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.
Posts Tagged ‘risk management’
Technologies that we may take for granted today such as anti-lock braking and airbag systems, driving and parking assistance, hazardous condition traction control and global positioning system routing, may soon all come together and evolve into fully autonomous self-driving automobiles. Self-driving cars are expected to begin commercial production and be in use by 2017. Google, the pioneer in the field, claims it can cut road accidents by eliminating the human driver who gets distracted by text messages or becomes tired. Although safety and efficiency gains have been the most cited and prominent benefits for the rationale for the development of self-driving automobiles, a considerable number of challenges remain.
Growth projections for the drone or Unmanned Aerial Systems (UAS) sector are nothing short of phenomenal, as the opportunities and advantages afforded by using this type of machinery in construction, agriculture, energy/utilities, mining, real estate, news media, film production and public safety become increasingly more apparent each passing day. Nevertheless, the potential economic benefits are considered to be vast, expecting to generate an estimated economic benefit of USD82 billion along with 100,000 jobs by 2025 (1). This rapid increase in the number of drones is prompting concerns for:
- Heightened collision risk for commercial airplanes as reports of drones in close proximity continue to make the headlines in the United States and the United Kingdom
- Privacy concerns from remotely controlled autonomous UAS equipped with cameras
- Increased concern of drones being hacked or used as weapons by terrorists.
Many scientists view nanotechnology as the revolutionary technology of the 21st century. Just as plastics were a pervasive and revolutionary product of the 20th century, nanotechnology products are having widespread use and change our lives in a myriad of ways. This technology has quickly evolved into a global force that is transforming manufacturing, medicine and an ever increasing number of consumer/food goods. The field has become a worldwide market worth an estimated USD 1 trillion and is projected to grow at a rate of 16.5 percent through 2020 (1).
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.
Cyber risk is already an embedded feature of the global risk landscape, not only as a privacy/network liability, but also as a peril affecting traditional insurance lines. As such, insurance has the potential to greatly enhance cyber risk management and resilience for a wide range of organizations and individuals who are exposed to its impacts. Nevertheless, the likelihood and impact of severe events remain subject to much uncertainty and the pace of insurance innovation should be linked to the rate at which this uncertainty can be reduced (1).
Although the insurance market has developed a dedicated product line that addresses the initial risks faced by companies, such as data breach and business interruption due to network failure, traditional insurance products in their design have not historically contemplated the exposure to protect against cyber risks. Companies can purchase cyber specific cover in the form of extensions to traditional policies or as standalone cyber policies.
Guy Carpenter announced the release of its Public Sector Risk Report, Partnerships: The Way to Public Sector Risk Financing, which examines the shifting economic and risk landscapes that are driving public sector entities to consider new approaches to risk financing.
Guy Carpenter today released a new briefing that assesses wildfire risk in the United States. The briefing, U.S. Wildfire: An Ever Present Hazard, provides insight into the ongoing threat of wildfires in the U.S. as well as risk mitigation strategies and portfolio modeling for this peril.
Mark Murray, Senior Vice President
Technology and innovation continue to change the world around us, creating both opportunities and new challenges for the (re)insurance industry. Advances in risk quantification such as predictive analytics and capital modeling, to name a few, are changing the way we underwrite, price and manage risk. Similarly, technology is allowing A.M. Best (Best’s) to advance the analytics of risk supporting its assessment of balance sheet strength. Taking advantage of stochastic modeling technology, the evaluation of risk within Best’s capital model is undergoing a fairly substantial overhaul to broaden the lens used to analyze risk relative to capital. The technology allows efficient production of multiple capital metrics adjusted for a range of risk levels rather than risk represented by just one data point, providing deeper insights into balance sheet strength, risk profile and risk appetite. The benefit of this overhaul will be a rating that provides greater differentiation among companies, a more informed dialogue around capital versus risk and a more concise measure of “excess” or “deficient” capital. This new lens on capital will significantly influence the way (re)insurers view, measure, communicate and possibly even manage risk.