CPCU Annual meeting – Indianapolis, IN
October 2015
Moderator: Steve Clark - ISO
Panelist Eric Stoley - Zurich North America
Panelist Gerald Chiddick - Amerisure Insurance Company
Panelist Michelle Glass - Munich Re America
DRONES
Drones are no longer a distant idea. They are now being realized as an asset for business owners, as well as for personal enjoyment. The federal government has approved limited use of drones. They can be used for up to two years within certain limitations. They must not be flown higher than 400 feet and kept within site of the user.
Michelle stated that typical aviation use is an issue because of the possibility of midair collisions, especially near public air space. The Federal Aviation Administration (FAA) has issued preliminary rules and regulations. However, it may be 12-24 months to digest feedback on those. Meanwhile, they’ve approved 3,000 publicly used drones and close to 1,000 commercial users over 20 industries.
At the state level, the majority of approvals are for photographs. Therefore, they are really interested in regulating privacy because you have to worry about inadvertent pictures that invade the privacy of others as well as photographing without permission.
Gerald mentioned that industry regulations for drone exposure and use are concerns. It’s difficult to effectively underwrite without sufficient data around loss potential or price. We need to develop data around loss of use and for commercial vs. personal lines exposures.
Underwriters should be concerned about operator experience as well as flight paths and the physical equipment. One of the key issues for underwriting drones is trying to determine who’s liable for equipment quality. Will it be the responsibility of the manufacturer or user?
Underwriters have other risk exposures to consider:
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Drones are easy to modify; software and toolkits are easy to attain—does that void the manufacturer’s warranty?
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Cyber liability is a very real exposure because drones can be hacked.
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Deliberate vs. inadvertent exposures; A drone crashed at the White House—according to the way its software worked, it was supposed to return to its user. It crashed like a falling object—on the ground injury.
Without in depth knowledge of drone exposures and risk characteristics, from an underwriting perspective, we might be taking on more risk than we know or understand. It’s critical that we stay abreast of the FAA’s progress with developing drone regulations.
3D/4D Printing
Similar to laser printing, 3D/4D printing can be used on most metals as well as plastics and they are being/can be used for medical/biological purposes such as hips, hearts and for various specialty items which makes the use of this type of printing very attractable.
There were a few negatives the panel pointed out surrounding the use of 3D/4D printing:
- The process is very slow and tedious
- There are no processes designed for mass printing
- There are very few quality controls in place at this time
- Such as the ability to design plastic guns, action figures and the using/stealing of intellectual properties- A few CPP allow for the coverage of these exposures
- There is a strong exposure to fire from printers overheating
The panel then discussed the management of insuring this type of risk. The first question posed to the listeners was how do we underwrite the guy in his garage building and making these programs followed up with are we asking about this exposure on applications? The next topic centered on the question of liability. Where would liability fall in these situations along with who is liable? What if the insured was using wrong specs or using the specs incorrectly. There were the concerns of product exposure, manufacturer exposure and user exposure all designed to answer the question ‘who is responsible’.
INTERNET OF THINGS
What is the Internet of Things (IOT)? If you have a Smartphone, you’re involved in the IOT discussion. A refrigerator that tells you that your milk is low involves IOT. A house that tells you what’s going on in your house when you’re not there does as well. Wearable devices that report on patient behavior and health—Fit bit—as well as sensor technology all fall under IOT.
It’s expected, by 2025, that $6.2 trillion dollars will be spent on IOT, mostly in healthcare and manufacturing. With this growing technology, comes new risks for property and liability exposures including cyber risks. According to Eric, the majority of hacks are done with malicious intent, not to just still your data. Someone was able to hack GM’s OnStar system, unlock cars and start vehicles remotely.
Small businesses are the biggest targets from the hacking community because they have inadequate protective systems. Many of our technology based companies attempt to predict what you want and provide a user response which could provide the possibility of a whole series of unexpected events from requesting a simple transaction.
We need to think creatively about potential risk exposures and address those. According to Gerald, the speed at which technology is changing will place an increased demand for companies to be technically savvy in order to adjust quickly. This requires the need for creative industry solutions. The Big data movement coupled with predictive analytics, provides insights to help carriers prepare or develop guidance in addressing these issues.
Google is now in the business of insurance as well as Amazon. Will they look at your subscriptions, in order to evaluate your risks? Will we use online neighborhood watch data to assist with SIU claims? Who knows where Internet of Things will touch our personal or business lives. Come back and learn more at the 2016 CPCU annual meeting.
Autonomous Vehicles
Gerald began the discussion with the concept of planes flying themselves for many years, manufacturing using machines to complete the work and then asking us if we are ready to operate as the Jetsons with vehicles that drive themselves.
Eric stated that Google estimates in thirty years all vehicles will drive by themselves. He supported this notion since the technology is there to support autonomous vehicles. He commented that we would have two different vehicles, one with no wheel, only an on and off switch and the other one would have a driver and a steering wheel, but it would be considered hands off.
The questions and concerns posed to the audience centered on the environment, traffic flow and is the insurance environment ready/underestimating the impact of this type of vehicle. At this time the average vehicle is 11 years old with very little Vehicle2Vehicle communication begging the question, when/will this be available quickly and how will the older vehicles relate to these new vehicles? Today we include the operator in the rating of the policy; how will this technology impact rating issues, how automated will the vehicle be, will it be 80/20, 90/10 breakdown for rating the vehicle/operator, how will the vehicle be maintained and how will new software impact the rate/exposure? Michele feels like some of the liability will go back on the manufacture if breakdown. Gerald thinks that warranties will need to be considered which will impact these vehicles just as drones.
The audience was questioned on this topic and indicated they believe the technology is coming, we need to assist in our industries readiness
The panel ended this topic discussing Mcity, which is a University of Michigan 32 acre test facility for evaluating and monitoring the use of autonomous vehicles while studying the worthiness of these vehicles and their ability to connect.
Managing these Emerging Risks
In conclusion the panel discussed Opportunity Vs Risk and the insurance industry need to decide if and how to underwrite. We need to keep a learning and development partnership with each other to understand the risks while finding new products and solutions. We were cautioned not to make it a silo learning experience, instead we need to possess a mindset on sharing of information while making it a part of our culture to assess and identify the risks.
Our final quote for the session came from Norman Augustine, the CEO of Lockheed Martin who stated “‘when preparing for a crisis, it is instructive to recall that Noah started building the ark before it began to rain.”