The Changing Risk and Liability Landscape: New Tech, New Loss Scenarios
Advancements in technology are changing the risk landscape irrevocably and driving potential big changes in liability, and other insurance, claims activity.
The opportunities for business from new technologies such as autonomous machines, artificial intelligence, smart factories and digitalized supply chains are immense and wide-ranging. Increasing interconnection of buildings, factories and devices and better utilization of data and analytics are predicted to enable greater productivity and more tailored customer offerings. It is anticipated that workplace safety will improve as human error – a leading cause of loss in many industries – is minimized due to automation of tasks. Meanwhile, ongoing condition monitoring and use of “big data” analytics could significantly improve risk management, enabling better risk mitigation and prevention, more robust pre-disaster planning and even the ability to learn from near-misses.
However, in today’s and tomorrow’s world of connected industries, where intangible assets such as data, networks, customer relationships and intellectual property can represent the major source of corporate value, more is also at stake if things go wrong. New technology is likely to be a major driver of liability, and other insurance claims, activity in the years to come.
Broadly speaking, the frequency of claims is expected to reduce. For example, so-called smart factories should see fewer claims for workplace accidents, while driverless cars are expected to bring about a dramatic reduction in accident rates over time, given around 90 percent of accidents are currently believed to involve human error. However, cyber risk liabilities will grow, while automation is likely to lead to increased product liability for machinery manufacturers, component manufacturers and software providers as responsibility moves more from human to machine.
Technology, such as 3D printing, which offers a faster, cheaper way of producing bespoke products, is also changing existing business models and supply chains and disrupting well-established lines of liability.
Hailed as a revolution in manufacturing, the projected growth numbers for 3D printing make for impressive reading. Today, the market is already estimated at being just short of $9 billion in value. However, according to Wohlers Associates, which identifies 3D printing, or additive manufacturing, trends given current levels of growth, it could one day have a potential global value of $640 billion – based on capturing 5 percent of the $12.8 trillion manufacturing industry market share.
Meanwhile, McKinsey has previously estimated 3D printing positives, such as improved production methods and reduced waste, could have a positive economic impact of up to $550 billion by 2025.
It could also bring benefits to the insurance industry. There is the possibility of reducing business interruptions through production of spare parts by using 3D printers, enabling businesses to become operational again faster.
On the other hand, widespread use of this technology also introduces potential new risk contributors into the supply chain, such as product designers, internet sales platforms and software providers, all of which bring their own relevant liabilities and raise a number of issues about which party would be responsible in the event of a product defect or recall scenario.
In the case of product designers, the 3D design is the blueprint for the future product, as it contains all of the information. Therefore, if the design itself can be considered a product, the designer could be liable in the event of a recall of unsafe products. In the case of the internet sales platform, the question also arises as to whether the operators of the platform are required to warn about any unsafe products produced by the uploaded 3D models. If the software can be considered a product, are the software manufacturers covered for product liability?
New technology is likely to be a major driver of liability, and other insurance claims, activity in the years to come.
Finally, 3D printing enables manufacturers to produce personalized or customized products – what impact does this have on product testing?
Coming hot on the heels of 3D printing is 4D printing technology, where time becomes one of the parameters. As conditions such as humidity or temperature affect the product, the object reshapes itself in response (for example, the US Army has tested 4D camouflage uniforms which adjust patterns to density of foliage or temperature.) Further enhancements to 3D and 4D technologies will only exacerbate the liability and risk debate.
Data, Sharing and Claims Complexity
The increasing digitalization of society and business also creates liabilities, such as personal data and privacy exposures, as well as around business interruption, cyber security, director and officers and product liability. Companies are worried about the growing sophistication of cyber-attacks but many still underestimate the impact of technical IT failure, human error or even rogue employees, which can result in costly damages.
At the same time, data protection rules are becoming increasingly tough as governments bolster cyber security, impacting businesses as penalties for non-compliance can be severe. Fines for falling foul of the laws can be as high as 4 percent of global revenues.
The growing “sharing economy” also raises questions for liability. Liability in the sharing economy is becoming more complex and potentially more challenging to apportion. As liability claims become more complex and technical, investing in claims expertise and knowledge is becoming more important than ever before for insurers. Insurers need to ensure that their claims handling processes stay up-to-date.