Casualty catastrophe reinsurers could be hit with higher claims costs as legislation for software and app manufacturers evolves to shift the focus onto consumer contractual protections in coming years.
Willis Towers Watson’s Pete Thomas, Reinsurance and risk management expert, warned of the potential impact to reinsurers of expected upcoming legislative changes as U.S. legal theories and injury law catch up with the innovations of the tech world.
“The digital technological revolution of the 21st century in some ways is mimicking the robber barons of the 19th century. And casualty catastrophe reinsurance product designers are taking note.”
“We are at an early stage of the digital technology revolution, where society may well believe that it is better to allow product designers to shift liability to users in an effort to encourage innovation and the quick-to-market economic advantage.
“Nevertheless, as technology applications such as driverless cars and trucks become more commonplace, and artificial intelligence, robots and the Internet of Things take on added significance in many walks of life, it is inevitable that cyber losses will become increasingly common and catastrophic,” he explained.
The scale of the risks involved in these often not yet fully regulated digital interventions poses a significant catastrophic risk, said the Willis risk expert, drawing a lesson from the history of U.S. injury law and insurance, which suggests new legal theories will come into effect in future which will reset the balance in contractual protections between tech manufacturers and consumers.
This is expected to give injured parties’ more power to sue for damages and some of the ensuing costs will be passed on to casualty catastrophe reinsurers under current insurance policies, even though the cases may arise many years from now.
“To put things in perspective, the digital technological revolution will, in all likelihood, have a greater impact on injury law and liability insurance than the first industrial revolution did.”
“With this in mind, there is no current insurance hazard that bedevils casualty catastrophe product designers more than digital technology or cyber insurance,” said Thomas.
The massive scale of the potential for rising claims costs should set alarm bells ringing for casualty catastrophe reinsurers – setting in motion a review of policies; “The digital technological revolution, the platform business model, and the shocking realization that (software) code “rules the world,” are all having a profound effect on insurance and reinsurance structure and product design.
“With all these rapid digital changes, cyber insurance policy wording becomes increasingly obsolete every year,” Thomas concluded.
This legislative shift is already underway in Europe, with the introduction of the EU General Data Protection Regulation (GDPR), one of the biggest changes to data protection laws, set to become directly applicable from May 25, 2018.
Organisations that haven’t sufficiently prepared for the GDPR could face strict fines in cases of non-compliance, as well as lawsuits from consumers; a forerunner to what could soon ensue in the U.S. when legal theories evolve to give citizens more control over how their personal data is used.