Best's Review

A.M. BEST'S MONTHLY INSURANCE MAGAZINE


ADVERTISEMENT
ADVERTISEMENT

Industry Updates
For Marine Consultant, Spread of Cyber At Sea Means Multiplication of Risk

Plus a look at commercial auto, the threats from big data and Munich Re enters a joint venture.
  • August 2018
  • print this page
Giles Hunnisett, Waves Group

Giles Hunnisett, Waves Group

Imagine a bug or a malicious attack that gets into a thousand of those ships.

The spread of cyber technology among the world's merchant fleets has multiplied the headaches of marine insurers, according to Giles Hunnisett, a master mariner with U.K. consultants Waves Group.

In pre-cyber days, Hunnisett told the Marine Insurance London conference, a collision at sea might have been traced back to the misreading of a chart.

Today, the worries of ship operators and insurers are on a bigger scale: A bug affecting a large number of vessels, for instance, could bring a widespread failure of navigational systems in an important an international shipping lane and trigger massive business interruption claims.

It is possible for up to 20,000 vessels to have similar software, Hunnisett said. “Imagine a bug or a malicious attack that gets into a thousand of those ships,” he said.

Charles Fernandez, head of marine liability and hull at Lloyd's specialty insurer Canopius, said cyberrisk falls into three main categories: physical loss or damage to the insured asset; business interruption, and the loss or theft of data. A data loss claims might cover the “hugely expensive” restoration of a disabled computer system, he suggested.

“We all need to appreciate that cyberrisk is increasing, and increasing every day.” Fernandez said.

One question is where to place these risks: into the reinsurance market, say, or the cyber market, Fernandez said. He said he believes business interruption risk should go into the marine market, while loss of data should be put into the cyber market.

Fernandez said there is uncertainty in the insurance market about the pricing of cyberrisk— particularly in regard to the likely frequency and severity of untoward incidents. He said the insurance industry needs to put these questions to cyber industry experts and develop a sense of the potential for a single event to send ripples across the economy.

The insurers also need to work together to tackle the issue of aggregation, Fernandez said.

Monica Tigleanu, a partner in cyber, content and new technology risks at specialist insurance broker JLT Specialty Ltd., said clients are looking for certainty in relation to their coverages from both the marine and cyber markets.

The level of cybersecurity knowledge varies from client to client, Tigleanu said. “Very large marine clients are very aware of the need to invest in that area,” she said. “And some of our smaller ones don't believe they have a risk.”

Tigleanu said cyberrisk carries a geopolitical element. She pointed to what she said have been determined efforts by such nations as Russia and China to conduct cyber espionage.

Hunnisett, whose qualification as a master mariner entitles him to serve as a captain on any commercial vessel in the world, said he is worried the traditional skills that seafarers have developed have not kept pace with the demands of technological change.

“The operational concerns are safety based,” Hunnisett said during a panel discussion on the cyberthreat to marine insurance. “The main concern is whether the ship will crash.”

The connectivity in the maritime sector creates its own pressures, Hunnisett told the audience. “if somebody moves a buoy somewhere in the world that needs to be updated in every ship,” he said.

—Robert O'Connor

Jury Awards, Capacity Impede Commercial Auto Line Improvements, Observers Say

Todd Reiser, Lockton Cos.

Todd Reiser, Lockton Cos.

If you don't have a plan for how to implement this technology it's almost like you're in a different bucket from an underwriting perspective.

Commercial automobile insurers working to improve profitability are hampered by outside jury awards, capacity and other external factors, according to industry observers.

Insurance carriers are raising rates in the low single-digits on accounts with good loss experience, in order to remain competitive, according to Lockton Cos. Vice President Todd Reiser. Accounts with substantial losses could see increases as high as 30% on commercial auto up through excess and umbrella coverages, along with increased retention and deductibles.

Low pricing and other factors played into the challenged environment, said Willis Towers Watson North American's head of casualty brokerage Jonathon Drummond.

“Eight-to-nine-figure judgments are almost the norm,” he said. The industry was late to react to the severity in claims and rate adequacy in commercial auto, Reiser said. “The prolonged soft market didn't help. Now it's a target of the plaintiff's bar.”

The first $10 million in commercial auto coverage is now considered a working layer, the next $10 million is pressured and it's all severity driven, said Reiser. The trucking industry continues to see verdicts ranging from $20 million to $40 million.

The number of U.S. auto fatalities declined for decades to a low of 32,479 in 2011, according to the National Highway Transportation Safety Administration. It increased to 37,461 in 2016 and was accompanied by rising loss-costs.

Juries are holding commercial drivers—whether behind the wheel of a tractor-trailer or a box truck— to higher duty of care standards when deciding awards, said Drummond.

He thinks commercial auto is probably the most challenged line for property/casualty writers. “The worst is kind of behind us. It's not necessarily improving, but it's keeping pace” with loss trends.

Reiser said technology is a main answer to the severity issue, said Reiser. “If you don't have a plan for how to implement this technology it's almost like you're in a different bucket from an underwriting perspective.”

Lockton works extensively with large fleets of 100 or more power units, where collision avoidance technology is making a “huge impact” on severity, said Reiser. “What would have been a catastrophic rear-end collision is not happening, nor is a 5 mph” accident. As the ease of telematics improves and the cost of technology declines, it removes a barrier to entry for commercial truckers, said Drummond. Previously, retrofitting vehicles was disruptive, causing down time.

While technology-driven increases in repair costs have impacted personal auto insurers, Reiser said its not an issue in large commercial because most fleets self-insure physical damage.

The commercial auto insurance market's $9.7 billion in underwriting losses from 2012 to 2016 are likely to continue as losses have outpaced rising premiums, according to Diane Injic, Verisk director of commercial auto underwriting.

Frequency also rose rapidly after the recession ended in 2010-2011, said Jim Davidson, Verisk commercial auto actuarial director, while commercial auto insurers lowered rates an additional two years.

Industrywide, the combined ratio in commercial lines worsened 2.8 points last year, compared with 2016, according to a Best's Special Report, although compounded rate increases and underwriting changes have improved the line in recent years.

—Renée Kiriluk-Hill

Chairman of UK Financial Conduct Authority Warns of Threat From Big Data

The ability of corporations to collect and analyze vast amount of personal data on their customers has created a range of moral and technical challenges for regulators, according to Charles Randell, chairman of the U.K. Financial Conduct Authority.

In a speech in London, Randell pointed to the growing fear of “big data” and the creation of an “algocracy,” a system in which business decisions are effectively made by algorithms.

“We need to anticipate the fundamental questions which big data, artificial intelligence and behavioral science present, and make sure that we innovate ethically to shape the answers,” said Randell, who is also chairman of the United Kingdom's Payment Systems Regulator.

The issue of big data is made more serious by the control of enormous “datasets” by a small number of large corporations, Randell said.

These databases will grow even larger, as a result of the ability of personal devices to capture and relay information, he said.

Artificial intelligence is improving the ability to mine data, Randell said.

“Whereas in the past firms could only target broad groups of consumers, these patterns can now be turned into conclusions about us as individuals,” he said. “They can make predictions about our future behavior, and then decide which products and services we should be offered and on which terms.”

At the same time, Randell said the behavioral science can allow businesses to predict actions and nudge potential customers in certain directions. “Some nudges may be in consumers' interests, as with auto-enrollment for pensions,” he said. “But there is the potential for them to be used against our interests too.”

As the use of big data by corporations becomes central to people's lives, Randell said, “significant questions [have emerged] about the adequacy of global frameworks for competition and regulation.”

Algorithms can point online customers to insurance products, decide who gets a mortgage, or who gets a job interview, Randell said. “Right now,” he told the audience, “your partner may be using an algorithm to find someone better.”

Randell recalled The Prisoner, the 1960s television series in which Patrick McGoohan played the title role, aka “No. 6,” who was constantly manipulated by forces he could neither trust nor fathom.

Randell also offered a message of optimism, based on the advances science has already brought. He mentioned the improved detection of crime and the easier availability of financial expertise. He also noted the worldwide reputation of the U.K. financial technology sector. “But there is no room for complacency,” he said.

—Robert O'Connor

Munich Re, One Insurance Launch Venture

Tobias Sonndorfer

Tobias Sonndorfer

Our strategic alliance allows for usage of data entirely unknown to the insurance industry as yet.

One Insurance, a European digital insurer, launched a joint venture with Munich Re called One Coach, which uses encryption technology and factors such as work time, sleep movements and location to craft insurance coverage shaped around customer conditions.

Through One Coach, customers can benefit from bonus points at year end, and in its next step, One will provide modular short-term insurance based on the individual lifestyle and location of a given customer, the company said in a statement. “Our strategic alliance allows for usage of data entirely unknown to the insurance industry as yet,” said Tobias Sonndorfer, executive director Munich Re, in a statement. “Combine this with the power of an independent, fully digital insurer, and you understand the impact our joint venture will have in changing the insurance business as a whole.”

“One has an insurance product architecture under construction which will push experiences ahead of the entire market regarding features like adjustable short-term coverage, micro modularization of risks and real-time utilization of IoT-data,” Stephan Ommerborn, chief executive officer and co-founder of One Insurance, said.

—David Pilla


Back to Home


ADVERTISEMENT