Emerging Risks

There’s a lot of buzz around the Internet of Things (IoT), not least with latest forecasts from Gartner suggesting that 20.8 billion connected things will be in use worldwide by 2020.

Already the estimated number of connected things in 2016—6.4 billion, according to Gartner—is a 30 percent increase on 2015. In fact 5.5 million new things will get connected every day in 2016, Gartner predicts.

A press release notes:

Aside from connected cars, consumer uses will continue to account for the greatest number of connected things, while enterprise will account for the largest spending.”

Gartner estimates that 4 billion connected things will be in use in the consumer sector in 2016, and will reach 13.5 billion in 2020. (Hat tip Canadian Underwriter for its report here)

Numerous analysts have pointed to IoT’s power to transform the insurance industry.

In this Deloitte QuickLook blog post, Sam Friedman writes that IoT will likely accelerate the vast amounts of data available to insurers as Web-connected sensors become the norm.

For example, telematics for usage-based auto insurance can provide carriers with 24/7 updates about where, when and how fast an insured travels, as well as assessing their turning and braking habits, traffic navigation skills and response time.

This same IoT technology has applications in a number of other coverages in personal, life and health and commercial insurance, Friedman writes.

Another example is “smart” homes which will allow homeowners to monitor their property, its security and elements like heating remotely. Insurers could provide loss control advice to minimize threats and perhaps take action to secure insured properties, he suggests.

And in this Accenture blog post, Daniele Presutti writes about how IoT will change how insurance is sold and who sells it. He predicts an increasing presence in the insurance business by tech-savvy competitors, such as Google and Amazon.

But it’s not all bad news, he writes:

As people, homes, organizations and even cities become increasingly interconnected, an array of new opportunities will emerge. Smart and agile insurance companies will be able to take advantage of the IoT to launch new products, with new customers and capture new markets. These companies will be the Insurers of Things. For them the possibilities will be huge.”

Read more about how insurers are innovating along with the evolution of IoT in our latest paper Cyber Risks: Threat and Opportunities.


As South Korean authorities step up efforts to stop the outbreak of Middle East Respiratory Syndrome, or MERS, from spreading further, the president of the World Bank Jim Yong Kim has warned that the next global pandemic could be far deadlier than any experienced in recent years.

Speaking in Frankfurt earlier this week, Dr Kim said Ebola revealed the shortcomings of international and national systems to prevent, detect and respond to infectious disease outbreaks.

The next pandemic could move much more rapidly than Ebola, Dr Kim noted:

The Spanish Flu of 1918 killed an estimated 25 million people in 25 weeks. Bill Gates asked researchers to model the effect of a Spanish Flu-like illness on the modern world, and they predicted a similar disease would kill 33 million people in 250 days.”

It should come as no surprise that in a 2013 global survey, insurance industry executives said a global pandemic was their biggest worry, Dr Kim added.

The Financial Times blog The World points to World Bank estimates that a pandemic could kill tens of millions and wipe out between 5 to 10 percent of GDP of the global economy,

Meanwhile, South Korea is experiencing an outbreak of MERS second in size only to that in Saudi Arabia, where it originated in 2012, with 10 dead and 122 confirmed cases so far. Some 3,000 people are reported to have been quarantined to-date.

A Wall Street Journal Real Time Economics blog post points to the potential economic impact of MERS, noting that South Korea’s $30 billion tourism industry would bear the brunt. Analysts predict the outbreak could knock off anywhere from 0.1 to 0.8 percentage points from South Korea’s annual GDP growth.

Back to that 2013 insurance survey conducted by Towers Watson. Over 30,000 votes were cast and industry execs ranked global pandemic as their most important extreme risk in the long term.

I.I.I. has facts and statistics on mortality risk here.

How to balance the risks and rewards of emerging technologies is a key underlying theme of the just-released World Economic Forum (WEF) 2015 Global Risks Report.

The rapid pace of innovation in emerging technologies, from synthetic biology to artificial intelligence has far-reaching societal, economic and ethical implications, the report says.

Developing regulatory environments that can adapt to safeguard their rapid development and allow their benefits to be reaped, while also preventing their misuse and any unforeseen negative consequences is a critical challenge for leaders.

John Drzik, president of Global Risk and Specialties at Marsh, says:

Innovation is critical to global prosperity, but also creates new risks. We must anticipate the issues that will arise from emerging technologies, and develop the safeguards and governance to prevent avoidable disasters.”

The growing complexity of new technologies, combined with a lack of scientific knowledge about their future evolution and often a lack of transparency, makes them harder for both individuals and regulatory bodies to understand.

But the current regulatory framework is insufficient, the WEF says. While regulations are comprehensive in some specific areas, they are weak or non-existent in others.

It gives the example of two kinds of self-flying aeroplane: the use of autopilot on commercial aeroplanes has long been tightly regulated, whereas no satisfactory national and international policies have yet been defined for the use of drones.

Even if the ramifications of technologies could be foreseen as they emerge, the trade-offs would still need to be considered. As the WEF says:

Would the large-scale use of fossil fuels for industrial development have proceeded had it been clear in advance that it would lift many out of poverty but introduce the legacy of climate change?”

Geopolitical and societal risks dominate the 2015 report. Interstate conflict with regional consequences is viewed as the number one global risk in terms of likelihood, with water crisis ranking highest in terms of impact.

The report also provides analysis related to global risks for which respondents feel their own region is least prepared, as highlighted in this infographic:


The report was developed with the support of Marsh & McLennan Companies and Zurich Insurance Group and with the collaboration of its academic advises: the Oxford Martin School (University of Oxford), the National University of Singapore, the Wharton Risk Management and Decision Processes Center (University of Pennsylvania), and the Advisory Board of the Global Risks 2015 report.

Despite regulatory challenges, privacy concerns and a lack of capabilities that could stall their widespread use, drones could have a significant impact on the property/casualty industry.

recent report from IT firm Cognizant suggests that commercial and personal lines insurers that cover property risks are likely to be early adopters of drone technology. Hat tip to Claims Journal which reports on this story here.

For example, a property adjuster or risk engineer could use a drone to capture details of a location or building, and obtain useful insights during claims processing or risk assessments, Cognizant says.

Drones could also be deployed to enable faster and more effective resolution of claims during catastrophes.

Crop insurance is another area where drones could be used – not only to determine the actual cultivatable land, but also during the claims process to understand the extent of loss and the actual yield, reducing the potential for fraudulent claims.

The findings come amid recent reports that several home and auto insurers are considering the use of UAVs.

The Association for Unmanned Vehicle Systems International predicts that within 10 years (2015 to 2025) drones will create approximately 100,000 new jobs and around $82 billion in economic activity, the report notes.


Cognizant believes now is the time for insurers to consider the opportunity that drone technology presents, especially in the areas of claims adjudication, risk engineering and catastrophe claims management:

With drones poised for commercial use, insurers could use them specifically to help reduce operational costs and gather better-quality information. This could help improve the productivity, efficiency and effectiveness of field staff (e.g. claims adjusters and risk engineers), and improve the customer experience by resolving claims faster, especially during catastrophic events.”

Cognizant goes on to note that drone enhancements such as artificial intelligence, augmented reality and integrating audio, text and video already exist in some shape or form. Insurance carriers should expect to see the adoption of drones increase significantly as these features are integrated into standard drones, and as regulations for commercial use of drones are defined.

It concludes:

As insurance carriers build business and technology use cases and the necessary architecture and services, they must consider not only how and where drone technology fits into their digital roadmap but also how the operating model can be enhanced to deliver optimal benefits for the business and its customers.”

Unmanned aerial vehicles (UAV), otherwise known as drones, appear to be moving closer to commercial application, and property/casualty insurers are getting involved.

On the one hand, insurers are looking at ways to use this emerging technology to improve the services they provide to personal policyholders, at the same time they are assessing the potential risks of commercial drone use for the businesses they insure.

The Chicago Tribune this week reported that several home and auto insurers are considering the use of UAVs, and at least one has sought permission from the Federal Aviation Administration (FAA) to research the use of drones in processing disaster claims.

According to Sam Friedman, research team leader at Deloitte, drone aircraft could be the next mobile tech tool in claims management.

In a post on PC360.com, Friedman says that sending a drone into a disaster area would enable insurers to deliver more timely settlements to policyholders and spare adjusters from being exposed to the hazards of inspecting catastrophe claims in disaster areas.

Commercial insurers also have a huge stake in the drone business. In a recent post on WillisWire, Steve Doyle of Willis Aerospace, says businesses need to consider UAV risk issues such as liability and privacy:

Risk managers for organizations that could potentially gain considerable competitive advantage from eyes in the sky should consider the risk issues now so they are ready to advise their organizations as UAV options broaden.”

Insurance is not the only industry eyeing commercial applications. Agriculture, real estate, oil and gas, electric utilities, freight delivery, motion pictures, to name a few are seen as major potential markets for UAVs.

A recent report by IGI Consulting predicts that U.S. sales of UAVs could triple to $15 billion in 2020 from $5 billion in 2013.

However, the broader commercial use of drones in the U.S. will depend on federal regulators developing appropriate rules. In September the Federal Aviation Administration (FAA) gave the go-ahead for six TV and movie production companies to use drones for filming.

In his WillisWire post, Doyle notes that regulation is a key element to the successful widespread development of the drone industry in the U.S. given the complexities of the liability environment, the crowded skies over metropolitan areas, and the variety of UAVs and their uses.

One thing’s for sure, when UAV use takes off in the U.S., insurers are ready to support this emerging technology both as risk takers and risk protectors.

The recent disclosure of a major data breach at retailer Home Depot has once again put the spotlight on the increasing vulnerability of businesses to cyber threats and the need for cyber insurance.

But companies are uncertain of how much insurance coverage to acquire and whether their current policies provide them with protection, according to a new report by Guy Carpenter.

It speculates that one of the roots of the uncertainty stems from the difficulty in quantifying potential losses because of the dearth of historical data for actuaries and underwriters to model cyber-related losses.

Furthermore, traditional general liability policies do not always cover cyber risk, Guy Carpenter says.

It notes that in the United States, ISO’s revisions to its general liability policy form consist primarily of a mandatory exclusion of coverage for personal and advertising injury claims arising from the access or disclosure of confidential information.

Though still in its infancy the cyber insurance market potential is vast, Guy Carpenter reports. It cites Marsh statistics estimating that the U.S. cyber insurance market was worth $1 billion in gross written premiums in 2013 and could reach as much as $2 billion this year.

The European market is currently a fraction of that, at approximately $150 million, but could reach as high as EUR900 million by 2018, according to some estimates.

Guy Carpenter also warns that cyber attacks are now top of mind for governments, utilities, individuals, medical and academic institutions and companies of all sizes, noting:

Because of increasing global interconnectedness and explosive use of mobile devices and social media, the risk of cyber attacks and data breaches have increased exponentially.”

Cyber attacks also present a set of aggregations/accumulations of risk that spread beyond the corporation to affiliates, counterparties and supply chains, it adds.

Check out the I.I.I. paper on this topic: Cyber Threats: The Growing Risk.

Sporting organizations around the world and their liability insurers have to be keeping a close eye on the latest developments in a multi-million dollar settlement which will see the National Football League (NFL) pay out an uncapped amount to compensate retired football players suffering from certain severe concussion-related neurological conditions.

A federal judge approved the preliminary revised settlement yesterday after the original $765 million settlement proposed by the NFL was rejected by U.S. District Court Judge Anita B. Brody in January over concerns that the amount would not be enough to cover the claims from more than 20,000 retired players over the 65-year life of the settlement.

Concerns have been growing over the risks of sports-related concussions in recent years since the filing of the first lawsuits by injured professional football players against the NFL in 2011.

Young people participating in a range of sports including soccer, basketball and ice hockey are also affected. The Centers for Disease Control and Prevention estimates that 173,285 sports- and recreation-related traumatic brain injuries (TBI), including concussions, among children and adolescents are treated in U.S. emergency rooms annually.

The New York Times reports that despite being uncapped, the new settlement does allow the NFL to contest an unlimited number of requests for awards by retired players as a way to prevent fraudulent claims.

Retired players will receive packets explaining the terms of the settlement over the coming weeks and players will be deemed to be in favor of the deal unless they opt out, which would preserve their legal rights, the NYT says. They can also object to parts of the deal.

A fairness hearing on the settlement is scheduled for November 19 in Philadelphia.

The settlement provides for a $75 million baseline assessment program that will offer all retired NFL players baseline neuropsychological and neurological evaluations to determine the existence and extent of any cognitive defects.

The 65-year monetary award fund will award cash to retired NFL players who already have a qualifying diagnosis or receive one in the future.

The court order details potential awards for qualifying diagnoses of up to $3.5 million for neurocognitive impairment, $3.5 million for Alzheimer’s Disease and Parkinson’s Disease, $5 million for amyotrophic lateral sclerosis (ALS), and $4 million for players who die with chronic traumatic encephalopathy.

The awards may be reduced based on a retired player’s age at the time of diagnosis, the number of NFL seasons played, and other offsets outlined in the settlement.

Business Insurance reports that the settlement approval notes that players who receive awards from the NFL fund are not required to release claims against the NCAA (National Collegiate Athletic Association) or any other amateur football organizations for concussion claims.

A 2013 article by then National Underwriter reporter Chad Hemenway provides invaluable insight into sports-related traumatic brain injuries and how the legal fallout may change the way sports are insured.

Check out I.I.I. facts and stats on sports injuries.

American businesses lose an average of 2.8 million work days each year due to unplanned absences, costing employers more than $74 billion, so it’s with interest that we read of a significant increase in absence due to obesity and skin cancer in a just released study by Cigna.

According to Cigna’s analysis of 20 years of short-term disability claims, claims related to obesity increased by 3,300 percent between 1993 and 2012.

In 1993, obesity ranked 173 out of 267 diagnostic drivers of absence, accounting for 0.04 percent of claims that year. By 2012, obesity had jumped 133 places to number 40 on the list, accounting for 0.70 percent of claims.

Hat tip to Business Insurance which reports on this story here.

Cigna also reports that new claims and absence related to skin cancer increased more than 300 percent in the 20-year period.

Between 1993 and 2012, skin cancer jumped from 91 to 27 on the list of diagnostic drivers of absence, and its share of claims had increased to 0.9 percent in 2012, up from 0.2 percent in 1993.

The analysis also shows a 45 percent increase in work absence due to the surgical treatment of herniated discs, the most significant increase in short-term disability claims among sedentary occupations over the 1993 to 2012 period.

Cigna notes that the most frequently approved short-term disability claims both 20 years ago and today, remain musculoskeletal disorders, which make up 25 percent of all non-maternity absence.

In a press release, Dr Robert Anfield, chief medical officer for Cigna’s disability insurance unit says:

The aging workforce and a trend towards growing waistlines has made some medical conditions more dominant factors for short-term disabilities than they were 20 years ago. For example, arthritis and tendonitis-related absences have both increased more than 50 percent since 1993.”

However, the study found significant changes in short-term disability rates for obesity, cancer, depression and herniated discs that uncover the impact of medical advances on absence and productivity.

Check out I.I.I. facts and statistics on disability.

Check out an I.I.I. study on obesity, liability and insurance here.

The number of countries with downgraded political risk ratings grew in the last year, as all five emerging market BRICS countries (Brazil, Russia, India, China, South Africa) saw their risk rating increase, according to Aon’s 2014 Political Risk Map.

As a result, countries representing a large share of global output experienced a broad-based increase in political risk including political violence, government interference and sovereign non-payment risk, Aon said.

The 2014 map shows that 16 countries were downgraded in 2014 compared to 12 in 2013. Only six countries experienced upgrades (where the territory risk is rated lower than the previous year), compared to 13 in 2013.

Aon noted that Brazil’s rating was downgraded because political risks have been increasing from moderate levels as economic weakness has increased the role of the government in the economy.

This is of particular concern given this year’s World Cup and the 2016 Olympics.”

Russia’s rating was also downgraded due to recent developments with the Ukraine and the annexation of Crimea.

Aon said:

Political strains and focus on geopolitical issues have exacerbated an already weak operating environment for business and exchange transfer risks have increased following the risk of new capital controls. Russia’s economy continues to be dominated by the government, so economic policy deadlock has brought growth to a standstill and with it an increase in the risk of political violence.”

India, China and South Africa also saw their ratings downgraded.

In another key takeaway Aon noted that Ukraine is now rated a very high risk country, as the implications of developments following the annexation of Crimea by Russia and government collapse warranted a further downgrade in political risk.

Exchange transfer risks, which are already very high will be further increased by restrictions in the financial system, Further, the willingness and ability of the country to settle its debts may be affected.”

The map measures political risk in 163 countries and territories, in order to help companies assess and analyse their exposure to exchange transfer, legal and regulatory risk, political interference, political violence, sovereign non-payment and supply chain disruption.

Hat tip to Insurance Journal which reports on this story here.

Emerging risks that risk managers expect to have the greatest impact on business in the coming years could be on the cusp of a changing of the guard, according to an annual survey released by the Society of Actuaries.

It found that the risk of cyber attacks and rapidly changing regulations are of growing concern to risk managers around the world, and may be slowly replacing the risk of oil price shock and other economic risks which were of major concern just six years ago.

Some 47 percent of risk managers saw cyber security as a significant emerging risk in 2013, up seven points from 40 percent in 2012.

The SOA noted that this perceived risk predates recent cyber security events (read: the December 2013 Target breach) that have opened up new corporate data security vulnerabilities. The online survey of 223 risk managers was conducted in October 2013.

Regulatory framework/liability regimes was also perceived to be an emerging risk of impact by 23 percent of risk managers, an increase of 15 points from just eight percent in 2012.

The survey noted that as the regulatory framework takes shape post-financial crisis, risk managers are currently trying to implement voluminous and changing regulations on short time frames with: limited additions to staff; and regulators who often have limited understanding of risk tools.

Just 33 percent of risk managers said economic risks – such as oil price shock, devaluing of the U.S. dollar, and financial volatility – will have the greatest impact over the next few years, versus an all-time high of 47 percent in 2009.

In fact, the economic risk category is at an all-time low in 2013, the SOA said.

Hat tip to The Wall Street Journal’s CFO Report which reported on the survey here.

Next Page »