 18 Potential Savings % P o t e n t ia l S a v in g s Assuming Company A can achieve the Benchmark severity level for both Med Only and Loss Time claims, then by bringing down the Loss Time claim frequency to the Benchmark level, the total savings opportunities could amount to $139M. Class Code A (NCCI-1234) accounts for 60% of the potential savings Total Potential Savings across NCCI Codes Others $3M (10%) 100% 80% 60% NCCI-1234 $15M (60%)

$ P o t e n t ia l S a v in g s ( $ M ) NCCI-5678 $8M (30%) Potential Savings by NCCI Class Code across Years 40% 20% 0% 2009 2010 2011 2012 2013 2014 Policy Year Potential Savings by NCCI Class Code across States $10 $8 $6 $4 $2 $0 NY All Others NJ States

CA NCCI-5678 MA Other States NCCI-1234 19 Text Mining - Strain/Sprain (For Handling Objects) Loss descriptions reveal that strain/sprain claims are frequently related to handling of ladder, following by pole, manhole and cables. truck state felt right reach cabl ladder pole exit tool involv instal load worker attempt hole stand take

side bent van push injur get manhol box pain rear use onto bend cover extens ft door hurt custom Top 4 Claims related to Ladder Loss Description descend fiber report open

drop ladd case pick drill crawl wire kneel Key Words Based on Text Mining of Loss Description on Strain/Sprain -> Handling Objects within NCCI Code (7600) (Sized by Claim Frequency, Colored by Average Claim Loss) Cause Code Loss Amoun t Tech was putting ladder Strain or Injury by, NOC $ 572,928 ba Employee lifting ladder of The iw was carrying a ladd Employee was lowering ladd Lifting $ 524,645 Strain or Injury by, NOC $ 408,093 Lifting

$ 365,106 th 277 Lost Time Claims $11.6M Average Loss Amount: >$47.2K Average Loss Amount: $41.4K$47.2K Average Loss Amount: $31.4K$41.4K Average Loss Amount: <$31.4K 20 FRAUD ANALYTICS HIGHLY CONFIDENTIAL DO NOT COPY Fraud Risk Risk Profile Profile for for aa sample sample customer customer -- Page Page 11 of of 22 Fraud Customer has seen 1,219 claims from 2013-2015 , with 108 referrals to AIGs Special Investigative Unit (SIU), 53% of which were identified through analytics. 69% referred were found to be suspicious. Total Claims SIU Cases 2015 395 2014

2015 27 2014 27 453 2013 2013 371 0 50 100 150 200 250 300 Resource Source 350 400 450 500 5 10

15 20 25 Closed Suspicious Cases Loss date for claims and Suspicious cases 30 45 50 Impact due to SIU Cases 236,000 53.00% Adjuster & SIU Reasons for Referral Accident / Injury lacks sufficient supporting evidence Inconsistent statements A significant change in work status 40 New Cases Investigated 2014 Analytics 35 2015

47.00% 45 23 10 0 40 Suspicious injury/claim history relating to current loss Injuries inconsistent with facts of loss Activities inconsistent with injuries 158,000 2013 New Claims Suspicious Cases Q2 of 2014 had the largest concentration of suspicious cases 69,000 $0

$100,000 $200,000 $300,000 Economic Impact happens when we avoid paid loss due to investigation. 2 2 Fraud Risk Risk Profile Profile for for aa sample sample customer customer -- Page Page 22 of of 22 Fraud Locations in California, Louisiana, and Texas contributed to 75% of suspicious cases Zip Codes with the greatest fraud experience % suspicious to closed Location1, TX, ZIP1 Location2, CA, ZIP2 Location3, LA, ZIP3 Location4, TX, ZIP4 Location5, CA, ZIP5 Suspicious cases * Size of the bubble depends on the impact Whats working Claim involvement by the Insured significantly aids the Adjusters

Conducting safety meetings & raising general awareness on accident reporting expectations minimizes reported losses Onsite medical support & pre-shift stretching regiment should be broadly encouraged Revisit the Exit InterviewRecommendations process to ensure there are questions about accidents or injuries to report Upon hire obtain a photo ID, home & cell numbers, email address and vehicle info if possible Acknowledgment of accident reporting guidelines should include confirmation the employee is aware they are to report subsequent employment and/or self-employment while receiving benefits Use an end of shift check off form that includes indicating whether they were involved or a witness to any accidents is encouraged Provide Reduction In Force notification to both Claims and SIU 2 3 Natural Catastrophe Analytics HIGHLY CONFIDENTIAL DO NOT COPY Client Risk Solutions Nat Cat Risk Insights Step 1 Where are my values distributed? Client Risk Solutions Nat Cat Risk Insights Step 2 How good is my data and how do I compare with my peers? Client Risk Solutions Nat Cat Risk Insights Step 3 What risks are driving my losses? Client Risk Solutions Nat Cat Risk Insights Step 4 What locations are driving my losses? Client Risk Solutions Nat Cat Risk Insights Step 5 What locations are driving my losses? Business Impact HIGHLY CONFIDENTIAL DO NOT COPY Overview of the Business Impact Practice

Global Business Impact Specialist Team 44 Global Specialists Guided by Technical Certification and Training Program Training incorporates 36 advanced technical courses Business BusinessInterruption Interruptionand andValuation Valuation Assessment Assessment Business BusinessImpact ImpactAnalysis Analysis(BIA) (BIA) Interdependency and Make-Up Interdependency and Make-UpValuation Valuation CBI/Supply CBI/SupplyChain ChainRisk RiskAssessment Assessment Supply SupplyChain ChainRisk RiskModeling Modeling Business Continuity Business ContinuityPlanning Planning(BCP) (BCP) Disaster

Recovery Planning Disaster Recovery Planning AIG BI Support Service Offerings Supply Chain Risk Assessment (CBI/CTE Analysis) Client Needs Assessment: Viewing the Horizon Client feedback from a recent AIG survey indicated that value added services would become more important in the future, compared to simply providing risk transfer solutions. Given the abundance of capacity in the market place, and the fact that many products are being sold only because of their lower cost, value added services is what clients consider when distinguishing between carriers. According to AIGs survey of Fortune 500 clients, they were most interested in the following areas: Top Needs for Services & Risk Insights Benchmarking 55.9% Risk Modeling / Analytics 54.2% Site safety inspections / Training 23.7% Claims 13.6% Program Structure 11.9% Risk Engineering 10.2%

Loss Control 8.5% ERM advisory / compliance 5.1% Industry / Marketplace advice 5.1% Emerging Risks 5.1% Fee Services 3.4% What services do you want? We offer services by LOB how can we make these more accessible to you? What services do you want that we do not provide today? What technology should we be exploring to enhance our services or to help you with risk solutions? 34 Questions? American International Group, Inc. (AIG) is a leading global insurance organization. Founded in 1919, today we provide a wide range of property casualty insurance, life insurance, retirement products, mortgage insurance and other financial services to customers in more than 100 countries and jurisdictions. Our diverse offerings include products and services that help businesses and individuals protect their assets, manage risks and provide for retirement security. AIG

common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange. Additional information about AIG can be found at www.aig.com and www.aig.com/strategyupdate | YouTube: www.youtube.com/aig | Twitter: @AIGinsurance | LinkedIn: http://www.linkedin.com/company/aig. AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds. 3

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