Usually actuaries look at the past to predict the future, but sometimes they look at future risks that don’t resemble the past.
Such was the case at the 2016 CAS Spring Meeting in Seattle in May. At the final general session, titled, “Insuring the Future: How Emerging Technologies are Changing the Face of Risk,” a panel of experts parsed the insurance issues surrounding a half-dozen topics, from vehicles that drive themselves to nanotech particles of submicroscopic size. Each panelist addressed two topics.
The actuaries also got a glimpse of their own take on emerging risks, as moderator David Cummings, a CAS Fellow at ISO Solutions, revealed results of a poll of actuaries on which are the most important emerging risks.
The poll was unveiled in the format of a 64-team playoff bracket, with various risks pitted against each other. From a final four of Cybersecurity, the 2016 Presidential Election, Climate Change and Global Pandemics, the eventual “champion” was Cybersecurity.
Cyber insurance is growing very quickly, said Michael Doyle, director of specialty lines actuarial at ISO Solutions and a CAS Fellow. Most estimates suggest between $1 billion and $2 billion in policies were written in the United States last year, and in five years premiums will surpass $5 billion.
Most insurers are helping hacked companies notify their customers, in compliance with laws in 47 states, Doyle said. Swift notification also helps reduce the chance of a lawsuit, he said.
For actuaries, the risk is difficult to price for want of data. The data that exist can’t be coddled into pricing an insurance product. Government and industry groups are trying to create databases to monitor the risk, but Doyle said actuarial guidance will be necessary to make the information useful to insurers.
A topic that was “one-and-done” in the emerging risk bracket was Autonomous Vehicles, a fact that surprised Charlie Kingdollar, vice president of emerging issues at Gen Re. It is, he said, “the most important emerging issue facing the property-casualty industry.”
When computers take over the wheel, he said, it will “do wonderful things for society.” And it will happen soon, he predicted.
Driverless cars are being tested in a handful of states, and manufacturers will have cars take over some functions in the next year or so. Several say they will have a driverless car within the next decade.
Driverless cars will have fewer accidents, which suggests that $100 billion in auto premiums will disappear in the next 20 years.
Other insurance lines will be affected, Kingdollar said. Personal and commercial umbrella policies protect autos as well as other exposures. Ride-sharing companies like Uber and Lyft are likely to move to driverless cars to avoid the potential that their drivers will be classified as employees, an action that would require the companies to purchase workers’ compensation insurance.
“If you think this is far away, you are not thinking correctly,” Kingdollar said. “Companies need to set themselves up to address this.”
Another emerging issue that could reduce claim frequency is the internet of things. Kevin Bingham, a principal in advanced analytics and modeling at Deloitte Consulting, described the concept as the leveraging of all the data that falls out from the interconnectedness that the mobile phone age promises.
As people use smartphones and other devices to record their activities and monitor their homes, they leave a trail of “digital footprints,” he said.
“We as actuaries should be really excited,” he said, over all the new data wanting analysis.
The information could be used in loss control. For example, a home monitor could notify the homeowner if it detects excessive moisture inside the home.
“You won’t have to worry about burst pipes anymore,” Bingham said, eliminating a particularly expensive claim and qualifying the policyholder for a discount.
He said that the issue could turn ominous for insurers if they aren’t ready. The ubiquity of data points to lots of opportunities to buy insurance in new ways, departing from the traditional method of contacting a company or one of its agents.
The home protection product could include some sort of homeowners policy. There is a significant possibility, Bingham said, that the combination of new technology and data could change buying patterns, creating new forms of insurance.
ISO’s Doyle outlined another emerging issue that has elements of the old cloaked in new technology: social engineering. He also called it “human hacking,” the efforts to get people to divulge information.
“In simple terms it is called duping them,” he said.
Perhaps the oldest dupe, he said, was the Trojan Horse rolled into Troy in the ancient world. Today it takes more technological forms, and they are more sinister financially.
The state of the art, he said, is the business email compromise, often known through its abbreviation, BEC. Criminals spend months learning a company’s culture, its processes and its chain of command. Then it spoofs an email from the CEO that orders a check be sent to a certain party, pronto.
The recipient is part of the scam and vanishes with the money.
Such efforts are big and bold. Gen Re’s Kingdollar described a potentially huge issue buried in the tiniest of things: nanotechnology.
Scientists have found that the physical properties of elements change when they are assembled at close to the atomic level. And they can reassemble the material back into the everyday world while keeping the properties held in the nanotech world.
In the everyday world, Kingdollar said, silver is somewhat toxic. A silver chalice was prized because it killed bacteria, he said. At the nanotechnology level, silver is 45 times more toxic.
Nanotech is not new, he said, but insurers have all but ignored the exposure.
It is “potentially a huge issue,” Kingdollar said. The market value of current nanotech products is around $20 billion, encompassing everything from medicine capsules to building materials.
“We have no idea what the safety and health implications of nanotechnology are,” he said.
Many of the products are manufactured outside the United States, he said. So any lawsuits (read: insurance claims) if a product is harmful will probably draw in distributors and retailers.
The exposure could mimic asbestos, he said, though it would not be as severe, he said. “We are faster and more nimble than we used to be,” Kingdollar said. Still, “nano has been around for 16 years, and we’re still not asking a single question” about it. “If we’re not asking questions, we don’t even know if we have that exposure.”
An air of mystery also surrounds the sharing economy, which Deloitte actuary Bingham outlined as a central part of the experience of the Millennial Generation.
Millennials, he said, are saddled with college debt, and this is framing their choices on what to own and how to live. “They don’t have cars anymore,” he said. Instead they live in cities, sharing bicycles and autos. They don’t own homes. Instead, they rent. And the homeowners among them act as hoteliers, renting a spare room through Airbnb.
The implications for personal lines insurers, which protect homes and autos, are obvious. Among them is the promise or threat of autonomous vehicles, which Kingdollar discussed in depth earlier.
Summing up, moderator Cummings said: “Risk is everywhere, but risk may be changing.” Actuaries, he said, “need to be aware, be involved.”
