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As we rush to embrace new technologies and innovations, it is inevitable that they will “bite back”, creating new risks that are difficult to plan against...Allianz SE
Driverless cars, robots, 3D printing, borderless digital businesses and innovations such as drones all promise to transform our world, but are accompanied by unforeseeable risks. This revenge effect of science and technology is well documented: DDT was once hailed as an efficient pesticide, asbestos curtains a great way to prevent theater fires and the hydrogen laden Hindenburg had a smoker’s lounge, for example.
Edward Tenner, author of Why Things Bite Back, notes that technology is often the ultimate expression of unintended consequences. “It is not so much what can go wrong will go wrong, but when it goes wrong it can do so spectacularly,” he says.
As in the past, innovations now being enthusiastically adopted will have benefits – and some nasty surprises – beyond those imagined. From an insurance perspective though, future influencers can be partially identified. Automation, for one, is likely to expose machinery and component manufacturers, as well as software providers, to increase in product liability.
“From data, we can identify future influencers,” says Alexander Mack, Allianz Global Corporate & Specialty (AGCS) Board Member and Chief Claims Officer. “The recent ‘Allianz Global Claims Review’ highlighted how the ever-growing reliance on technology is creating risks with large liability claims becoming ever more expensive, complex and international in scope.
The positive news, says Mack, is that, broadly speaking, “the frequency of claims is expected to decline, although the complexity of threats, such as cyber, product liabilities and recall risks, is increasing.” Business models in the digital economy are without borders, he explains, making liability harder to apportion and claims more complex to settle.
According to the review, while 3D printing offers a faster, cheaper way of creating prototypes and specialized items, especially in aviation and automotive, the products have implications for general liability, as well as workers’ compensation. New materials used in 3D printing have also not been tested over time, which could complicate supply chains and make it harder to trace faults.
In 2016, the United States Food & Drug Administration approved the first 3D-printed drug, an anti-seizure drug for epilepsy. The move introduces new liabilities to the traditional pharmaceutical supply chain model, expanding liability beyond doctors and pharmacists to include device manufacturers and software providers.
The growing “sharing economy” – the collaborative consumption of which Airbnb and Uber are two big examples – is another area raising questions. The day when an autonomous taxi drone has an accident will be one of unchartered intricacy. The parties involved will include the vehicle maker, software providers, fleet operator, as well as those in the accident. This will make claims more complex and claim handlers will need to understand sensors and algorithms to determine the cause.
This also applies to driverless cars. The sharing economy is likely to see a decline in car ownership in favor of motor fleets, car-sharing and driverless taxis, says Carsten Krieglstein, Head of Liability (Central & Eastern Europe), at AGCS. Insurers may move towards providing large policies bought by manufacturers, fleet owners and operators.
While responsibilities may shift, motor insurers will remain the point of contact for victims in case of accidents – whether driven in autonomous or manual mode. As of 2018, cars with conditional automation, where an automated driving system takes over all driving but humans intervene where necessary, are expected in showrooms. From about 2020 onwards, accident rates are expected to fall, but as with drones – when they occur – liability will involve an expanded set of principles.
Future influencers of risk need not be technology-based. Indeed, notes Simone Ruiz-Vergote, Managing Director of Climate Solutions at Allianz, some risks are well known, but their impact is impossible to predict. She points to the Thailand floods of 2011, which caught international companies off-guard.
When electronic components from Thailand were not available, U.S. manufacturers and Japanese carmakers experienced bottlenecks. “Flooding is a given in Thailand, but those were at record levels,” she explains. “What surprised many industries was how dependent they had become on the region and how knock-on effects devastated the entire international supply chain.”
Six of the ten largest historical flood losses having occurred in the past decade and the frequency and intensity of extreme weather events are increasing due to climate change. “The link between nature and, as the AGCS report reminds us, the growing complexity of supply chains and such innovations as the “Internet of Things” means the future influencers of risk will undoubtedly have more shocks in store for us,” Ruiz-Vergote says.
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