3D Printing Offers New Risk Challenges
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.
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.”
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.”
Kiss Knowledge Good-Bye
Neil Armstrong became the first man to set foot on the moon, marking the culmination of a $24 billion NASA space program. Ten years later, NASA sheepishly admitted they could not return to the moon even if they wanted to — they couldn’t remember how.
This is a perfect example of what is referred to as the “Knowledge Gap,” or the loss of critical information when employees leave their place of employment. In the case of NASA, all the key people involved in the original Apollo 11 project had retired … and no one thought to jot down what they knew. To make matters worse, blueprints for Saturn V — the only rocket powerful enough to travel to the moon — were lost.
Even though this NASA fumble took place 30 years ago, the exact scenario is being played out in spades as Baby Boomers (those individuals born between 1946 and 1964) are reaching retirement age, and most employers have made no effort to capture their knowledge before they eventually leave.
A study earlier this decade by the Bureau of Labor Statistics reported that more than 17 percent of Boomers holding executive and managerial positions are expected to leave their careers by 2015. Forty percent of the skilled labor force will leave the manufacturing workforce during the next five years and will reportedly cost companies between $50 million and $100 million.
As Baby Boomers are reaching retirement age, most employers have made no effort to capture their knowledge before they eventually leave.
While some companies have begun scrambling to hire trainees and close the potential knowledge gap created by the Boomer exodus, most companies haven’t even taken notice.
David DeLong, author of the book “Lost Knowledge: Confronting the Threat of an Aging Workforce,” recently pointed out that there are direct and indirect costs associated with lost knowledge.
Direct costs occur through the loss of workers with specific knowledge through retirement and attrition. When these experts are no longer around, it accentuates the indirect costs of knowledge loss: poor documentation and storage.
Northrop Grumman has been on the forefront of knowledge management for many years. In 1997 with the Cold War behind them, thousands of NG engineers, who had helped design and maintain the B-2 bomber, were asked to leave the integrated systems sector. In a short period of time, 12,000 workers filed out the door leaving only 1,200 from an original staff of 13,000 employees, to help maintain the current fleet of bombers. The 12,000 took with them years of experience and in-depth knowledge about what was the most complex aircraft ever built.
Without appropriate measures, this could have been a disaster of epic proportions. Instead, prior to the exodus, NG formed a “Knowledge Management Team” who identified the top experts and videotaped interviews with them before they left.
No company wants to be in the position in which NASA found themselves — having to explain why they can’t recreate the single greatest event in modern history. So if employers don’t plug the knowledge gap prior to the great Boomer exodus, it’s going to be more than just Houston that has a problem.
Read all of Dan Holden’s Risk Insider contributions.
3 + 3: Theory of Risk
Anthony Valsamakis doesn’t just practice risk management, he wrote a book about it. And he doesn’t just consult with quants, he is one.
“Risk management has been in my blood for so long that I have to stop myself, otherwise I could go into a two-hour monologue,” said Valsamakis, whose career in the discipline goes back almost 35 years, to his first job with the Standard General Insurance Company.
In 1990, the London-based chairman of the Eikos Group received a doctorate in Business Economics. In 1992, “The Theory & Principles of Risk Management” was published, with Valsamakis the principal author, and is now in its 4th edition.
Valsamakis worked first with a carrier, then as a commodities broker, before taking up an academic post. The company he started in 1999, the Eikos Group, has a risk consulting arm, with clients in most industrial sectors, including the food, mining, forestry, industrial paper and packaging and banking industries. The group also includes a transportation risk brokerage and a Bermuda-based carrier.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game.”
– Anthony Valsamakis, Chairman, Risk Financing Strategy, Eikos Group
For as long as he can remember, Valsamakis sought ways to get better information on the risks he underwrites, brokers or consults on.
“Over many years we’ve tried hard to increase the quality and timeliness of the information that enables us to do just that,” Valsamakis said.
Finally, it looks like Valsamakis has found a risk management information systems platform that enables him to do just that.
For the past year and a half, Valsamakis has been using a system developed by Riskonnect.
“What’s useful for me is that the platform basically resides within the client’s systems,” he said.
The information he needs to prioritize, depends on which client he is working with.
“By definition, depending on where I am working and what I am doing, risk management priorities are very different,” Valsamakis said.
The Riskonnect platform provides the necessary flexibility.
A mine, for example, could be in a location in Africa or South America with a high degree of political risk. A key risk for a furniture maker might be around trade secrets, the possibility that a disgruntled employee would leak a pricing catalogue to competitors. For a packaging manufacturer, their material supply chain is of the utmost importance, and so on.
For each client, Valsamakis can use Riskonnect platform and work with the client to compile the information that is most relevant to that client and its industry and enter that into a secure system.
“All of these are template facts that you can easily put into the Riskonnect system,” Valsamakis said.
The Riskonnect platform is housed within the client’s information technology system, and it is transparent enough, to give Valsamakis and his client access to the same sets of data.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game,” he said.
Whose System Is It?
Valsamakis has been around long enough to know a few things about data and risk transfer. He’s seen a number of risk information management systems put out by brokers, for example, that he thinks are set up more for the broker’s business model than for the sharing of information.
Generally speaking, information about an insured’s risks come from the broker and the insured. The Riskonnect system works, according to Valsamakis, because it is designed to be adapted to the client, not the broker.
“I have seen efforts by brokers, for example, over the years to produce a type of risk information platform that becomes theirs,” Valsamakis said.
“It’s been a perennial problem in the industry, where depending on which broker you end up with, you’ll end up with system A, B or C,” he said.
The Underwriter Needs to Know
Using Riskonnect, Valsamakis encourages clients to be as transparent as possible, in order to give the most complete information to underwriters.
“For me the question is, ‘What is the volatility around the asset and can there be an impact on the balance sheet of our clients?’” he said.
“We need to describe this exposure in various contexts so that the underwriters know what they are covering,” he said.
It’s basic human psychology. If an underwriter doesn’t feel they are getting enough information about a particular risk, they will take a negative view of that risk.
The more accurate the information Valsamakis has about a client’s exposures, the better the pricing he gets from underwriters.
“If you were an underwriter putting your capital and risk and I gave you little information, you would actually be less inclined to look at the risk in favorable terms. There will be a natural inclination to downgrade it,” he said.
Where Valsamakis sees enormous value is in the Riskonnect system ability to tag which can be revisited at a later stage.
“It’s amazing how clients forget, in the passage of time, that there are profiles that have changed for better or worse.”
A Long-Term Investment
The Eikos Group invested significantly in the Riskonnect product and are taking it to a number of clients. The transparency of the system and the advantage it gives the Eikos Group and its clients with underwriters is in itself a business advantage over the competition.
“We made a decision as a small company, relatively speaking, to invest a lot of money in Riskonnect and be very proactive about it,” Valsamakis said.
“When I talk to executives I say we invested in it because it’s going to save our clients money. Better information will lead to a lower cost of risk,” he said.
“If I’m talking to someone at a high level, that’s fairly easily understood.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Riskonnect. The editorial staff of Risk & Insurance had no role in its preparation.