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3D Risks

3D Printing Offers New Risk Challenges

Revolutionary 3D printing processes offer known and unknown risks.
By: | March 17, 2014 • 3 min read

As commercial 3D printing advances from occasional to routine use, the product liability landscape will shift around it. Defective and counterfeit product exposures, among others, will arise for all participants along the manufacturing continuum, industry experts said.

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In an adverse incident, said Rob Gaus, product risk leader, Marsh, liability will be apportioned among participants in the manufacturing and distribution stream: product manufacturer, printer manufacturer, software designer, feedstock supplier, distributor (especially if it modifies the product) and retailer (if the manufacturer is not well capitalized). No case law exists yet.

In 3D printing, a computer sends the software containing a product design to one or more printers, which builds the product, layer by layer, from many kinds of materials — plastics, metals, drugs, paints and even human tissue.

David Carlson, U.S. manufacturing and automotive practice leader, Marsh, said 3D-printed products are treated the same as any other new operation that poses new risks.

Underwriters and brokers must first assess the company’s risk management profile and risk appetite. When production, research and development teams look at technology, “they should loop in risk management. Risk management should be part of the continuum, or the company could get into sticky situations.”

The emerging risks include unregulated manufacturing, said Mark Schonfeld, a partner at Burns & Levinson LLP in Boston specializing in business and intellectual property law.

If 3D printing enables production of, say, just 100 hip implants or 100 hearing aids, such work will generally take place outside of a traditional mass-production factory, which is subject to government regulation and inspection.

“Insurance companies like FDA oversight of manufacturing because it makes products safer and helps identify responsibility when things go wrong,” Schonfeld said.

To protect themselves and their clients, Schonfeld advises insurers to keep abreast of technological developments, consult with a creative and knowledgeable attorney about how to address liability exposure, and adjust existing policies to be fair to consumers and prevent injury to the insurance company.

3D printing also raises the risk of counterfeit products, said Peter Dion, line of business director-product liability, Zurich Insurance. The digital “recipe” in the software design, and is vulnerable to capture, he said.

Although there is no encryption mechanism for the software, one solution might be to transfer the digital file in pieces only as they are needed by the printer to prevent capture of the entire design signature, Dion said.

Manufacturers have always struggled with counterfeit products, but 3D printing magnifies the risks because it can slash the time from product development to market-ready product to a matter of hours and requires no molds or prototypes. “Hackers can take the proprietary blueprint or software, send it to a third-world country, and have the product ready for market tomorrow,” said Carlson. “That’s a business disruption issue. Counterfeiters can put a company out of business.”

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Drug manufacturers may subvert counterfeiters by adding tracer elements and watermarks to their formulations, which protects their reputations, profits and public health. “If the counterfeiters get the recipe wrong, they might not produce high-quality drugs for public consumption,” Carlson said.

Other manufacturers can also use watermarks and digital rights management (DRM) software to prevent file sharing. Still, Carlson said, counterfeiting is an old problem. “Bad guys have always exploited new technologies for their personal gain.”

The materials used by manufacturers present a greater potential loss exposure than the 3D printer itself, said Dion, noting that it is just another piece of equipment, like a pencil or a lathe.

For example, if a 3D printer is used to replicate a cupcake, the manufacturer should be as careful of contaminants in the mix as traditional bakers need to be. “When 3D printer manufacturers purchase materials from suppliers, they need to perform due diligence on their supplier’s products also.”

Susannah Levine writes about health care, education and technology. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]