November 17th, 2015

New Technologies, New Liability Risks and Emerging Product Exposure

Posted at 1:00 AM ET

Risk is a major barrier to innovation. Taking a risk, however, is almost always the first step in any type of progress. The productivity of the global economy depends on companies that are willing to find new and better ways of doing things despite the potential perils involved. If they start to be ruled by fear of liability, our global development could be in jeopardy. By helping businesses manage the risks associated with product development, (re)insurers play an important role in stimulating innovation and helping our world move forward in positive ways. From the early days of marine exploration, to the first satellite launch, to the development of state-of-the-art technologies, (re)insurers have provided a critical safety net that has supported and encouraged the creative process. Given the continued transformative potential of emerging technologies such as nanotechnology, 3-D printing, aerial drones and self-driving automobiles, and their applications in virtually every industry, it is incumbent upon insurers and reinsurers to help accelerate the commercialization and benefits of these innovations to society. At the same time, it is critical to thoroughly understand and manage the risks.

In the examples that follow in the next few days, we focus on technologies that are considered to have wide benefits and for which there are both strong underlying commercial pressures for development, as well as high levels of societal concerns about potential risks and adequate privacy, safety and regulation based on foreseen and unforeseen risks. (Re)insurers then need to attempt to quantify their downside exposures so they can price the foreseen and unforeseen risks correctly and set aside adequate capital to pay future claims; each of which require certain assumptions to be made. Examples of the challenges for each are:

  • Foreseen (known) risks - leakage of pollutants or harmful substances caused by the difficulties of proper containment. In modeling, these can be quantified based on similar events in past history.
  • Unforeseen risks - the possibility of undesirable misuse of applications or effects that cannot be anticipated at the time of invention. These are problematic risks to model because the quantum is unknown at the initial point in time.
  • Both of these risks are made more acute by the rapid speed and complexity of technological development. The growing complexity of new technologies makes them more difficult for individuals, regulatory bodies and (re)insurers to grasp and adequately contemplate.

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