IoT will reduce frequency risk but creates catastrophic exposures: AIG

The Internet of things (IoT) will help companies reduce their exposure to frequency losses but shifts the liability risk landscape to potential severe, catastrophic threats, according to Hilary Browne, head of UK casualty at AIG. Ms Browne explained to CRE how a pilot scheme run by AIG using IoT technology helped improve driver behaviour. The initiative could be used by organisations to manage fleet risk and subsequently reduce insurance spend. The IoT will provide many opportunities to reduce other risks for a range for sectors, Ms Brown explained. “The liability risks we traditionally see are frequency risks – injury to workers and the like – and the IoT will help us to mitigate against a lot of that frequency. For example, having individual workers with sensors on a construction site can help stop machines backing into them by turning off when the sensor is triggered. We can also reduce unplanned breakdown of machinery as the IoT will help notify when something is about to go wrong. So the IoT will definitely reduce frequency risks and losses,” began Ms Browne, delivering good news for readers of CRE. “However, the IoT does shift that frequency risk to a catastrophic risk. If IoT connected infrastructure fails, it is a systemic failure. If a company’s system is breached it potentially means all machines or services go down all at once. So while IoT will help decrease liability risk, we shouldn’t be blind to the shift in risk,” she added. To help clients use the IoT to reduce frequency risk, AIG has partnered with Europcar Ireland – a short-term car leasing company – to use telematics to improve driver behaviour. The two companies installed full telematics in Europcar Ireland’s 5,000-strong fleet to understand driver behaviour using four key metrics – harsh acceleration, harsh braking, cornering and speeding. The partnership fed back this information to individual consumers to tell them how they were driving and see if their behaviour would change. The consumer received this information on a daily basis via a dashboard, showing how they scored and providing them with tips to improve their driving. The initial pilot ran for six months and has now been continued for a full year. The findings were startling. The initial six-month pilot showed a 23% decrease in the drivers’ motor insurance claims. During the course of the full year, this dropped claims by a further 15%. The system has clear uses for managing fleet risk to reduce accidents and decrease the cost of insurance, said Ms Browne. “We can provide the dashboard system to fleet managers and risk managers to help them understand how their drivers are behaving and ultimately reduce claims and therefore, potentially, the cost of their insurance. We are trying to look at behaviours to stop things going wrong in the first place, and reducing the risk. We price risk on the history of a company so ultimately the intent is to help clients reduce risk, claims and premium costs,” she said. This sort of initiative can be rolled out to other risk areas and could have uses in factories and buildings sites to, for example, improve safety, added Ms Browne. AIG also found that of the 76,000 drivers to go through its pilot, less than 2% opted out of the process. This proves that people are prepared to forgo privacy if they think it will make them safer, noted Ms Browne. Risk managers are working hard to keep on top of cyber risk, including the IoT, but need the help of experts, including insurers and brokers, to monitor the changing risk landscape, she continued. AIG is working to stay one step ahead of the curve and will produce a checklist of IoT risk for European risk managers early next year. “Risk managers are focusing on this risk more, but it is an ever-evolving situation so it is hard for anyone, a risk manager or insurer, to ensure they are up to date with the latest developments. Our job is to help them transfer the risks but also understand the risks. That is what our checklist will provide. “We need to stay one step ahead of the risk when it comes to cyber and IoT and be able to spot if something is a trend or risk before it becomes an issue for our clients. We spend a lot of time through our technical centre based in the US and also here in Europe to deliver this,” concluded Ms Browne.

IoT will reduce frequency risk but creates catastrophic exposures: AIG

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