Driverless cars pose challenges but also opportunities in the future

Advances in technology, in particular driverless cars, pose a big challenge but also an array of unique opportunities to the casualty insurance business, Andrew Newman, head of casualty at Willis Re told Monte Carlo Today.

Newman said he believes if there will be one big change that will redefine the casualty business, it will be technology.

“It will affect distribution—we will find new ways of originating risk. We will find new ways of measuring risk. We have the ability to put an item the size of your little fingernail and give it computing power, and the ability to relay information,” Newman said.

While Newman suggested driverless cars might not be as impactful in his lifetime, they will provide much useful information to insurers looking forward.

“What I do think is important is that most motor manufacturers have built into their vehicles a telematics box that captures information. That is pretty similar to the information that insurers have been trying to accumulate for 20 to 30 years to improve their pricing—and the motor manufacturers have it in real time.

“That increased precision around how to measure risk will act as a lubricant for capital to come into the casualty business.”

For things such as motor, Newman sees a world in which risk is increasingly securitised, but he suggested digital assets face many big challenges as well.

“Digital assets are incredibly complicated—business interruption, loss of control, malicious takeover, denial of service attacks—the industry has a tremendous opportunity to help commerce finance those risks,” he said.

Newman suggested the challenges posed by cyber would look very different in three to five years from now, where the focus shifts from data breach to loss of control.

“The future of cyber insurance will not be data breach, but rather loss of control—corporations losing control of their systems.

“Just the inability to process things—that is an existential crisis for some. The notion that banks can’t process funds is an enormous risk.”

Electronic activities not being able to function or supply chains are a concern of Newman, as a fault in the supply chain means manufacturing stops.

Willis Re has a focus on systemic risk within the casualty business, and Newman’s main concern for its major clients is less about pricing, and more about this greater connectivity, using driverless cars as an example.

“The thing about driverless cars, if you replace functions with machines that do the same things consistently all the time, if they do them consistently wrong, or they get corrupted, the knock-on effects are enormous,” he said.

As Newman sees more concerns about systemic risk, there is less concern by Willis Re’s clients for individual losses.

“It’s awful when you see gas plants explode, but most companies can finance those losses. What they struggle with is 20 claims at the same time because they’re all using the same software. They’ve all been hacked by the same malware, for example.

“That’s where technology is creating this shift in the distribution. The industry’s ‘bread and butter’ of small losses is shrinking and it’s being replaced by bigger and bigger pots of interconnected risk, which looks more like property-cat.”

Willis Re currently has a facility named PRIMO that targets these specific types of systemic risk.