Casualty (re)insurers do not cover standalone emerging risks. A product defect (with recall) or a latent bodily injury resulting from new technological nano-products or Unmanned Aerial Systems risks, could lead to class action lawsuits and ultimately large liability claims including products liability as well as professional liability. This emergent reality, however, is difficult to address. A carrier would need to identify and model several possible epicenters of a liability chain reaction and follow their rapidly spreading implications throughout a portfolio. Without new powerful casualty modeling capabilities as well as highly granular data on the products and subcomponents that each of their insureds manufacture and sell globally, this process would be time-consuming, impossible to complete and likely to miss key threats and underlying exposures.
Because of the complexity and uncertainty involved regarding new technology risks, the degree to which carriers have advanced their risk management practices in this regard notably varies. Until recently, they tended to manage technology liability risks independently and assume the integrated risks either knowingly - or sometimes unknowingly. It is essential that these catastrophe risks be identified, prioritized, accumulated and modeled in their entireties in order for their enterprise level implications to be properly understood and hedged. Recommended steps include:
1. Locate areas of vulnerability to catastrophic technology risk in a portfolio
2. Identify products-centered catastrophe mechanisms and determine how they operate within a portfolio
3. Stochastically model major exposed product-based scenarios having substantial multi-line catastrophe/clash loss potential
4. Formulate a risk management plan to address the full reach of the various scenarios identified.
Ultimately, identifying, managing and modeling technology-based risks require a systematic approach. Those various approaches may differ according to the data they require or by the scenarios being considered as well as any methodologies being contemplated. Some are centered on historical loss experience, yet others are much more exposure-model-based.