September 28, 2018
15 Emerging Risks Worth Watching — That Aren’t Cyber
Insurance experts have identified the most important emerging risk for the property and casualty insurance industry as cyber in one form or another.
But what about other emerging risks? They identified 15 risk trends. They are:
Directors and Officers Privacy – Many companies are capturing vast amounts of client and customer information — and must to comply with GDPR. Think how much your airline, pharmacy and even your electric company know about you. Often this information is then used to better define their marketing and pricing efforts. If mishandled, this information could lead to bad publicity, a corporate crisis, and significant D&O litigation.
Government Actions – Government imposition of retroactive liability or limits on the ability of the market place to price risk can threaten marketplace stability. Industry security is also impacted by the effectiveness of government security policies preventing cyber warfare terrorist attacks, the next asbestos, superfund or next 9/11 solvency threat. There is a technology race that is driving massive insurer investment in IT and changing business strategies and platforms to meet escalating consumer expectations.
Sandbox Trap – Regulation of insurance. Traditional carriers are pushing for laxation of rules and momentum exists for creating regulatory sandboxes for new companies and distributors. Reasonable but strong regulation protects companies often against themselves, and it protects consumers from companies that might find ways around quality capitalization, disclosure, and quality coverages.
Tax Accounting – The Tax Cuts and Jobs Act took effect on Jan. 1, 2018 and has an immediate impact on accounting professionals because of the large overall on the U.S. Internal Revenue Code. The result is that it is has produced two primary risks for an increase in claims: advisory-related risks associated with fully educating clients and managing client expectations.
Regulation Fragmentation – Regulatory fragmentation from state to state in the area of data and cyber security. There are many differences between EU’s General Data Protection Regulations (GDPR) and emerging U.S. state regulations and controllers of that data in each system must demonstrate technology, process and organizational compliance.
Policy Deficiencies – Increasing deficiencies in insurance policies, especially personal lines, mixed in with dominant industry advertising leads consumers to believe that their only difference between insurance companies is the price of their policies. Compounding that is the emergency of insurtechs that tout they can place your insurance in seconds by asking only a few — or even one — questions.
Irrelevant Policies – Whether insurers will be able to adapt quickly and effectively to dramatic societal changes threatening to breach traditional policy boundaries and lines of business is vital to the future of insurance. To remain relevant for buyers operating in the sharing virtual and gig economies, carriers will need to adapt policy language to account for the blurring of lines between commercial and personal use of property and times as well as among individual product lines.
Fundamental Auto – The fundamental changes to auto and the auto business in the next decade will provide opportunities and threats to the auto insurance business. Driverless cars, ride sharing, and technology will all change the way auto insurance policies are written and priced in years to come.
Unprotected Assets – Digital assets already have more value than physical ones. Cyber liability insurance is answering one part of the expanded needs but falls short of protecting digital assets. The higher the digital assets relevancy, the bigger and more articulated the need to protect it.
Risky Playgrounds – Children’s playground, with features including spiked nails and steep drops have been gaining popularity around the globe in part because educator’s are claiming that purposeful risky play promotes resilience and builds self-reliant young people. Playgrounds now feature access to saws, knives, loose bricks and two-by-fours and fire — and endless insurance complications.
Dockless Scooters – Electric scooters are popping up in urban areas across the country. Companies like Bird, Lime, Spin and others have flooded the sidewalks with a policy of ask for forgiveness, not permission in cities like Boston, San Francisco and Chicago. Users pay with a credit card and don’t have to return the scooters to a designated location, causing scooters to be abandoned throughout the cities. Cities are balking and injury claims are growing. If a pedestrian is hit by a person on a scooter, there often is no insurance company to sue.
Driving Deliveries – The rising demand of fast and free delivery of retail goods needs monitoring. Consumers want expecting faster deliveries and more accurate delivery times but are not willing to pay the price, which causes more driving jobs in a gig economy whose drivers often use private cars to fulfill deliveries. Health risks like back pain from lifting and long hours at the wheel also complicate the situation.
Compliance Witnesses – Failure to address compliance misconduct and safety issues affects retention, productivity and morale. Employees who witness misconduct are twice as likely to leave an organization and 29 percent of employees observed at least one compliance violation at work in 2016 and 2017. To decrease safety mishaps, cut insurance claims costs and retain a happy staff, a company must comply to all safety standards.
Coastal Communities and Property Values – The threat of rising seas is undermining property values in coastal communities. Homes with exposure to the sea sold for 6.6 percent less than unexposed homes. Researchers found that properties at higher elevation were appreciating faster than properties at lower elevation. Accelerating sea level could put more than $1 trillion in property at risk by the end of the century.
Smart Contracts – Smart contracting based on digital ledger or blockchain technology holds great promise fro the insurance industry, it isn’t without risks, The benefits of blockchain – immutablity, transparency and decentralization also present concomitant risks. If an insurer inadvertently discloses protections over the blockchain, there is no control-al-delete button enabling a do-over. Remedial efforts will be hampered by the disclosure and its widespread distribution.
If you have questions about this newsletter or any of the emerging risks identified, contact an insurance expert at The Plexus Groupe at 847-307-6100.
Content provided in part by Insurance Journal.