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Be - Collaborative Risk Management. Collaboration, Risk and Reward in Other Industries Michael Mainelli, Executive Chairman. Agenda. Governance and the risk society Mutuals et al Enterprise risk/reward management systems Challenges for Property organisations Information sharing.

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    1. Be - Collaborative Risk Management Collaboration, Risk and Reward in Other Industries Michael Mainelli, Executive Chairman

    2. Agenda Governance and the risk society Mutuals et al Enterprise risk/reward management systems Challenges for Property organisations Information sharing “Great deeds are usually wrought at great risks” Herodotus

    3. Z/Yen Overview • Special – foremost risk/reward management firm • Services – projects, coaching/training, benchmarking, expertise on demand • Sectors – technology, finance, voluntary sector, professional services, government, outsourcing • Some highlights – Clean Business Cuisine, DERA/Qinetiq, Taskforce 2000, Investment Banking CCC’s, DTI Smart Award 2003 for PropheZy, DTI Foresight Challenge Award 1996 for Financial £aboratory

    4. 3. Lookaheads & Likelihoods Fundamental (enhance, keep, sell, forego) Exploit Strategic Rethink Tactical Invest Reward Ignore Cost Likelihood Risk Divest Restructure Emergency (avoid/eliminate, pool/share/transfer, mitigate/reduce, accept)

    5. Stakeholder Strategy Characteristics of the Organisation Business Policies & Objectives Classification Business Drivers Risk Management Objectives & Strategy Risk Measurement Assessment & Evaluation Action Plan Treatment Shared Benchmarking Cost of Risk Database Contingency Planning Risk Financing Control of Risk Continuous Cost Learning Justification Typical Views of Risk in Industry

    6. Too Crushed to Govern • Cadbury, Greenbury, Hampel, Turnbull, Higgs, KonTrag, Sarbanes Oxley, … • COSHH, H&S, … • “Initiatives” – lots of paper • Targets – lots of paper • Finance – lots of paper • Risk management – lots of paper Need integrated performance measurement! “The future will be better tomorrow.”Dan Quayle

    7. event frequency Risk, Finance and Governance Reward Likelihood shareholder view event-loss databases & benchmarking* activity-based cost analysis* & operational reliability mutual risk management* & external/re-insurance debtor view enterprise risk/reward management systems* Risk debt/equity requirements & subordinated debt issues extreme value theory & last resort regulator view

    8. Risk Management Costs Retention, bonds and PI insurance 1.1% 3rd party insurance, works insurance 0.5% Legal costs, administration, overheads expert advice, time, work disruption, duplication etc. say1.6% 3.0% “Cost of retention fund interest, insurances, bonds and administration costs could equate to 3% of contract value”

    9. Risk Management Working Group

    10. Risk Management Working Group View 7. Capital markets solutions 6. Construction industry mutual 5. Be Mutual 4. UK company or Lloyd’s syndicate Effort 3. Captive insurance company or PCC or ER/RM 2. “Badged” insurance 1. Information sharing for internal funds Scope

    11. Mutual(s) Benefits • Cost effective utilisation of insurance, expert resources and systems • Risk strategy developed without internal political pressures - avoids combining risk management role with other duties • Easy access to specialist expertise • Knowledge sharing • Industry gains • Share costs with other client users for future developments in risk management

    12. Shipping & Transportation Mutuals Shipowners Protection & indemnity risks (mainly third party liabilities) World's largest - one-fifth of the world's shipowners Costs of pursuing/ defending claims for uninsured amounts World's largest - one-fifth of the market - 2000+ ships Shipowners Multimodal industry Equipment and liability insurance 5000 companies worldwide - 70% of world container fleet Greek Shipowners Marine war risks including capture & seizure 80% of Greek owned ships Ship agents, shipbrokers, ship managers, surveyors Professional indemnity and public liabilities World's largest - 1000+ members

    13. Not Just Shipping • Law • SIMIA • Meridies, Lawnet • Bar Mutual • Pension Fund Trustees • Patent Agents • Clinical Negligence Scheme for Trusts • Variants PAMIA

    14. Property • SURMIA Surveyors’ Mutual • CERTA

    15. Obvious Issues • What risks are jointly shared BUT on which you do not compete? • Can these risks be assessed and managed (e.g. standards and certification schemes)? • Is there benefit in joint learning about risks? • Is there an industry benefit in perceived risk management/guarantees? • What is being pledged to the pool - equity, charges, promises? • Can the industry co-operate?

    16. Enterprise Risk/Reward Management Systems • Strategic risk valuation - holistic approach • Internal “insurance” unit, premia and claims management, but: • near misses • sharing best practice • Key performance target integrated into MIS • External comparators

    17. “insurance” premia Risk/Reward Profile Reward Management Profit, Bonuses Improvement Risk Profile Risk/Reward Management Unit Risk Assessments Information Sharing Results 6. Securing and Scoring Enterprise Risk/Reward Management Systems

    18. Annual Cycle • Determine business unit premiums - linked to risk assessment and action plan • Inform business units of deductible and methodology through self insurance agreement • Collect premia • Record and investigate any in-year claims, near miss records, etc. • Pay out on verified losses (calls possible) • Feed information into next year’s insurance system

    19. Typical Enterprise Risk/Reward Management strategic risk valuation notifications and investigations sharing best practice comparator premia claims

    20. Challenges for Property Organisations • Many layers of contracting • Aligning targets and remuneration • Looking at the system, not the incident • Picking a single risk to start with

    21. Operational Risk in Industry Measure Manage • Numerical targets • Engineering • Automation • Checklists • Procedures • Inspection Design Motivate Six Sigma ISO9000 • Contribution • Commitment • Culture Total Quality

    22. Sharing Information • Risk Management Working Group recommendation • Charity Insurance benchmark example • Other cost benchmarking

    23. Next Step? Contact us for a discussion on radical improvement. “Get a detailed grip on the big picture.”Chao Kli Ning