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Unintended Consequences of Technology Will Define 2017 Casualty Insurance Market

by Precise Leads

March 10, 2017

A new report from Marsh underscores the disruption that new technologies have brought to the insurance world.

At the beginning of January, Marsh’s U.S. Casualty Practice released a report on new insurance market trends to keep an eye on. Though the report addressed topics ranging from interest rates to underwriting discipline, the common denominators of the report were new technologies and increased global connectedness.

A Connected World Means Connected Risk

Marsh’s report tells a cautionary tale about the potential expansion of interconnected risk, a result of decades of globalization exacerbated by the recent smart-tech revolution. Because of the exponential growth and adoption of these new, interconnected technologies, insurers are far more susceptible to “ripples” of risk which can spread across insurance lines and diverse technologies.

In particular, the report mentions the notorious DDoS attack of October 2016 that took advantage of unprotected, connected devices (such as printers, cameras, and routers) and blocked access to a number of popular websites. As a result, insurers can expect to see cyber insurance policies continue to become more widespread, but the risks won’t stop there. Because more and more technologies are web-enabled, it’s possible for cyber risks to send shockwaves into heavy industry liability claims and auto insurance. Moving forward, it’s reasonable to assume that the boundaries between traditional liability and cyber insurance policies will continue to blur.

To better handle the risks posed by an increasingly interconnected world, some insurers are developing predictive modeling tools which help them to gauge their capacity for assuming risk. For instance, Aon recently released a Brexit risk assessment tool, which intends to address the uncertainty which currently floods the EU liability market.

New Technologies Will Continue to Disrupt

New technologies won’t just spur sales of cyber insurance policies, however. These innovations are radically changing the insurance industry, and these changes receive a good amount of attention in the Marsh report.

First, these new technologies require new types of policies and risk mitigation structures. The advent of self-driving cars and drones, for example, has forced insurers to think differently and reassess how their products are designed.

Smart cars, for instance, may reduce the number of accidents (an estimated 90% of driverless vehicle accidents are the result of human error), but they are also expensive machines filled with complex technologies. Because the industry standard has relied on driving history to determine premium rates, auto insurers have been perplexed by self-driving cars — some have experimented with calculating risk on the basis of the manufacturers involved in each car model’s design.

Additionally, insurtech startups have caused a significant amount of hand-wringing among traditional insurers, not to mention some changes in the structure and behavior of insurance companies. New York City newcomer Lemonade is a particularly prominent newcomer, a peer-to-peer insurance providers that relies extensively on smartphones to process claims almost immediately after they’re made by policyholders. The Marsh report predicts that technology will continue to expedite the claims process and make the assessment of data more dynamic.

Ultimately, the biggest trends to keep an eye on relate to claims processing, data management, risk assessment, and client relations — and various new technologies are encouraging insurers to become much more proactive in their approach to designing simplified product offerings and meeting new client needs. While these innovations are certainly beneficial for insurance agencies and policyholders alike, the report also reminds providers that these changes must be handled carefully in the upcoming year.

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