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· Drones, driverless cars and other innovations will place a burden of hundreds of billions of dollars of uninsured risk on societies, warn some of the world’s largest insurers, reinsurers and brokers
· To assess and take charge of these risks, the insurance industry is teaming up with technology companies and senior government representatives in a World Economic Forum-led initiative
· Among the participants are insurers Allianz, Lloyd’s, Marsh & McLennan, Sompo Holdings, Swiss Re, Willis Towers Watson, XL Catlin and Zurich Insurance Group, and technology companies Cisco, Hitachi, IBM and Siemens, as well as senior government officials
· Read the related report on the initiative here
New York, USA, 12 October 2017 – To avoid catastrophic levels of uninsured risk in the innovation economy, the insurance industry is joining forces with technology companies and governments in a World Economic Forum-led initiative, Mitigating Risks in the Innovation Economy.
In a joint report launched today, the working group lays out the risks and goals, including:
· Closing the gap in existing governance frameworks to manage risks from innovations
· Determining the liabilities, roles and responsibilities involved with these risks
· Setting 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. “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.”
The insurers point to potential risk scenarios of emerging risks with vastly varying estimated costs:
· A cyber-attack on the US 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
· 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. Other risks are yet unknown.
“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.”
Among the participants in the initiative are some of the world’s largest insurers and insurance brokers, including 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.
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.”
The members of this initiative have committed to further multistakeholder actions to be developed and piloted in 2018, starting at the World Economic Forum Annual Meeting in January. The report and joint initiative were prepared by the Forum in collaboration with Oliver Wyman. Throughout the process, the insurance industry will also explore how it can best fulfil its new capacities, such as risk advisory and analytics.
Read the full report underpinning this initiative here
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“The vulnerabilities and potential risks associated with cybersecurity have enormous social, economic and political ramifications,” says Anil Menon, Global President for Smart+Connected Communities at Cisco. “Talos, Cisco’s threat intelligence group, estimates that some 200 billion cyber threats are blocked daily. Working across industries and sectors to effectively recognize and respond to these threats and achieve resiliency will take unprecedented cooperation, innovation, research and planning.”
“Given the emerging risks associated with applications of many new technologies that do not yet have social conventions and existing legal frameworks to stipulate the ‘rules of the game’, it is imperative for the insurance industry to work with governments, tech partners and other stakeholders to create a common taxonomy and clear definitions of risks and liabilities; collect and share available data to allow for efficient risk pooling, pricing and sharing; and unleash the potential of risk mitigation by utilizing every aspect of the industry’s value chain,” said Abel Lee, Head of Insurance and Asset Management at the World Economic Forum.
“Information sharing is key to the protection of our critical infrastructure against cyber risk” says State Secretary Jörg Gasser, State Secretary for International Financial Matters at the Federal Department of Finance, Switzerland
“The world is changing as new technologies proliferate and the nature of risks facing individuals and the economy is morphing at an increasingly rapid pace, “says Prashanth Gangu, Partner at Oliver Wyman and member of this initiative. “Society needs to be ready for events bigger than the more than $100 billion loss estimates from Hurricanes Harvey, Irma, Maria, caused by risks in the global cyber-physical system, either errors in code, malicious hackers or AI gone wild.”
All opinions expressed are those of the author. The World Economic Forum Blog is an independent and neutral platform dedicated to generating debate around the key topics that shape global, regional and industry agendas.