Technology is expected to be a major driver of liability claims in the years ahead – cutting frequency and increasing new threats such as cyber, product liability and recall risk, according a report published by Allianz Global Corporate & Specialty (AGCS)
So-called smart factories, for example, will likely reduce workplace accidents and driverless cars are expected to dramatically reduce accident rates over time, given the fact that more than 90 percent of auto accidents are believed to be caused by human error, said the AGCS report, quoting UN statistics.
At the same time, business models in the digital economy “are more complex and without borders,” which make “liability harder to apportion and claims more complex to settle,” said the report, titled “Global Claims Review – Liability in Focus.” (To view other claims trends covered by the report, see links below).
“Autonomation is likely to lead to increased product liability for machinery and component manufacturer and software providers in particular,” Allianz continued.
“The risk landscape for companies is constantly shifting with liability risks on the rise globally,” said Alexander Mack, AGCS board member and chief claims officer. “New technologies such as the internet of things, autonomous mobility or 3D printing will create fundamentally new liability scenarios for companies in almost every sector.”
The AGCS report identifies what it sees as the major technological trends that will influence liability claims:
- Autonomous driving. The advent of autonomous cars will reduce accident rates, shift liability from drivers to manufacturers and lead to a drop in car ownership “in favor of motor fleets, car-sharing and driverless taxis.” This could lead insurers to move away from providing single annual motor insurance policies to millions of drivers and instead be providers of large policies for manufacturers and fleet owners and operators. “The shift to product liability will require insurers to develop technical expertise and not rely on historic data and driver profiling for pricing.”
- Sharing economy. The sharing economy will make liability more complex and difficult to apportion. “For example, a road traffic accident featuring an autonomous car share vehicle could involve the vehicle manufacturer, software provider and the fleet operator, as well as third parties involved in the accident…,” the report confirmed. “Such a future car accident scenario will require claims handlers to understand sensors and algorithms to determine the cause of an accident.”
- 3D printing. This technology is widely used, “especially for creating prototypes and bespoke parts in industries like aviation, automotive and the medical sector…,” the report said, noting that products made on 3D printers are untested, using new materials and techniques, in new applications. “Insurers will have to keep an eye on how the materials used in 3D printing perform in the long term.”
As an example of how technology is changing existing business models and supply chains, disrupting established lines of liability, the report cited the example of the first 3D-printed drug, an anti-seizure drug for epilepsy, which received approval in 2016 from the U.S. Food & Drug Administration. Such a move, “introduces new liabilities to the traditional pharmaceutical supply chain model, expanding liability beyond doctors and pharmacists to include device manufacturers and software providers,” the report noted.
The policies most affected by the development of 3D printing will be product liability and product recall, with implications for general liability, errors and omissions, directors and officers, workers’ compensation and cyber insurance, the report affirmed.
- Cyber. Companies are concerned about the growing sophistication of cyber attacks, but many underestimate “the impact of technical IT failure, human error or even rogue employees…,” the report noted. Data protection rules are becoming tougher as governments seek to bolster cyber security, which will significantly affect businesses “as penalties for non-compliance can be severe,” the report said. It cited the example of the General Data Protection Regulation (GDPR), the EU’s data protection law, which will be implemented in May 2018. Under this law, companies face fines that could be as high as 4 percent of global revenues.
Peter Oenning, global head of Claims Liability, AGCS, noted that cyber claims are becoming more relevant and consequently are creating a huge area of potential growth for insurers. Chief Claims Officer Mack compared cyber cover to D&O insurance, which was an exception 20 years ago but is commonly purchased today. “We will see the same trend in cyber, within the next five years,” he said.