Insurance needs to be ‘reimagined’ for tech age, says DAC Beachcroft

Insurance will need to be “reimagined” as the changing risk landscape brings traditional insurance concepts into question, according to a report from DAC Beachcroft. Liability, regulation and insurance are likely to undergo a period of accelerated change in the coming years, with advances in technology and globalisation, concludes a report by the law firm. Emerging technologies like artificial intelligence (AI), automation and the internet of things will bring about new liabilities and exposures. In some cases, these technologies will require changes to regulation, liability regimes and ultimately insurance, the report states. According to the law firm, the very nature of insurance, its role and relationship with society are undergoing a “profound and irreversible” transformation. “This is not just about managing change and disruption. It is about reimagining what insurance is. The industry has to take a step back and challenge a wide range of assumptions that have underpinned it for generations,” it says. “The combination of these powerful forces is doing more than just reshaping the insurance industry. It is demanding that we reimagine what insurance is for, what society expects from it and how it can deliver the promises that lie at its heart. It also means reimagining the skills insurers and brokers need in order to flourish in the future,” DAC Beachcroft notes. The biggest drivers of change are technology, globalisation and a revolution in communication. The very nature of risk is changing, says the law firm, from the evolving threat of terrorism to the potential for major cyberattacks and impact of climate change on natural catastrophes. "We can foresee the potential for new insurance products and significant changes to existing products, which will require careful consideration of new, often untested, policy wordings," Mathew Rutter, insurance advisory partner at DAC Beachcroft, told CRE. New technologies like automation and AI will mean changes in liability and insurance. For example, driverless cars, crewless ships and pilotless planes will see risk arising from human error overtaken by risks of product safety defects, software failures and cyber interventions, DAC Beachcroft says. There will be new regulations and standards that need to be followed, according to Mr Rutter. “We have already seen changes to UK law to anticipate autonomous vehicles and the fact that, in the future, motor insurance may be more about product liability than insuring against the driver's negligence. The nature of the disputes that are likely to arise will change and may become more technical in nature, as they may involve complex questions about precisely what went wrong, whose fault it was, and whether they are legally liable for the consequences,” he said. “There will also be social pressures to improve regulation and provide clarity on, for example, who owns the data generated by an autonomous vehicle. We may see GDPR 2 before very long, particularly if vehicle manufacturers don’t provide sufficient reassurance on such issues,” Mr Rutter told CRE. As automation becomes the norm, the way in which insurance works will change. Behind the scenes, insurance will be “transformed” as fronting insurers seek to recover from product software and infrastructure manufacturers, and their insurers, when things go wrong, says DAC Beachcroft. “This, in turn, is prompting manufacturers to seek new ways of mitigating, sharing or transferring risk,” it says. “We are already seeing a trend towards retention of risk – through captive entities – in a bid to compete for market share by offering consumers the simplicity of a single price package for car, maintenance and insurance,” the law firm says. As new technology develops, there are often cases where the law provides no clear answer, or parties have not properly thought through the implications of what they are doing, according to Mr Rutter. Similarly, there may be calls for greater regulation, so activities that would not be regulated today may be regulated in the future, he said. For example, DAC Beachroft’s report suggests that regulations may be forthcoming to promote cybersecurity in connected devices if industry fails to address the risks of the internet of things. A particular challenge with some new technologies is their cross-border, or even jurisdiction-less, nature, explained Mr Rutter. “One of the challenges to regulating the issuance of a cryptocurrency, for example, would be determining where that activity is being carried on. International regulators have recognised these problems and in the future we may well see greater collaboration at an international level to address these issues,” he said. The internet of things will also raise questions of where liability should rest. For example, DAC Beachcroft says that consideration needs to be given to smart sensors, like leak detection systems. “The question of who should be notified and responsible for taking action will have serious consequences. It could introduce fresh arguments on causation, absolving manufacturers of liability and shifting the burden onto the person notified of an imminent leak. It is yet to be seen to what extent terms and conditions may try to allocate or limit such liability, although attempts to do so may jar with changing consumer expectations,” DAC Beachcroft states in its report. Similar issues will arise where an electrical device malfunctions and then catches fire, or a camera within a building shows a break-in taking place. “The silo mentality of insurance is being eroded time and again as technology advances. Insurers need to be ready to advance with it,” says DAC Beachcroft. Product liability is another area where companies can expect change. For example, 3D printing is already making waves in the healthcare sector, yet the legal issues are untested, says the law firm. “The many risks posed by the technology will need insuring, and understanding the issues is the first step to minimising liability,” it says. DAC also highlights changes in risk from the sharing economy, which will see lines blur between ownership of assets, with implications for property insurance.

Insurance needs to be ‘reimagined’ for tech age, says DAC Beachcroft

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