To describe the past couple of years as tumultuous is something of an understatement. The global pandemic overlaid with hard market conditions in many insurance classes has kept many in our industry awake at night.
The pandemic undoubtedly helped accelerate already hardening markets – but it also led to accelerated growth in the innovative and creative sectors as we had to find new ways to stay connected, work differently and find entertainment and distraction from a simultaneously boring and disheartening period.
This has resulted in a lot of opportunities for the tech, media and entertainment sectors. It has also required insurers and brokers to take stock and think about whether we are really providing solutions relevant to these fast evolving sectors.
The insurance industry can have a habit of squeezing our customers to fit into our well-established product buckets and the way we like to operate. It can be guilty of forgetting that policies need to evolve to reflect the exposures of modern companies and be made easier for its customers to understand.
Tech companies have evolved considerably since the advent of the modern IT liability policy written back in the 1980s and we simply cannot look at them through yesterday’s lens. A modern tech business such as a virtual or augmented reality firm or an Internet of Things (IoT) company is far more complex than a tech company of the 1980s.
An IoT enterprise, for example, will have hardware devices that include embedded software, which can be controlled remotely via the internet through an online management platform. Overlay this with installation work that may need to take place as well as advice as to what products might suit a customer need and you have quite a complex range of products and services. Hardware, software, advice, installation – all these risks are typically covered by different policies right now.
CFC recently quoted a California-based tech company focused on artificial intelligence, augmented reality and computer vision sensors for checkout-free stores. The system allows shoppers to enter a store, grab the items they want, walk out and receive a receipt via text message or app notification and so can enable remote store management. It operates proprietary software, delivers info via mobile apps and connects with third parties such as payment providers.
Overall the company has E&O, IP and cyber exposures to name a few which we could accommodate under our new policy. However the insurance industry often tries to bucket the propensity to cause financial loss, bodily injury, or property damage while exhibiting a new cyber exposure into different policies. Yet to a tech company, this is irrelevant – they are just out there providing their products and services and want a simple solution that covers them everything that they do. They do not need complicated insurance because their services are complicated.
There are some great policies out there designed for industries revolutionized by tech in the digital health and fintech sectors for example, but the traditional tech policy itself seems to have been left behind the times. We need to simplify insurance to cover how tech businesses look today, not how they looked when these policies were initially developed.
Nor can the industry ignore the entertainment sector which has been fundamentally transformed by technology. You could go so far as to say that it has been the industry which has been the most disrupted by technology, but has also been significantly enabled by it. Entertainment today is almost synonymous with technology because it is so completely powered by it. And as we increasingly turn to online entertainment through streaming and social media, cyber has become an increasing risk for this sector.
The proliferation of the internet has allowed for the spawn of a new breed of content creator – the influencer. Influencer marketing has grown to a staggering $13.8 billion industry since the start of 2021. The impacts of a cyber event to an influencer cannot be underestimated with multiple examples of accounts being hacked, followers removed, leaving an influencer completely without a business.
Influencers constantly battle issues such as posting unlicensed images, using music without permission, and breaching advertising regulations which they often do not think about if they don’t understand IP and regulatory issues, especially online.
There was action taken in 2020 against detox tea maker, Teami, by the Federal Trade Commission (FTC) related to allegations that Instagram influencers used faulty health claims in sponsored posts. Warnings were also issued to prominent influencers such as Cardi B and Jordin Sparks for not adequately disclosing that they had been paid to endorse the product. Many influencers are simply naive when it comes to exposures of running an online business and we have endless examples of recording studios targeting them for using music on their posts which they don’t have licenses to use.
These modern tech, media and entertainment companies face different risk and insurance providers need to put broader exposures on the agenda.
For example, intellectual property (IP) litigation is rife in the innovative and creative industries. Any emerging technology risk in the US has an IP risk as a result of the competition in the tech industry and the litigious nature of the legal landscape.
We see between five and 10 patent notifications a month by tech firms which could easily have been covered under a specialist IP form. Patent trolls (or non-practicing entities) are still very active and as businesses become more widely geographically spread, or influencers operate beyond the realm of territorial boundaries, they may find themselves in hot water in a foreign territory that is more litigious.
The tech industry is contract intensive and any projects and products are often required to be fit for purpose under contract. These kinds of guarantees are typical in tech contracts, but many current insurance policies are not picking up liabilities assumed under contract.
The emerging tech sector is a litigious space and a contract governing the relationship between parties is the first port of call when a relationship goes sour. Failure or delay in the delivery of a tech project is still a leading driver of claims so insurers should not overlook the extensive contractual exposures these businesses face.
As the world digitizes, the insurance industry needs to be ready. Tech will infiltrate even the most traditional industry sectors, so we need to understand the tech that will do this to understand how to insure the businesses and industries of the future and create solutions that fit the complexities of modern companies and modern risk. Those who are ready and who can do it in a simple fashion will reap the opportunities.
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