Our world is advancing at a pace that invites innovation at breakneck speed, encouraging companies to jump into untested waters. Whether it is new, disruptive technologies – such as drones – or just a new way of doing business – such as the sharing economy – the risks are not fully known. New loss-control technologies and regulations may assist companies in mitigating their exposures but companies must have a much higher level of understanding of their exposures in order to be able to outpace their competitors and survive these new-world risks.
Many of the emerging risks our bloggers are keeping an eye on this year involve just these kinds of tech-enabled innovations. But while technology may engender these risks, it is also the solution to mitigating them. Big data and predictive analytics will be instrumental to businesses seeking to capitalize on these trends and anticipate their risks.
Which of these do you think will most affect your business in the year ahead? Take our poll at the end and let us know.
Casualty – The Sharing Economy Moving into the B2B Space
by Eric Silverstein
The evolving risks associated with the so-called “sharing economy” raises the big question of liability, but additional complexities, such as regulatory issues will create new legal challenges. This sector and its risks are certainly on the insurance industry’s radar, but so far the response has not been uniform. Now, new exposures are on the horizon as these models move from the consumer space into the B2B space. New applications are being targeted to the businesses class and business professionals, and these new offerings are likely to establish more formal relationships between organizations and service providers– thereby increasing the threat. For example, an organization may be considering partnering with a rideshare program for business to save costs normally associated with car service and transportation. Or employees may be interested in using a home share service while traveling on business, rather than a company-approved hotel. While the appeal seems obvious, these types of scenarios can raise the threat level for organizations today. Regardless of convenience or demand, organizations’ primary concern should be for the safety of their employees. (Update: Read my follow-up article for guidance for companies considering these offerings.)
Workers’ Compensation – Disruptive Technology
by Sam Dutcher
The Workers’ Compensation industry is on the threshold of revolutionary changes in loss control. For example, automatic braking and lane-change technology added to vehicles can dramatically decrease vehicle accidents and injuries, and therefore loss costs. The hardware for wearable technology exists today and is economical to buy. This technology (think FitBit on steroids) can allow sensors to determine if an employee is likely to develop stress injuries or become a cumulative trauma claim sometime in the future. This enables employers to modify job duties to prevent claims, or even prescribe pre-habilitation treatment before the injury takes place. The next few years will see a revolution in the application of these loss-control capabilities. Companies that are late adaptors, or are markets of last resort, will be subject to adverse risk and/ or pricing selection. Think of the advantage Progressive Insurance gained when they implemented credit report scores as an underwriting and pricing tool for auto policies. Workers’ Compensation insurers who proactively engage their policy holders in the adoption of these advance loss control capabilities will benefit from reduced loss costs – and better priced reinsurance – long before the experience mods catch up with the loss cost improvements.
D&O — Responsibility for Cyber Exposures
by Francis Kean
The buck stops with the board – or, to put this into legalese: directors of companies cannot delegate their supervisory functions. But what if the landscape in which the company is operating is changing so radically and quickly that meaningful supervision becomes almost impossible? Cyber exposures in 2016 are throwing up just this challenge for just about every company and therefore for all directors, and it’s only going to get worse. The real point to get your head around as a director is that this is a multi-faceted problem. It’s rarely good enough simply to seek assurance from the head of IT or equivalent that adequate protection exists from cyber-attack. Instead the challenge is to really understand the specific cyber vulnerabilities facing each company. To make matters worse (and as an indication of how seriously the issue is now taken by legislators) the E.U. has just introduced probably the most significant overhaul of data laws and regulation ever with stringent new penalties for breach.
Financial Institutions — Unethical Use of Data
There is a real risk that the increasing availability and sophisticated use of personal data could result in certain sectors of society being disadvantaged. Although the use of personal data is not entirely negative—having been successfully used by some peer-to-peer lenders to provide credit to those previously rejected by traditional financial institutions—many customers are not even aware that their personal information might be used to determine their level of risk. According to recent press reports, personal data has been gathered and used by banks, mortgage lenders and some government departments. It is time for an open debate about the ethical use of personalised data to ensure its use does not have a detrimental impact upon less social-media-conscious customers who may not appreciate the potential impact the release of seemingly innocuous information might have on their lives or financial status. The rules and boundaries around when data is “personal,” and how it can be used, need clarification. (Update: I discuss this in further detail in my follow-up article.)
Financial Institutions — Blindsided by FinTech
It’s hard enough preparing for competition when you can see it coming. The risk facing traditional financial institutions is that financial technologies (FinTech) is changing the very nature of the competition. Unburdened by the daunting red tape facing traditional financial institutions, new entrants like peer-to-peer lenders and so-called robo-investment advisors are a different type of competitor. Many of these new FinTech firms are specialized and offer a single service. Wire transfers or credit card processing are good examples – these services were consistent fee earners for larger institutions and part of a large firm’s strategy of “cross-selling” in an effort to consolidate a business relationship with a customer. With start-ups offering newer technology and often offering lower fees, traditional financial institutions are being forced to decide whether to accept lower revenue from these segments, abandon the product, or purchase one of the start-ups to remain competitive. In business jargon – the “barrier to entry” for financial services has dropped and start-up FinTech firms are able to compete with the largest of firms. Large firms that aren’t prepared will find themselves vulnerable.
Human Capital — The Drones in Your Human Capital Strategy
by Brian Donnelly and Sara Ritter
Dire predictions that humans will be replaced by machines in the workplace continue to make headlines. Drones are delivering packages to your doorstep. The manufacturing, automotive and healthcare industries are already highly automated in many countries, and technology companies are racing to create the next “new and improved” version of artificial intelligence (AI). In fact, a much-cited Oxford study that looked at 702 occupations in the U.S. concluded that 47% of U.S. employment is at risk of being lost to computerization.
U.S. employee anxiety notwithstanding, this begs the question: What has your company done in the wake of such news? Most of us will answer that we are always looking for ways to gain efficiency, but with the frantic pace of change in technology, agile companies must systematically evaluate the benefits and risks of large-scale occupational adjustment such as this. (We’ll discuss this in more depth later this week.)
Casualty – Active Shooters
by Wendy Kalman
According to the U.S. Department of Homeland Security, “An Active Shooter is an individual actively engaged in killing or attempting to kill people in a confined and populated area [and]…there is no pattern or method to their selection of victims.” While such violence cannot be entirely predicted, it can be planned for, just like any other risk. The FBI believes that successful prevention requires that public and private entities work together. Containing the risk is necessary; more and more institutions, organizations and municipalities beginning to offer “active shooter training” or create checklists and plans for their stakeholders. Will this impact insurance and reinsurance? We’ll have to see.
Capital Markets — Rising Interest Rates
While bond yields remain modest in much of the developed world, the U.S. Federal Reserve changed the tone in the U.S. with its 25-basis-point rate hike in December. Increasing bond yields in the next few years could impair the fair value of bond portfolios. Couple this with inflation and you have a recipe for insolvencies. Countering this, many but by no means all companies have thoughtfully matched their assets and liabilities. Those ceding companies who have narrowed their reinsurance panels in recent years may have inadvertently enhanced their exposure to this market security threat. In contrast, some insurers have diversified their reinsurance panels and market security risk by:
- first, including collateralized capacity (cat bonds and collateralized re), essentially immune from market security risk
- second, accessing a broader range of traditional reinsurers
Perhaps even more will take similar action in 2016 to thwart this emerging market security threat.
Security — At-Risk Travel
by Kevin Wilkes
With the rise of business travel throughout the global marketplace, we have also recently seen an increase of travel risks that can impact the health and safety of our traveling workforce. Within the last six months we have witnessed terrorist attacks in Paris, Jakarta and Istanbul—targeting populated areas from restaurants, to concert halls, hotels and coffee shops. While such violence certainly provides more than enough to fear for employees who may find themselves in harm’s way, travel risks associated with sudden civil disturbances, extreme weather, or illness—such as last year’s Ebola scare or the recent CDC warning of the Zika virus in Latin America and the Caribbean—also cause concern. Think of this for a moment: There are roughly 237 million business trips taken domestically and internationally each year by U.S. workers alone. According to the U.S. State Department, there are currently 45 countries and regions around the globe that are thought of as “at-risk” areas for travel. That’s a lot of real estate in which you may find yourselves or your employees traveling in harm’s way. So it becomes increasingly important for businesses to understand, track and plan for the host of travel-related risks that can jeopardize the safety of their traveling workforce. Failure to do so can place both employer and employee at risk. Especially in the world of today.
U.S. Employee Benefits — Health Care Costs
Even with the delay of the Cadillac tax (signed by the President on Dec 18) employer plans are not out of the woods. Increased deductibles, while coupled with HSAs and HRAs for the time being, are still the order of the day. That means, potentially, less access to care for employees, lower utilization, increased health risks and increased absenteeism to go along with all of that. An equally important risk issue is the increased scrutiny to come from the federal agencies – on PPACA, HIPAA, etc. These agencies are gearing up and looking at plans to see that they are in compliance with the rules.
Financial Institutions — Growth v. Compliance
by Michael O’Connell
The risk that many senior leaders see looming in the coming year is how to stay ahead of the competition and keep regulators happy. Many firms are realigning their strategies, using technology to interact with customers and boost profits, and relying on outsourcing to remain competitive. Banks in the U.S. are often said to be the most regulated industry in the world. In the last 20 years the number of U.S. banks has fallen by half as a result of consolidation and failures. It’s not just the sheer volume of regulations, it’s the number of regulators – since the financial crisis a bank may have to deal with the SEC, FDIC, OCC, Federal Reserve, CFPB, FinCen, state authorities and others. For smaller banks the weight is almost crushing, but for all institutions it has created a dilemma: Can they meet the demand for compliance and continue to compete against less-regulated competitors?
Casualty — Hoverboards
by Wendy Kalman
Insurers and reinsurers, like parents and doctors, should take note: One of this year’s most popular Christmas gifts is also proving to be one of the most dangerous. Risks include catching fire while charging or while in use, exploding and, of course, injuries from falling. It doesn’t seem to matter which manufacturer produces the hoverboards—although ion lithium batteries seem to be one culprit. The U.S. Consumer Product Safety Commission is investigating, but that hasn’t slowed down emergency room visits or the number of personal injury lawyers preparing to take on clients. At the same time, New York and Britain have banned them from roads and pavements, Scotland requires third-party insurance, and airlines won’t transport them. But even more telling, perhaps, is that Amazon in the U.S. has stopped selling all but seven models (it’s being reported that they told vendors they must prove their boards meet specific safety standards) and its U.K. counterpart has stopped altogether. At least one class action suit has already been filed; how many will follow?
Did we miss any? Tell us about it in the Comments section. Meanwhile, tell us which of these you think will most affect your business in the year to come.