April 5th, 2017

The Insurance Of Things & Industry 4.0 – A Matrix View: Part I

Posted at 1:00 AM ET

morley-speed-small2Morley Speed, Managing Director


Technological progress and the accumulation of assets have not only stimulated the development of insurance products; they have in turn been nurtured by the availability of these offerings.

It is no coincidence that the origins of insurance lie in the marine class, where the financing of ships and trade is among the earliest examples of investment in technology and assets.

Successive waves of technological progress have stimulated the development of corresponding insurance specialties - not just products, but also risk management. These new “things of value” may have provided some challenges, but ultimately the (re)insurance industry has provided for the “Insurance of Things.”

Today, the (re)insurance industry faces its greatest technological challenge yet. Can the Insurance of Things develop to insure the so-called “Industrial Internet of Things”?

We are experiencing a fourth industrial revolution, based on the “Internet of Things” combined with inter-connected machines and people. This Industrial Internet of Things is also known as “The Smart Factory,” or simply “Industry 4.0.”

According to the CRO Forum (1): “This new mode of production is characterized by the merger of the material and virtual worlds in ‘cyber-physical production systems.’”

Cyber is now a much reported topic and is usually classified between “affirmative cover” within specific cyber policies (up to now, largely concerned with data breach) and “silent” cover, which is essentially the first party losses arising from cyber perils within mainstream P&C lines, predominantly property damage and business interruption (BI).

This so-called “silent” exposure is the subject of the Lloyd’s “Business Blackout” scenario, which pointed to an ultimate potential insured loss of between USD 21.4 billion and USD 71.1 billion (2).

This article examines coverage issues arising from Industry 4.0 first party exposures. Fundamentally, it is about how the insurance industry is dealing with the merger of the material and virtual worlds. It does not address first party data breach issues.

Link to Part II>>

Link to Part III>>

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1. The Smart Factory - Risk Management Perspectives - CRO Forum, November 2015.

2. Business Blackout: The Insurance Implications of a Cyber Attack on the US Power Grid. Lloyd’s Emerging Risks Report 2015.

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