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Future risk

Posted: 20 January 2021

The nature of insurance risk is changing; shaped by societal trends, economic factors and advancements in technology. As traditional perils continue to evolve and new perils emerge, what could this mean for policyholders and the insurance industry?

The large-scale move to a remote working model during the Covid-19 pandemic is likely to signal a more permanent shift towards this type of working for many, leading to certain potential implications from an insurance perspective. With more staff located offsite, traditional perils, while still representing risk, are less likely to result in a total loss or disruption to business. This is due to the wider geographical spread of risk, where staff and IT equipment are no longer concentrated in one location. 

However remote working also engenders new, less tangible risks, in the form of enhanced cyber threats. The potential for thousands of WiFi routers in employees’ homes across a wide geographical spread, opens up new vulnerable access points for cyber criminals. It’s expected that cyber is likely to continue to emerge as a key business peril.

Employers retain the same health and safety responsibilities plus duty of care towards their employees, regardless of staff being based offsite. Recent data showed that more than 20% of people were reporting high anxiety levels as a result of Covid-19, claiming that the move to working from home had impacted negatively upon their work.1 Organisations could see also more EL claims related to musculoskeletal disorders where employees maintain they’ve developed these conditions as a result of unsatisfactory physical working conditions. Employers therefore will want to employ procedures for ensuring the welfare of their staff, such as keeping in regular contact, monitoring workloads and providing advice on completing home workstation assessments (such as Display Screen Equipment or ‘DSE’ assessments). The Health and Safety Executive provides some useful guidance for this.

Business leaders could face an increased risk of directors’ and officers’ liability claims as the unstable economic and political situation persists. Company directors face an ever-broadening raft of risks and exposures as a result of decisions they take; such claims may stem from decisions relating to climate change, failure to ensure adequate business continuity or managing employee wellbeing during the pandemic. Similarly, those in the professional services sector may become a target, particularly professional advisers, where it’s alleged their advice has led to poor economic performance.

The insurance industry has access to huge and increasing amounts of internal, third party and real-time sensor data which, when properly harnessed, can help create much richer and more accurate risk profiles to better manage risk. Internal data can be leveraged to reveal more and more insights, to help good decision-making through technologies such as machine learning and AI. 

Examples of other new data range from telematics data (sensor data) in motor insurance lines to geospatial data (third party data) for helping determine flood risk, for example. Technology also provides more methods for capturing customer data, not least through social media platforms such as Facebook and Twitter, which can influence assessment of risk and therefore underwriting decisions - but these sources must be used carefully and in a way which is both transparent and ethical. 

Data analysis

Technology can faciliate enhanced risk management. Sensors to detect EOW can be nstalled in areas susceptible to water damage and send an alert of excess moisture and water before it becomes a major issue. Some commercial properties also make use of ‘occupancy sensors’ which are used to activate lighting within a building when occupancy is detected. This can help in deterring or alerting of intruders, in turn reducing the risk of theft, fire and vandalism. 

Condition monitoring sensors are also being used for real-time monitoring of the health and performance of industrial equipment. These compact wireless sensors work by collecting data on metrics such as vibration and temperature to help predict machine failure. Through use of AI the data is analysed and used to present an overview of performance and any degradation over time. 

AI and machine learning are touted to play a growing role in managing risk. One example is the area of lone working where individuals may be working at height or in physically challenging circumstances. Food processing firm Alpro has successfully used machine learning to detect falls so that surveyors can ensure that any accident is reported if they are injured while working alone.2

Traditionally insurance has been associated with compensation. However, insurers and brokers are increasingly embracing a role as proactive risk managers, equipping their customers with information to help reduce risk in the first place. Whilst the nature of risk will continually evolve, the basic principles of risk management remain fairly constant.

These include having effective measures and plans in place for risk identification, analysis and control. This, combined with a robust business continuity plan and the right insurance cover, can provide peace of mind that an incident should not bring business entirely to a halt.

Mark Kelly
Liability Underwriting Manager
Allianz Insurance plc
James Tucker
Smart Technology Manager
Allianz Insurance plc

This article is part of the BIBA Broker Guide to risk evolution (December 2020).