Insurers and customers are increasingly embracing the Internet of Things but greater reliance on these technologies could bring problems that ripple through an entire connected system.
The unintended consequences from greater use of IoT will be a major trend in 2017, Marsh’s U.S. Casualty Practice asserts in its report, The U.S. Casualty Insurance Market in 2017: 10 Trends to Watch.
“As the world becomes more interconnected, the boundaries blur between traditional product liability and cyber insurance,” Marsh notes in its report. “In 2017, we can expect to see more unintended consequences from the IoT – leading insurers to ask more questions about their own risk aggregation and possibly change the way they provide coverage for risks associated with connected devices.”
According to Marsh, the level of interconnectivity called for by the Internet of Things is relatively new. It ranges from having the ability to open a garage door from another location (like the beach), to law enforcement agencies using internet-connected microphones and cameras to collect breaking intelligence on shootings, or detect firearm activity.
On the insurance side, telematics with internet connectivity allows insurers such as Allstate to track a customer’s vehicle performance and driving behavior, a form of usage-based insurance that rewards safer drivers with lower rates.
Marsh said that these and other IoT advances will advance rapidly in 2017, but so will the unintended consequences, because “the level of interconnectedness amplifies the potential frequency and severity of adverse events as the impact of an individual loss can ripple through an entire connected system.”
There have been trouble signs already. Marsh reminds that in 2016, a denial of service attack shut down a number of popular websites for hours, using “unprotected, internet-connected cameras, routers and printers.”
Here are Marsh’s 9 other 2017 trend predictions:
- More underwriting moves to transfer risk of the unknown to specialty product lines, as businesses increasingly use technology and sophisticated data capture and diagnostic capabilities in their daily work. In other words, insurers will come up with policy language and endorsements to address how commercial/personal lines policies can handle evolving risks such as the sharing economy, drones and self-driving cars.
- The door is likely to remain open for insurtech disruptors, thanks to slow movement by traditional insurers to become more efficient and offer competitive solutions for the sharing economy and on-demand services companies.
- An end to underwriting discipline? Marsh notes that insurers for several years now have boosted their underwriting discipline in order to focus on profitability rather than premium growth, with a goal of leading to less rate volatility. Marsh said this could lessen in 2017, as the marketplace becomes more aggressive and competitive.
- As the conversion to autonomous vehicles increases, personal and commercial automobile insurance and products will move toward consolidation. This trend will stem from a move to address potential coverage gaps as insurers struggle to keep up with changes. Also, autonomous vehicles and ridesharing/transportation networks will cause a shift form automobile liability to products liability coverage, as technology takes over for people.
- Interest rates will have a wide impact in 2017, Marsh said. On the one hand, low interest rates could nudge insurers toward seeking higher casualty rates for the year. But an economic upswing and “recent movements in the bond market” could push interest rates higher, which could offset a need for increases on some casualty product lines.
- Technology advances will help insurers improve loss ratios, analytics, claims handling and workplace safety. An increased use of data in underwriting will be a big part of this, Marsh said, including other advances such as the use of sensors in homes to proactively limit losses in real time. Wearable devices will also come into play here.
- Greater underwriting scrutiny is on its way. Marsh said that this will come from a coverage perspective as clients look toward differences in coverage approaches much more than price.
- Greater purchases of excess liability limits are on their way for 2017. Marsh said this will be driven, in part, by “sophisticated analytical tools” that can help quantify the likelihood of a loss greater than the current excess liability limit purchased.
- The workers compensation market in 2017 will favor buyers from a risk transfer premium and rate perspective, barring a major catastrophic event. At the same time, Marsh said that employers will still face plenty of challenges, such as court rulings in some states that could drive up workers compensation costs. Rising and uncertain medical costs won’t help.
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