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This from the man who ran Safeco into the ground.
Insurance will be a non-player in the world economy until it can devise more innovative ways to deal with capacity issues, coverage issues and study ways to solve problems rather than use their magic word “no”.
I disagree but think we’ll see traditional insurance products delivered in a new way. McGavick mentions ‘cyber liability’ and ‘intellectual property’. I agree these are areas that should be major concerns for companies, but let’s take the RIAA V. Limewire suit as an example. RIAA claimed in court that Limewire’s liability to them is a double-digit figure in the trillions, AKA bigger than the GDP of the entire world. If you’re looking to offer an insurance product to entities such as small tech start-ups with only a few employees, and you know that the potential statutory damages for IP are in the billions of dollars, what kind of insurance product could you possibly offer? Knowing that most of the exposure is legal costs– how do you sell a product that actually benefits the client but doesn’t adversely expose the insurer? I think we need to see *significant* reduction in IP protections and especially statutory damages before this kind of product has any viability. With regard to cyber liability, carriers won’t want to offer much more than coverage for the internal costs associated with a data breach. But, given the massive extent of losses for companies like Sony, and given Sony’s size, what kind of external insurance product would make sense and be truly viable?
Where McGavick is spot-on is in his statements regarding technology. The internet has enabled information freedom and p2p connectivity to an unprecedented scale. The first person to really see outside the box has an opportunity to revolutionize risk transfer. Technology enabling rapid changes to business models should be a top concern for insurance organizations, and McGavick correctly suggests that insurers must remain diligent to avoid becoming the ‘buggy whip manufacturers’ of the 21st century.
Points well taken. However, I’m not saying that the industry needs to provide hyper capacity to start up’s. The technology field(s) create their own set of problems because they have a hard time even defining their own risk. The Insurance industry likewise has a problem even defining how policy wording applies to these comapanies. The hocus-pocus these tech’s like to display is unfortunately too hocus-pocus for serious underwriting. Don’t spend too much time on insurance for these companies. They frankly don’t generate the premium to warrant too much costly R&D attention. Lets get back to basic industries where the Insurance industry has not kept up with the times and where their is opportunity to get a reward for the innovation and R&D. Pharm’s, On and Offshore Energies, Foods, Environmental, T&D, weather, nuclear, war, EQ, Wind, and on and on. The industry is still doing the same ole thing. These are area’s where you can reap large rewards to solve the “same ole” problems. McGavic may be in love with technology, but I’d put R&D money into solving the real issues that “brick and morter” companies currently face and be rewarded accordingly.