Why Insurers Must Pick Up Their Technology Pace

By Gregory Hoeg, Insurance Journal, September 2016

The insurance industry is on the horns of a dilemma: how to use new technologies to improve their operations and how to insure the risks these new technologies present to their customers.

The pace of technology is changing at faster rates than ever before and continues unabated despite the associated risks. New technology startups constantly enter the field, using technologies that impact multiple industries and user groups. Additionally, new technologies are developed virtually every day and are released almost immediately.

This means that rapid adoption and use of new technologies is happening ahead of the ability of insurers to understand and respond to them, both as a user and as an insurer.

For insurers, new technology is a double-edged sword. While new technology means new tools insurers can use to improve their operations and the services they provide to their customers, it also presents two new risks. The first is the risk of using a new technology that, due to its newness, proves to be a source of unforeseen liability because of an innate flaw in the technology; a failure of the new technology to live up to its promise; the new technology’s susceptibility to misuse; or the development of lagging regulation that creates potential liability for “impermissible” use of the technology. The second risk is insuring new technologies. Without sufficient experience and data to properly understand the risks of emerging technologies, it can become very costly for insurers to accept new risks.

The rapid rate of change of technologies demands that insurers embrace them quickly in order to benefit.
An example is the use of drones. While this technology offers an improved method for insurers to inspect many cases of property damage, regulations restricting the use of drones make them more costly to deploy in insurer operations, and because regulations on drones continue to evolve on a regular basis, insurers face even more challenges.

Additionally, the rise of smart home technologies has proven challenging and is creating new exposures for insurers. Smart home apps (i.e., remote control of temperature/lights) are susceptible to power surges and storms, which could lead to a whole house electricity failure. Traditional home coverages may not include this coverage, which could create a more costly and complicated claim. Smart home apps also lead the way to concerns of cybersecurity and privacy threats to the insured…Continue to Insurance Journal