In a new World Economic Forum-led initiative, re/insurers, tech firms, and government representatives will collaborate to develop strategies for the management of emerging risks from fourth industrial revolution innovations.
Innovations such as drones and driverless cars have the potential to unleash a new set of uninsured risk on societies in the billions of dollars; the joint venture aims to preempt these uninsured risks from emerging at catastrophic levels.
The group has been established to determine the liabilities, roles and responsibilities involved with these risks and set up a data-sharing mechanism to manage the risks.
“No one currently knows the magnitude of the risk exposure of society to new, uninsured technologies,” said Victoria Shirazi, Project Lead of the Mitigating Risks in the Innovation Economy project at the World Economic Forum (WEF).
“A technology failure that was once both small and contained can cascade into potentially catastrophic losses.This initiative will help societies prevent, respond to and recover from these new risks.”
Initiative participants include Allianz, Lloyd’s, Marsh & McLennan, Sompo Holdings, Swiss Re, Willis Towers Watson, XL Catlin and Zurich Insurance Group; technology companies such as Cisco, Hitachi, IBM and Siemens; and senior officials from the European Commission, India, Japan, Netherlands, Singapore, Switzerland, United Kingdom and the United States.
“As technologies emerge on their own, the risks are becoming so big and complex that businesses and governments will not be able to handle them, said Inga Beale, Chief Executive Officer of Lloyd’s, and a backer of the initiative, “with this initiative, we want to address that.”
The joint report points to potential risk scenarios of emerging risks with vastly varying estimated costs: a cyber-attack on the U.S. Northeast electrical grid could result in economic losses as high as $222 billion; a disruption of the cloud could result in economic losses ranging from $15.6 billion to $121.4 billion and a compromised software upgrade for globally interconnected systems could put between $4.5 trillion and $15 trillion of global GDP at risk over five years due to losses to global GDP output.
The majority of these and other innovation-related risks are uninsured: the insurance gap is as high as 83% in a cloud service disruption scenario and 93% for a mass vulnerability setting.
Consumers face two stark realities that the group needs to resolve, said Matthew Leonard, Partner at Oliver Wyman, and member of the initiative; “First, people do not fully understand the risks they are running; and second, those who seek to mitigate their risk with insurance are faced with a decided lack of choice and/or affordability.”
Initiative members have committed to develop and pilot multistakeholders actions in 2018, starting at the World Economic Forum Annual Meeting in January where the re/insurance industry will explore how it can best use its resources such as risk advisory and analytics to mitigate against these emerging tech-related risks.