FleetRisk360 ⁰ Moving to a Proactive Risk Management Culture

1. FleetRisk360⁰ Moving to a Proactive Risk Management Culture Clements Worldwide Budapest, Hungary. - 2014

2. ABOUT CLEMENTS Clements Worldwide is a full-spectrum insurance and risk management firm specialized in risk mitigation and solutions of global scope. Founded in 1947, our solutions are specifically designed to meet the needs of individuals and firms living and operating outside of their home country, regardless of nationality or destination. • Company Accomplishments: • Created the first expatriate insurance program in 1947 • Preferred insurer of U.S. Foreign Service Officers worldwide • Insures 5 out of every 6 embassy associations • Largest provider of insurance solutions to the international school community • Largest provider of insurance solutions to the aid and development sector • Provides coverage in over 180 countries • 6 time consecutive Best Practices award recipient • Multi-line underwriting authority with Lloyds of London

3. SURVEY METHODOLOGY An insured claim is no more a sign of risk management than incarceration is a sign of crime fighting. • Enterprise Risk Management • Followed a holistic enterprise risk management approach. • Surveyed bellwether organizations • UN Fleets • Aid and development organizations of varying sizes. • 25% response rate among those surveyed. • Leveraged Clements’ existing fleet customers in more than 170 countries.

4. EXECUTIVE SUMMARY

5. ORGANIZATIONAL INFORMATION • Key Findings • The organizations surveyed have a special duty of care and thus an enhanced risk and reputational exposure given their line of work. • 70% of survey respondents indicate that the fleet is mission critical, therefore fleet risks need to be managed with greater care and professionalism. • 75% of survey respondents are headquartered in North America or Europe exacerbating reputation, currency and long-tail exposures. • 83% of respondents do not have centralized control over fleet management, leading to diffuse accountability and lowered organizational oversight.

6. ORGANIZATIONAL INFORMATION Organization’s Mission

7. ORGANIZATIONAL INFORMATION • With the majority of surveyed headquarters in highly litigious countries, long-tail liability exposures remain a concern – albeit remote. • The expectation that comparative duty of care will be met across regions is enhanced for firms operating from the U.S. and Europe. • Increasing case examples of extreme vicarious liability underscore this emerging class of risk.

8. FLEET COMPOSITON • Key Findings • 54% of the fleet is comprised of soft bodied SUVs and double cabin pickups. • Despite nascent attempts at leasing and rental alternatives, outright vehicle ownership remains commonplace therefore physical damage exposures remain on the balance sheet. • 59% of the fleets surveyed are based in Sub-Saharan Africa with DRC, South Sudan, Kenya, Ethiopia, Uganda, among others, comprising high concentrations. • A general fleet manager bias is evident throughout the survey and conflicts with prior research. Privileged & Confidential

9. FLEET COMPOSITON • Large scale fleet right sizing contradicts the response on fleet adequacy in meeting transport needs. • The vicious cycle of over-utilizing new vehicles and under-utilizing older vehicles challenges this assertion. • Large vehicle “graveyards” run counter to this survey response. Privileged & Confidential

10. FLEET COMPOSITON • There is a risk management “tension” in being domiciled in N.A. and Europe, while principally operating in Sub-Saharan Africa and developing countries. • Many of these countries have under-developed and under-capitalized insurance pools, where many forms of local insurance are more akin with taxation than coverage. • Currency volatility, low liability limits and highly restrictive coverage territories greatly hinder fleet operations. Privileged & Confidential

11. FLEET OPERATION • Key Findings • Throughout the survey, a well-trained driver fallacy is evident in survey responses. • “We only hire trained drivers.” • “We train drivers… • …however infrequently.” • Fleet management software is coming of age, however archaic paper-based approaches remain entrenched. • 76% of respondents allow for liberal personal access to vehicles and third-party transportation increasing the potential for third party / first party losses. • 54% allow third-party transportation without requiring waivers. • The fleet lifecycle standard of 5 years and 150,000 kms disposal criteriafor soft-bodied vehicles remains aspirational. Privileged & Confidential

12. FLEET OPERATION Driver Training Frequency The best “safety device” is a well-trained driver! Privileged & Confidential

13. FINANCIAL RESILIENCE • Key Findings • Given the funding source (“tied aid”) and duty exemption applying to more than 60% of respondents, greater accountability is placed on standards of fleet practice. • 70% of respondents indicate vehicles are held on their balance sheets and are depreciated – indicating greater adoption of GARP/IFRS standards – a rudimentary form of fleet management. • The total cost of ownership (TCO) is not transparent – 58% of respondents indicate postponing necessary fleet investments and 58% have no reserve funds, yet 55% indicate high financial resilience. Privileged & Confidential

14. FINANCIAL RESILIENCE Privileged & Confidential

15. RISK MANAGEMENT • Key Findings • 58% of survey respondents indicate that risk management capabilities, structure and accountabilities needs to be overhauled. • Punitive culture precludes proactive loss reporting and diminishes risk management transparency. • 78% of respondents indicate that their organizations do not have policies in place regarding concentration of risk, exposing fleets to tail / catastrophic losses. Privileged & Confidential

16. RISK MANAGEMENT Punitive Risk Culture “Some staff are not reporting accidents / incidents in fear of the $500 charge imposed by the agency; hence they end up trying to repair the damage unnoticed, hence we cannot track the number of accidents for a certain period of time.” Privileged & Confidential

17. RISK MANAGEMENT • The absence of a policy on the concentration of vehicles and values exposes respondents to catastrophic losses. • This is compounded by the limited ‘fiscal discipline’ in that reserve funds are either difficult to maintain or not maintained at all. • This is further exacerbated by the reality that donor funds are usually “tied” to specific projects and not allocated to overhead. Privileged & Confidential

18. RISK MANAGEMENT Respondent Perception Reputation Risk High Driver/Passenger Fatality Theft Driver/Passenger Injury War 3rd Party Fatality Collision Terrorism Mechanical Failure Impact Medium 3rd Party Injury Physical Damage Riots Fire Acts of Nature Wear & Tear Expropriation Low 3rd Party Property Damage High Medium Low Likelihood Physical Losses Reputation / Liability Exposures

19. RISK MANAGEMENT Trend Adjusted Reputation Risk High Acts of Nature War Theft Expropriation Driver/Passenger Injury Riots 3rd Party Fatality 3rd Party Injury Collision Terrorism 3rd Party Property Damage Driver/Passenger Fatality Impact Medium Physical Damage Fire Mechanical Failure Low Wear & Tear High Medium Low Likelihood Physical Losses Reputation / Liability Exposures

20. RISK MANAGEMENT Antifragile Domain Risk Priority = Survival Robust Domain Risk Priority = Transfer Fragile Domain Risk Priority = Mitigate / Optimize Unexpected Losses Catastrophic Losses Expected Losses

21. RISK MANAGEMENT RISK MANAGEMENT 1D = Vertical, top-down structure, creates ‘placebo’ effect that risks are being managed, risk managers are isolated and part of the “business prevention” team. This framework is typical of financial firms. Risk management is mostly quantitative. 1st Dimension 3D = Diagonal hybrid structure borrows from flat manufacturing process risk management, but filters signal to noise ratio – RMs embedded at all organizational levels as part of decision making framework, not prevention framework. Risk management is 50:50. Mitigation “Signal Filtering” 3rd Dimension 2D = Horizontal structure mirroring assembly line ‘defects’ management. Typically seen in the manufacturing context – the entire line is empowered to halt the system. The signal to noise ratio is a potential downside. May lead to “McCarthyism” and false positives. Risk management is mostly qualitative. Risk “Noise” 2nd Dimension

22. RISK MANAGEMENT Risk Retention / Operational Period: Claims paid by fleet operator on a 1st dollar basis – Clements serves as reinsurance and claims administrator under an SLA. Risk Transfer / Discovery Period: Claims paid by Clements on a 1st dollar basis – fleet operator serves as “reinsurer.” Critical Milestones: 0-12 Months – > Validate fleet data and retention amounts. > Determine loss ratio, causes of loss. > Reserve establishment. 12-24 Months – > Modify risk sharing model. > Competency building and reserve establishment. > Preparedness for “risk swap.” 24 – 36 Months – > Clements migrates to reinsurance. > Fleet operator covers claims on a 1stdollar basis. > SLA claims management service creates efficiencies. 36 – 60 Months – > Increase fleet operator retention of risk. > Implement reinsurance model for catastrophic losses. > Adjustment of contribution per vehicle based on actual loss projections.

23. NEXT STEPS • Full survey findings to be made available to Fleet Forum members and the community writ large. • A risk management primer is under development that will highlight enterprise risk management lessons, risk domains and mitigation strategies. • Clements is committed to working with Fleet Forum in developing solutions across the spectrum of fleet sizes.

24. CLEMENTS WORLDWIDE Clements Worldwide One Thomas Circle NW 8th Floor Washington DC 20005 Washington D.C. | London U.K. | Dubai U.A.E