Best's Review


Risk: Smart Cities
Living 'on’ the Grid

As urban areas are being transformed into smart cities, insurers must be aware of the emerging risks that follow. Special Risk Section sponsored by LexisNexis.
  • Thom Rickert
  • April 2020
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Key Points

  • What’s Happening: In an effort to build sustainable and resilient environments, metropolitan areas are implementing new technologies to become smart cities.
  • The Challenge: The development of smart cities also will bring risks from using new technologies, issues around transportation development and regulation, data security and public backlash.
  • What Needs to Happen: Insurers must recognize the emerging risks of smart cities and be ready to respond to new areas of loss.


The development of smart cities is booming worldwide. A smart city deploys a combination of cyber and physical systems to transform the interaction between government, private enterprise and citizens. The goal is to create a seamless experience for all citizens, visitors and businesses.

Smart cities aim to provide better social connections, improve alerts during emergencies and lessen environmental impacts, with a focus on economic sustainability and overall resilience. However, with great reward comes great risk. While smart cities are an opportunity for development and innovation, they also come with new challenges such as risks from implementing new technologies, issues around transportation development and regulation, data security and public backlash. These risks can affect many aspects of the insurance industry.

Transportation Risk

The most obvious risk smart cities face is related to transportation. The goal of smart mobility in a city is to get people from point A to point B in the safest, most efficient and environmentally friendly way. Cities must shift their thinking from getting a vehicle from place to place and focus on moving people. From commuting to work or school, a day out on the town, biking or sharing the road with emergency vehicles, people need to move faster and smarter.

Safety issues arise as cities aim to get citizens to their destinations faster and with minimal disruption. Fatalities and injuries can pile up if technology, communication and data integration are poor. Cities and governments struggle with the implementation of e-scooters, e-bikes, e-buses and more.

The Centers for Disease Control reports 20 individuals were injured per 100,000 e-scooter trips taken during a three-month period in 2019. Recently, a New Jersey teen was killed while riding an e-scooter provided to the city by the company Lime. The city's council then voted unanimously to end its six-month pilot program with Lime just 25 days after launch. Physical harm like this poses a big setback for cities looking to adopt wide systems of transportation and integrated micromobility.

To ensure as frictionless a changeover as possible, municipalities and companies need to work together on a coordinated and comprehensive effort that links communications and systems so that data can be properly used to increase efficiency.

These new modes of transportation must also integrate into the existing infrastructure of the city. For example, a scooter dock should be next to a subway or e-bus station and so on. In Hoboken, N.J., e-bikes and scooters connect with public transit. In an effort to promote safety, the Hoboken police department hired more officers to police e-scooter traffic violations. Mobile apps should be used and linked on one platform to achieve maximum efficiency. With this comes the risk of data privacy concerns as citizens may not want their daily commutes recorded.

Cyber and Data Risks

As more transportation data goes online, more security risks emerge. A key component of smart cities is the internet of things (IoT) technology, which enables the interconnection of computing devices embedded in everyday objects, enabling them to send and receive data via the internet. In a smart city, a smartphone, sensor, street lights and even a scooter are all linked on the same network, reading and analyzing data to predict and respond to traffic patterns, the movement of people and other everyday occurrences.

IoT necessitates dedication to sustainability, efficiency and transparency. Implementing it comes with some big tasks: Infrastructure, transportation and data collection need to be upgraded or replaced, and secured with the proper cyberrisk mitigation software. Cities must prepare carefully before diving into this endeavor, but if risks can be properly managed, urban centers will become more vibrant, sustainable and cleaner than ever before.

As cities integrate more IoT technology, public entities, counties, water districts and even schools will be exposed to hacking threats.

In December 2019, four U.S. cities were subject to ransomware attacks. As each sector brings more technology into the system (smart lights, sensors, wearables, etc.), they become more vulnerable. Currently, there's a lack of understanding about how devices work and how they could pose a threat. Just one compromised device can take down the whole system. As departments connect and expand, more devices will be deployed and thus, a greater risk.

Smart cities already have experienced malicious attacks, unintentional collapses of critical infrastructure, and systemic failures that have cascaded across networks. These failures often occur due to unexpected security flaws caused by connecting new smart networks to old, insecure platforms and devices.

The threat of ransomware follows closely behind data systems. With so many devices and sensors deployed and connected to each other, hackers could potentially take down the whole system in one fell swoop.

Without the proper defenses in place, a fully connected 5G citywide system would expose itself to hackers seeking ransoms or foreign government threats seeking to cripple infrastructure. A simple click on a phishing email on an IoT device by one employee can spell danger for the entire city. Continued and robust training for employees is needed to prevent these kinds of attacks.

Diligence and dedication to the smart city will ultimately mitigate risks and create safer environments for citizens of today and of the future. However, the road to that safer environment will present challenges to insurers.

Building Trust

Lastly, and perhaps most importantly, to properly build a smart city, cooperation between the citizens, the city, and state government is absolutely necessary. There are news reports about e-scooters being thrown into rivers, technology destroyed and the general distrust of new smart technologies.

A lack of cooperation and collaboration, and perhaps most importantly, a lack of trust are three of the major risks a city can face in the wake of smart city technology.

Without public support, the city cannot properly function and move forward. State governments, including New York, have turned down bills that would allow cities to permit the use of e-scooters and bikes due to a lack of sufficient coordination and clear goals.

While it's impossible to win over everyone, the city itself needs to engage and educate its citizens on the purpose and goals of becoming a smarter city. Trust can be built through transparency. For example, cities should explain why a certain sensor or an algorithm tracks their movements. It could be for better emergency response or better coordination of traffic. Either way, cities need to be clear about what they hope to accomplish.

When a city communicates its goal, people can reason and assess whether they want to share their data or not. Revealing details about new technology gives residents the opportunity to share their opinion and their trust with their municipal leaders.


Diligence and dedication to the smart city will ultimately mitigate risks and create safer environments for citizens of today and of the future. However, the road to that safer environment will present challenges to insurers. Smart technology has the potential to touch every insurance discipline—claims, underwriting, actuarial and product development, to name just a few. As the urban landscape is transformed by autonomous vehicles and smart infrastructure, dramatic changes in loss patterns may emerge.

For example, in auto liability, health insurance and workers' compensation, will the reduction in frequency and severity of accidents require new predictive models to assure rate stability? The rise of IoT devices connected to infrastructure creates new vectors for cyberthreats.

As cybercriminals exploit vulnerabilities can the marketplace continue to support terms and conditions that allow for payment of ransom or will coverage focus on protection and recovery? Insurers must begin to put these emerging risks on their radar now to be ready when deployment is widespread.

Smart cities will change the way we live, work and explore. Overcoming the inherent risks that come with developing these smarter, more efficient cities is no small feat. Cyberattacks, public distrust and injuries from new types of micromobility technology are real threats, but can be managed if everyone shares the responsibility. Ultimately, building a smart city requires smart government and smart citizens.

Best’s Review contributor Thom Rickert is senior vice president at Allied Public Risk. He can be reached at

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