10 disruptive trends affecting insurance

A variety of technological, economic, and social trends have significant implications for insurance and will affect businesses across industries.  From climate change and autonomous vehicles to big data and artificial intelligence, these and other trends are disrupting the risk landscape while also creating opportunities within and outside the insurance industry.

The Disruptive Trends Risk Matrix featuring 10 trends affecting insurance

The Risk Matrix, produced by the editorial team at Risk & Insurance®, plots key trends affecting insurance and risk management based on frequency and severity.

With the entire auto market set to shrink 15% by 2045, autonomous vehicles are coming in clutch while also changing how companies could manage their fleets and related exposures.¹ Self-driving capabilities raise complex questions when it comes to determining liability, with regulators still determining how these vehicles will operate on roads. In addition, this trend could transform insurance coverage in the long term. Product liability is an area of increasing concern as liability shifts to manufacturers. As automation increases, the need for liability protection against cyber theft, ransomware, hacking, and the misuse of company vehicle data could also rise.

¹ Liberty Mutual internal research, 2019

Technological advances, shifts in legal trends, and third-party outsourcing are all introducing new variables that complicate general liability and other liability exposures that companies face. Culpability is no longer black and white, and expanding liability is driving up the frequency and severity of claims. To stay ahead in today’s rapidly changing risk environment, companies should reassess exposures, review existing coverage limits, and sharpen risk mitigation strategies.

In the insurance industry, an estimated 45-50% of time is spent in the data space. This is not surprising, as insurers are already using big data in several areas, including risk assessment, product development, and claims management. For example, determining compensability, identifying high-cost claims, and improving the return-to-work process are just three areas where big data is helping to control workers compensation claim costs.

Climate change is creating risks for businesses of all types.  In fact, there were an estimated $144 billion in global insurance losses from climate-related disaster events in 2017. Wildfires, winter storms, and polar vortexes—not to mention heavy precipitation and volatile hurricanes—are increasing in intensity and leading to more damage and higher costs. There are, of course, ways for businesses to proactively protect their operations and employees, including conducting risk assessments, leveraging risk management tools like predictive modeling, and developing business continuity plans.

Changes in legal theories and juries’ shifting views are opening businesses up to rising jury awards, even in situations of limited liability. In 2019, the 10 largest U.S. jury verdicts ranged from $152 million to $8.0 billion. What’s driving this shift? Several trends are likely having an impact, with jurors’ sense of social responsibility playing a key role.  Jurors expect businesses to be good corporate citizens and use their resources to benefit society—which can result in companies bearing a greater share of responsibility than individuals at time of verdict.

While businesses have always contracted with outside vendors to gain access to expertise, the commercial use of sharing- and on-demand economy services to expand or enhance operations is now playing a larger role. Managing sharing economy risks, therefore, should be top of mind. From liability over damaged property and clearly outlined responsibilities to compliance with state regulations, businesses should take proactive steps to stay ahead of potential exposures this soon-to-be $335 billion industry brings.

From wearables to flood sensors, this technology can monitor, alert, instruct, or even shut down equipment in the event of an emergency. The potential applications for wearable technology show much promise for helping drive greater health, safety and productivity in industries like construction and manufacturing.   For example, smart helmets can detect a worker’s level of fatigue or a worksite’s carbon monoxide level or temperature while smart glasses can provide workers with real-time guidance on how to operate or fix equipment.

As blockchain technology matures, the insurance industry is poised to take advantage of the potential benefits – from automating manual processes to helping eliminate the chance of errors and fraud via smart contracts. In fact, the market for blockchain in insurance, is set to increase from $65 million in 2018 to $1.4 billion by 2023.

The virtual experience is transforming the insurance industry in a variety of ways, from enhancing risk assessments and improving safety to delivering better claims experiences. In a LexisNexis survey, 95% of insurance carriers said they were using or were open to the idea of virtual claims handling while those that use virtual methods report significant efficiencies and higher customer satisfaction. As an example, virtual claims handling through web robots can help reduce intake time from hours to minutes for workers compensation claims.

Artificial intelligence (AI) is predicted to help optimize business processes and — according to one McKinsey & Co. estimate — could deliver additional global economic output of $13 trillion per year by 2030. But companies investing in this and other automated technology should be aware of potential liability-related vulnerabilities that applications could introduce. Companies should consider additional insurance protections in the areas of errors and omissions, cyber security, and business interruption to help address coverage gaps that may exist.