Category Archives: Emerging Risks

Samsung Recall Underscores Emerging Tech Fire Risks

A formal recall by US safety regulators of the Samsung Galaxy Note 7 smartphone due to serious fire and burn hazards should put users on notice to power down and stop using their devices immediately and return them for a free replacement or refund.

Samsung has received 92 reports of batteries overheating in the United States, including 26 reports of burns and 55 reports of property damage, including fires in cars and a garage.

In its warning, the Consumer Product Safety Commission (CPSC) states:

“The lithium-ion battery in the Galaxy Note7 smartphones can overheat and catch fire, posing a serious burn hazard to consumers.”

The recall covers 1 million phones in the U.S., but some 2.5 million of the devices need to be recalled globally, Samsung said.

It follows a Federal Aviation Administration (FAA) brief last week urging passengers not to use Samsung Galaxy Note 7 devices on planes, nor to stow them in their checked luggage.

As the Wall Street Journal reported, identifying a specific brand or model as a potential hazard is a highly unusual move for the FAA, though agency officials previously issued warnings about the overall dangers of checking any kind of cellphones, other battery-powers electronic devices or spare batteries in the holds of planes.

Following the FAA announcement, Samsung accelerated its massive recall.

The cost of the recall to Samsung have been estimated at about $1 billion, but the costs in terms of the hit to market value, tarnished brand and reputation, and lost revenues, as well as opportunity cost could be much higher, as Forbes reports. (Note: Apple’s new iPhone 7 goes on sale today)

From the insurance perspective, the story does underscore broader concerns over increased fire risks from lithium-ion batteries.

As this National Fire Protection Association blog post explains:

“Rechargeable lithium batteries overheat more than any other type of batteries and tend to have manufacturing defects. They are also very poorly regulated. The low weight batteries house substantial energy and fit into smaller devices, but have been causing fire safety issues in smart phones, tablets, hover boards and other emerging tech devices that are popular with the buying public.”

The homeowners line of business saw the majority of fire losses in 2014, according to Insurance Information Institute facts and statistics on fire losses here.

The risks of lithium batteries are also on the radar of commercial insurers. FM Global has partnered with fire protection groups to research the fire hazards of lithium-ion batteries in warehouse storage and cargo containers, for example.



Growth Potential of Sharing Economy, and Insurance

If, like me, you’ve taken a ride to the airport with Uber, or looked into renting a holiday home via Airbnb, did you take a moment to think about your insurance coverage?

If the answer to that question is “no,” you’re not alone.

A recent public opinion survey from the Insurance Research Council (IRC) found that 56 percent of all adult Americans who said they have participated in the sharing economy indicated that they did not consider their insurance coverage at the time.

This is despite the fact that more than half of all respondents said that the sharing economy exposes the general population to increased risk.

Some 71 percent of respondents to the same survey reported little familiarity with the sharing economy, with 46 percent saying they were “not at all familiar” with the sharing economy, while 25 percent reported being “not too familiar.”

Survey respondents gave numerous reasons for not participating in the sharing economy. Unfamiliarity was cited most frequently (65 percent), while lack of need was cited by 60 percent and lack of interest by 54 percent.

However, a lack of insurance was the least cited reason for not participating.

Elizabeth Sprinkel, senior vice president of the IRC, noted:

“The substantial number of people with little experience or familiarity with the sharing economy suggests tremendous growth potential in the years ahead.”

And for insurers, too, we would add.

Check out a recent Insurance Information Institute (I.I.I.) presentation on the role of insurance in the sharing economy.

Other I.I.I. resources include information on car sharing and peer-to-peer car rental insurance as well as peer-to-peer home rental and homeowners insurance.

The IRC report, The Sharing Economy: Public Participation and Views, presents findings from an online survey conducted by GfK Public Affairs & Corporate Communications on behalf of the IRC.

A total of 1,105 online interviews were conducted for the study, using a sample drawn from GfK’s Knowledge Panel. Survey data were weighted to the U.S. population of adults aged 18 and above.

Emerging Risk: the Internet

We think of the Internet as a borderless entity, but that could all change, according to an annual emerging risk report from Swiss Re.

The publication is based on the SONAR process, an internal crowdsourcing tool that collects inputs and feedback from underwriters, client managers, risk experts and others to identify, assess and manage emerging risks.

Increased localization of internet networks within country borders is one of the key emerging risks that industry players should prepare for, the report suggests.

It notes that as cybercrime has grown rapidly, so the Internet has become less safe and governments are instituting more regulation, requiring companies to protect their online assets more effectively and to store data on servers physically located within their geographical borders.

Some countries are even using special software to filter out unwanted information, firewalls and isolated IT infrastructure detached from global networks, Swiss Re reports.

“A step further in this direction is the design and development of internet protocols which make certain communications impossible. In China, for instance, the government already controls all Internet content as well as the physical infrastructure.”

While no international consensus has emerged yet on how the internet should be governed, the report reveals that there is a chance that disconnected national and regional nets will become more common.

As Swiss Re says:

“Such developments would increase IT costs and regulation and would hurt insurance companies operating across borders.”

In particular, the report highlights that evolving regulation would increase operational risk and could trigger more liability claims in the directors and officers (D&O) and fidelity arena, as well as massively increasing costs for setting up and maintaining separate legal structures.

Another concern is that technology companies may face liability suits from customers if they are no longer able to access data stored on cross-border servers.

Where Insurance Meets Transgender Rights

Both as assumers of risk and as employers, insurers are in a unique position when it comes to navigating the changing legal environment and civil rights.

Recent federal and state rulings pertaining to the rights of transgender individuals raise a number of issues, and there are potential insurance implications to consider.

In March North Carolina passed a controversial law (HB 2) requiring transgender individuals to use public bathrooms that correspond to their gender at birth. This led the U.S. Justice Department to send a letter to North Carolina leaders saying the law violates the U.S. Civil Rights Act and Title IX.

More than 150 CEOs and business leaders of major companies voiced their opposition. PayPal withdrew its plans for a $3.6 million investment and 400 jobs in the Tar Heel state.

Also in April, in a landmark ruling on transgender students’ rights in schools, the Fourth Circuit Court of Appeals in Virginia decided that the U.S. Department of Education can prohibit anti-transgender discrimination under Title IX, a federal law that prohibits sex discrimination in education. (G.G. v Gloucester County School Board)

In the wake of this ruling, President Obama issued a directive instructing public schools to allow transgender students to use the restroom that matches their gender identity.

Meanwhile, several federal agencies have issued strong opinions on the issue of discrimination and transgender rights, for example:

—The U.S. Department of Health and Human Services has ruled that hospitals, clinics and other healthcare providers cannot discriminate against patients on the basis of gender identity.

U.S. Attorney General Loretta Lynch has made clear that laws restricting restroom access that affect transgender individuals are discriminatory.

—The Departments of Justice and Education issued a joint letter to public schools explaining how federal law prohibiting sex discrimination affects schools’ obligations toward transgender students.

—The U.S. Equal Employment Opportunity Commission (EEOC) has sued several employers over their treatment of transgender employees, including restroom access, on the basis that alleged conduct violates Title VII of the Civil Rights Act of 1964, which prohibits sex discrimination, i.e.. employment discrimination based on gender identity or sexual orientation.

While this is an evolving area of law and liability for businesses and municipalities everywhere, insurers—and the policies they write—will no doubt be implicated.

Industry experts say it’s critical that businesses find out what their state or municipality has enacted on this issue and establish a coherent nondiscriminatory policy to minimize their own liabilities.

In a recent PodCast with A.M. Best on the legal issues surrounding transgender restroom access Brian Cafritz, a partner at Kalbaugh, Pfund & Messersmith Law P.C. said there could be potential implications for commercial general liability policies that cover slander, defamation, assaults, or other discrimination acts.

Cafritz also noted that as federal laws change, negligent hiring or retention claims could be raised impacting the insurance policies that cover these entities.

School districts and municipalities in particular face rising potential liability. A recent brief by Munich Re noted that policy coverage that might be impacted by transgender litigation against school personnel include:

—General liability: physical bodily injury and/or mental anguish, mental injury

—Personal Injury: defamation of character, violation of privacy rights

—Wrongful Acts – tortious error, act or omission

Workplace issues as they relate to transgender employees was a topic of discussion at the recent RIMS conference session, as reported by Business Insurance.

Commercial Insurance Market: Generally Favorable For Buyers

Ample capacity and continued competition are expected to continue to put near term downward pressure on insurance rates in major classes of commercial property/casualty business, according to Marsh.

However, industry developments including recent earnings announcements, senior management changes and re-underwriting at several companies bear watching, said Marsh in its just-released U.S. Insurance Market Report.

Marsh’s analysis put average rate decreases in the fourth quarter of 2015 at between 5 percent and 10 percent for non-catastrophe exposed risks and by between 5 percent and 15 percent for moderately catastrophe-exposed risks.

Likewise, U.S. public company directors and officers (D&O) insurance rates were on average flat to down 10 percent in the fourth quarter, while U.S. commercial general liability rates on average renewed at between 10 percent rate decreases and 5 percent increases.

Amid the rate decreases across most classes of business, cyber insurance bucked the trend.

Typical cyber rate increases in the first half of 2015 were 10 percent to 15 percent over the prior year.

However, the retail and healthcare sectors, which have seen some of the costliest data breach events, saw increases ranging from 45 percent to 55 percent and 15 percent to 25 percent, respectively.

Marsh noted that demand for cyber insurance rose in 2015–a trend expected to continue in 2016.

Despite the overall pattern of soft pricing, amid ample capacity, competition and relatively low catastrophe losses, Robert Bentley, president of Marsh’s U.S. and Canada division warned that now is not the time to be complacent:

Organizations need to stay abreast of the ever-changing marketplace and risk landscape, where new and emerging risks can quickly escalate if not properly managed.”

More information on the cyber insurance market can be found in the Insurance Information Institute  white paper Cyber Risks: Threat and Opportunities.

Modernizing Regulation Key To Insuring Sharing Economy

How free are insurers to provide the insurance products consumers want?

That’s a key question that the R Street Institute’s Insurance Regulation Report Card seeks to answer.

And it’s a very good question.

In the fourth and latest edition of the report R Street observes that regulation, in some cases, may hinder the speed with which new products are brought to market:

We believe innovative new products could be more widespread if more states were to free their insurance markets by embracing regulatory modernization.”

R Street says the most recent illustration of this challenge is seen in the different approaches individual states have taken to enable the timely introduction of commercial and personal insurance policies to cover ridesharing.

A compromise model bill to govern insurance requirements for ridesharing was announced by major representatives of the insurance industry and the burgeoning transportation network companies in March 2015.

The legislation alleviated what had been a major source of interindustry friction, R Street notes.

The model requires that:

– liability insurance with limits of $1 million be in-force any time a driver either is actively transporting a customer or en route to pick up a fare.

– any other time the driver is logged in to the TNC service, he or she must have coverage with minimum liability limits of $50,000 per passenger, $100,000 per incident and $25,000 for physical damage liability.

R Street writes:

The model would permit coverage to be procured either by the driver or the TNC,   expressly stipulates that it may be provided by the surplus lines market, preserves insurers’ right to exclude coverage and encourages states to approve new products to cover this emerging risk.”

Signatories to the compromise include Allstate, the American Insurance Association, Farmers Insurance, Lyft, the National Association of Mutual Insurance Companies, the Property Casualty Insurers Association of America, State Farm, Uber Technologies and USAA.

The report notes that in April 2015, Georgia became the first state to pass the compromise model ridesharing bill. The measure, H.B. 190, took effect January 1, 2016.

Have more questions? Check out the Insurance Information Institute’s (I.I.I.) Q&A on Ridesharing and Insurance.

An I.I.I. issues update on regulation modernization is available here.

U.S. Elections Add to Growing Political Risks Businesses Face

The 2016 U.S. presidential election is one of the rising political risks facing businesses and investors in the year ahead, according to Marsh’s Political Risk Map 2016.

Terrorism and struggling emerging economies, such as China and Russia, are also among the growing political risks businesses face.

Marsh notes that the recent terrorist attacks in Paris and San Bernardino, California have intensified political rhetoric and brought foreign relations and defense policy topics to the forefront.

With polls showing national security to be a major concern for voters, foreign policy will remain a key theme on the campaign trail in 2016 – and will be top of mind for the next presidential administration.”

Marsh observes that in the last decade multinational organizations have undertaken unprecedented international expansion, leaving them exposed to global credit and political risks like never before.

And those risks–including terrorism and political violence, armed conflicts, increasingly powerful anti-establishment political movements, and persistently low commodity prices–continue to grow.

Against this backdrop, it’s critical for businesses to be prepared for the possibility that political violence, unrest, or other large- scale crises will quickly develop in virtually any part of the world – including those countries that were historically seen as safe or stable, Marsh says.

Companies can prepare for these risks by managing their credit risk, building resilient supply chains, protecting their people and by protecting their assets through insurance.

Marsh notes:

Credit and political risk insurance can protect against a variety of risks, including expropriation, political violence, currency inconvertibility, non-payment, and contract frustration.”

Marsh’s Political Risk Map 2016, with data and insight from BMI Research, presents country risk scores for more than 200 countries and territories, helping businesses and investors make smarter decisions about where and how to deploy financial resources–including risk capital–globally in 2016 and beyond.

Another Day, Another Hack

As if we needed another reminder of the rising threat of cyber attacks, the estimated EUR 50 million ($55 million) loss arising from a cyber fraud incident targeting Austrian air parts supplier FACC AG made us sit up and take notice.

As Bloomberg reports here, if the damages do indeed amount to $55 million this would be one of the biggest hacking losses by size.

Bloomberg also points out that the incident is made more intriguing because FACC is 55 percent owned by China-based AVIC.

It will take time for the  details of this attack to emerge, but in a January 20 press release, FACC acknowledged that the target of the cyber fraud was the financial accounting department of FACC Operations GmbH.

The company also noted that its IT infrastructure, data security, IP rights and the group’s operational business are not affected by the criminal activities.

Further, FACC said the $55 million in damage was an outflow of “liquid funds”.

“The management board has taken immediate structural measures and is evaluating damages and insurance claims,” FACC added in its third quarter report.

According to this report by, the fact that FACC’s financial accounting department was targeted in the fraud is prompting speculation that the company was likely the victim of a so-called whaling attack, also known as business email compromise (BEC) and CEO fraud.

These sophisticated phishing attacks are when cyber criminals send fake email messages from company CEOs, often when a CEO is known to be out of the office, asking company accountants to transfer funds to a supplier. In fact the funds go to a criminal account.

Last year, the Federal Bureau of Investigation (FBI) described BEC fraud as an emerging global threat.

Since the FBI’s Internet Crime Complaint Center (IC3) began tracking BEC scams in late 2013, more than 7,000 U.S. companies have been targeted by such attacks with total dollar losses exceeding $740 million. If you consider  non-U.S. victims  and unreported losses, that figure is  likely much  higher.

The rising incidence of BEC and CEO fraud and its intersection with cyber insurance will form the topic of a future blog post.

Both the WEF Global Risks Report 2016 and the Allianz Risk Barometer 2016 have identified cyber attacks and incidents among the top risks facing business.

Find out more about cyber risks and insurance in the I.I.I. white paper Cyber Risk: Threat and Opportunity.

IoT and Insurers of Things

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.


Rising Concerns Over Next Global Pandemic

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.