Entries tagged with “Tech”.


The financial impact of cyber exposures is close to exceeding those of traditional property, yet companies are reluctant to purchase cyber insurance coverage.

These are the striking findings of a new Ponemon Institute  survey sponsored by Aon.

Companies surveyed estimate that the value of the largest loss (probable maximum loss) that could result from theft or destruction of information assets is approximately $617 million, compared to an average loss of $648 million that could result from damage or total destruction of property, plant and equipment (PP&E).

Yet on average, only 12 percent of information assets are covered by insurance. By comparison, about 51 percent of PP&E assets are covered by insurance.

The survey found that self-insurance is higher for information assets at 58 percent, compared to 28 percent for PP&E.

In some ways, these results are not surprising.

Cyber insurance is a relatively new product, and while interest continues to increase, it will take time for the purchase rate to catch up with traditional insurances.

That said, the values at stake are enormous and as the report states, the likelihood of loss is higher for information assets than PP&E.

Another important takeaway from the survey is that business disruption has a much greater impact on information assets ($207 million) than on PP&E ($98 million).

This suggests the fundamental nature of probable maximum loss (PML) varies considerably for intangible assets vs. tangible assets, Ponemon says.

Business disruption represents 34 percent of the PML for information assets, compared to only 15 percent of the PML for PP&E.

A footnote states that while the survey results suggest PML in the neighborhood of $200 million, a growing number of companies are using risk analysis and modeling to suggest potential losses in excess of $500 million to over $1 billion and seek cyber insurance limit premium quotes and policy terms for such amounts.

More information on the growth in cyber insurance is available from the I.I.I. here.

Some 2,243 individuals involved in cyber and enterprise risk management at companies in 37 countries responded to the Ponemon survey.

Everyone wants to talk about autonomous vehicles, and for proof I.I.I. chief actuary Jim Lynch offers the AIPSO Residual Market Forum, at which he spoke in mid-April.

AIPSO manages most of the automobile residual market, where highest risk drivers get insurance. Each state has a separate plan for handling risky drivers and AIPSO services most of them in one way or another, acting as the linchpin in the $1.4 billion market, about 0.7% of all U.S. auto insurance written in 2013, according to Auto Insurance Report.

Though small, the residual market is important, but it’s not an area that would naturally lend itself to discussing the self-driving car. If cars could drive themselves, of course, there wouldn’t be much of a residual market.

Even so, I was one of three speakers at the forum’s panel exploring industry trends, and at AIPSO’s request, all three of us touched on autonomous cars.

Though he spoke last, Peter Drogan, chief actuary at AMICA Mutual Insurance, probably did the best job of laying out the future technology and some of its challenges. Particularly spooky was a 60 Minutes clip in which a hacker took over a car Lesley Stahl drove over a parking lot test course. She wasn’t driving fast, but she couldn’t stop after the hacker took over the brakes of her car.

Karen Furtado, a partner at Strategy Meets Action, a consultancy that helps insurers plan for the future, laid out the case for disruption. Autonomous vehicles will not only make vehicles safer, they will change driving habits. Fewer cars will be on the road, and more people will share them, summoning self-driving vehicles through ride-sharing apps, all of which could potentially shrink the $180 billion auto insurance market.

I’ve made my thoughts clear before, both in this blog and elsewhere: the technology will change driving forever, but it takes about three decades for auto technology to become common on roadways, giving insurers a lot of time to adjust. And some coverages, like comprehensive, will not be affected, as they protect cars when they aren’t in accidents.

A PowerPoint of my presentation is posted here.

I.I.I. chief actuary Jim Lynch looks into the future of self-driving cars:

I wrote about autonomous vehicles and insurance for the March/April edition of Contingencies magazine.

I argue that while the safety improvements will reduce the number of automobile accidents, any predictions of the end of automobile insurance look overblown today.

The first cars to drive themselves will only do so for a few minutes at a time – far from the curbside-to-curbside Dream Vehicle that gets most of the media attention. Any new auto technology takes two or three decades to cascade from a pricey option on luxury vehicles to standard equipment found on every used Chevy.

The slow rollout means claim frequency – the number of claims per hundred vehicles – is likely to decline over the next few decades at about the same rate as it has over the past five decades, giving insurers plenty of time to adapt, just as they have since the first policy was issued in Dayton, Ohio, in the 1890s.

Here is an excerpt:

The property/casualty industry will react as it has for decades, as regulation and innovation have made auto, products and the workplace safer. The impact will be carefully measured by actuaries, who will adjust rates as the innovations prove out. Insurers will find new coverages that customers will want.

The Dream Vehicle will change auto insurance, sure, but it won’t destroy it.”

The I.I.I. has an Issues Update on Self-Driving Cars and Insurance.

Much hay is being made of an apparent decline in the number of identity theft victims and losses, amid an ongoing number of significant data breaches.

The headlines follow release of the 2015 Identity Fraud Study by Javelin Strategy & Research. The study found that there were 12.7 million identity fraud victims in 2014, down 3 percent from the near record high of 13.1 million victims in 2013.

At the same time, some $16 billion was stolen from fraud victims in 2014, an 11 percent decline from $18 billion in 2013. Javelin attributes the decrease to the combined efforts of industry, consumers and monitoring and protection systems that are catching fraud more quickly.

As we know, 2014 saw a number of major data breaches, notably from retailers Home Depot, Neiman Marcus, Staples and Michael’s as well as financial institutions such as JP Morgan Chase.

But lest you think that the swift response to data breaches has nullified the identity theft threat, think again.

Javelin found that two-thirds of identity fraud victims in 2014 had previously received a data breach notification in the same year. Also, individuals whose credit or debit cards were breached in the past year were nearly three times more likely to be an identity fraud victim.

Meanwhile, identity theft just topped the Federal Trade Commission’s (FTC) national ranking of consumer complaints for the third consecutive year, accounting for 13 percent of all complaints.

Government documents/benefits fraud (39 percent) was the most common form of reported identity theft, followed by credit card fraud (17 percent), phone or utilities fraud (13 percent), and bank fraud (8 percent), the FTC said.

Whether or not identity theft is caused by a data breach (remember, stolen laptops, wallets, dumpster diving, phishing scams are some of the most common causes of identity theft), or whether an individual even knows how their information was compromised (many don’t), it’s important to stay vigilant to this threat.

A 3 percent decline in identity fraud victims in one year isn’t much. As Al Pascual, director of fraud & security at Javelin notes:

Despite the headlines, the occurrence of identity fraud hasn’t changed much over the past year, and it is still a significant problem.”

Wondering if your homeowners insurance policy includes coverage for identity theft? Check out these useful tips from the I.I.I.

Measures and methods widely used in the financial services industry to value and quantify risk could be used by organizations to better quantify cyber risks, according to a new framework and report unveiled at the World Economic Forum annual meeting.

The framework, called “cyber value-at-risk” requires companies to understand key cyber risks and the dependencies between them. It will also help them establish how much of their value they could protect if they were victims of a data breach and for how long they can ensure their cyber protection.

The purpose of the cyber value-at-risk approach is to help organizations make better decisions about investments in cyber security, develop comprehensive risk management strategies and help stimulate the development of global risk transfer markets.

Among the key questions addressed by the cyber value-at-risk model concept are: how vulnerable are organizations to cyberthreats? how valuable are the key assets at stake? and, who might be targeting them?

The proposed framework is part of a new report, Partnering for Cyber Resilience: Towards the Quantification of Cyber Threats, that was created in collaboration with Deloitte and the input of 50 leading organizations around the world.

As the report states:

The financial services industry has used sophisticated quantitative modeling for the past three decades and has a great deal of experience in achieving accurate and reliable risk quantification estimates. To quantify cyber resilience, stakeholders should learn from and adopt such approaches in order to increase awareness and reliability of cyber threat measurements.”

One potential option, it suggests, is to link corporate enterprise risk management models to perspectives and methods for valuing and quantifying “probability of loss” common to capital adequacy assessment exercises in the financial services industry, such as Solvency II, Basel III, albeit customized to recognize cyber resilience as a distinct phenomenon.

The report points out that the goal is not to provide a single model for quantifying risk. Indeed for cyber resilience assurance to be effective, it says participants need to make a concerted effort to develop and validate a shared, standardized cyber threat quantification framework that incorporates diverse but overlapping approaches to modeling cyber risk:

A shared approach to modeling would increase confidence regarding organizational decisions to invest (for risk reduction), distribute, offload and/or retain cyber threat risks. Implicit is the notion that standardizing and quantifying such measures is a prerequisite for the desirable development and smooth operation of cyber risk transfer markets. Such developments require ERM frameworks to merge with insurance and financial valuation perspectives on cyber resilience metrics.”

 

We’re reading that self-driving cars are no longer a thing of the future, but it’s in the subhead of this Time article: how long will it be before your car no longer needs you? where the heart of the story lies.

Jason H. Harper writes of how he earned one of the first new driverless motor licenses – technically known as an “autonomous vehicle testing” permit – from the California DMV.

He then describes his chauffeured ride by a prototype Audi from Silicon Valley to Las Vegas for last week’s Consumer Electronics Show:

The car uses an array of sensors, radars and a front-facing camera to negotiate traffic. At this point, the system works only on the freeway and cannot handle construction zones or areas with poor lane markings. When the car reaches a construction zone or the end of a highway, a voice orders you to take the wheel back.”

Before taking the 550-mile road trip, Harper had to get special instruction on how not to drive, per California regulations:

The training included basics like turning the system on and off and learning the circumstances in which it could be used. The rest was about handling emergencies, such as making lane changes to avoid crashing.”

Harper says the training was far more difficult and involved than a regular driving test. However, average buyers will not need such training.

Why?

Because rollout of this technology is gradual. Audi’s program for example would allow the car to self-drive in stop-and-go highway traffic, but when traffic clears the driver takes the wheel again.

It’s at the very end of the article that a voice from academia reminds us that this approach may be no bad thing as both technology and driver acceptance need time to mature.

Dr. Jeffrey Miller, an associate professor at the University of Southern California, tells Time that in his opinion licenses and drivers will never be obsolete because “the driver will always have to take over in case of a failure.”

It’s an interesting point. From the insurance perspective, too, while self-driving cars are definitely on the way, the implications for insurers are evolving. In its issue update Self-Driving Cars and Insurance, the I.I.I. notes:

Except that the number of crashes will be greatly reduced, the insurance aspects of this gradual transformation are at present unclear. However, as crash avoidance technology gradually becomes standard equipment, insurers will be able to better determine the extent to which these various components reduce the frequency and cost of accidents.”

And:

They will also be able to determine whether the accidents that do occur lead to a higher percentage of product liability claims, as claimants blame the manufacturer or suppliers for what went wrong rather than their own behavior.”

More on auto insurance here.

If you know someone who leads an active lifestyle, you may already know what a Fitbit is. For everyone else, a Fitbit is a wearable device that tracks steps, calories, distance and even sleep.

Now it appears data from wearable devices may be admissible in court.

Forbes.com reports that a law firm in Calgary is working on the first known personal injury case that will use activity data from a Fitbit to help show the effects of an accident on their client.

According to the report, the young woman in question, who used to be a personal trainer, was injured in an accident four years ago. While Fitbits weren’t on the market back then, her lawyers believe they can use data from her Fitbit to show that her activity level has significantly decreased and is now below where it should be for someone of her age and profession.

The article suggests that “cases like this could open the door to wearable device data being used not just in personal injury claims, but in prosecutions.”

The young woman’s lawyer is also quoted saying that such data could be useful to insurers assessing questionable claims and that just as courts requisitioned Facebook for information several years ago a court order could compel disclosure of that data.

Sounds like another case where digital information has an unintended use in the courtroom.

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.

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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.