The potential of new technologies is hard to deny. They enable organisations to challenge previous assumptions and to pose new questions. Innovators use them to test and learn, or to find new ways of creating value for companies and customers alike.
But with new technologies come new risks. Insurers need to consider how best to support their customers in this new world. They need to establish which categories of risk they are willing to take and which they are not. Initially, as with most new opportunities, there will be very little historic data to help with the risk assessment, so insurers must be able to adapt over time.
The emerging risks
The complexity and interdependence of the technologies embedded in future processes will bring significant risk management challenges. One major example is the continued shift of decision making from humans to technical systems. This shift offers the biggest opportunity for efficiency and cost reduction, but it is also the source of new risks.
Changes to future processes will be underpinned by a variety of key technologies. Those who choose to embrace the new options will face new risks for their businesses and will seek to mitigate these risks through insurance. Herein lies the opportunity for insurers: a multitude of emerging markets created by new technology.
We have looked at four key technologies that are taking hold across many industries. Users will look for insurers willing to offer cover for the new risks involved.
Automation, robotics and autonomous mobility
According to PwC, 59% of manufacturers in the United States currently use some sort of robotics technology. This percentage will certainly increase in the future.
Although automation has been present in manufacturing for decades, the new generation of robots are more responsive. Increasingly, sensing devices are able to communicate requirements without the need for any human intervention. Similarly, autonomous vehicles will be embedded in the supply chain, further removing the need for human involvement. This technology continues to grab the limelight. Indeed, Chancellor Philip Hammond told the BBC that the Government objective was to have “fully driverless cars” without a safety attendant on board in use by 2021.
But, as reliance on automation grows, so do the risks associated with the possibility of malfunction, and the question of where fault lies if things do go wrong.
Machine to machine communication (M2M)
M2M refers to direct communications between devices. Already, entire systems of technologies are linked via M2M. For example, M2M forms the basis of the Internet of Things.
Typically, an event is captured by one machine such as a sensor; it is then relayed to another that translates the captured event into meaningful information that can be acted on. For example, an increase in temperature could trigger an automatic adjustment to a manufacturing process, or changes in stock levels below a certain threshold could trigger an order for new stock.
But the risk of systems malfunction naturally increases as humans become more removed from automated M2M chains.
The Big Data phenomenon is creating waves of excitement about the opportunities it offers in virtually every industry. The volume, variety and speed with which data is produced through multiple connected devices are remarkable. If an organisation can identify relevant and actionable intelligence from this collected data, it can use it to drive increased productivity, cost savings, and enhanced customer experience. Potentially, huge business benefits can be realised from Big Data.
However, collecting and holding such huge volumes of data brings significant data security risks and responsibilities, heightened in the era of cybercrime.
Additive manufacturing – known as 3D printing
3D printing creates solid parts by building up objects one layer at a time. Using this technology allows manufacturers to deliver a design quickly, with high accuracy, from a functional material at a chosen convenient location.
According to the World Economic Forum: “Additive manufacturing is potentially highly disruptive to conventional processes and supply chains. But it remains a nascent technology today, with applications mainly in the automotive, aerospace and medical sectors. Rapid growth is expected over the next decade as more opportunities emerge and innovation in this technology brings it closer to the mass market”.
However, experts are concerned about the risks posed by potential cyberattacks as 3D printed objects and parts are used in critical infrastructures around the world. Furthermore, there are questions about the safety and potential health effects of these devices.
There are clearly serious risks raised by these new technologies: increased vulnerability to infrastructure breakdown, difficulties in determining liability for losses, increased possibilities of cyberattack, supply chain problems, and increased risk of business interruption.
So where are the opportunities?
As we have already discussed, technology has advanced at an accelerated pace, especially in the past couple of years, and the rate of change will only increase. This is being felt across a multitude of different industries where businesses have started manufacturing more for less. Change equates to risk, and risk is covered by insurance. These risks offer insurers the opportunity to design and market new types of cover to support the changing world.
The Insurance Market must be prepared. Some of these new risks require changes to pricing and underwriting along with the ability to keep pace with the ever-changing legal and regulatory requirements needed to govern emerging technologies.
Insurers have new markets to explore. But they must ensure that they are not exposed to excessive or unwanted risk themselves. It is a time of great opportunity for insurers who have both the appetite for change and the skills and infrastructure to evolve.