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2018 Most Dangerous Emerging Risks

AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field. 
By: | April 9, 2018 • 7 min read

Viewers of even one hour of commercial television will likely see pharmaceutical commercials promising to cure eczema, migraine headaches or pattern baldness, among other things. But as fast as viewers can say, ‘ask your doctor if this is right for you,’ on comes a scary litany of associated risks.

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Some industry insiders would say that it’s the same scenario with artificial intelligence (AI) — lots of benefits but with every benefit comes a new risk or two, making AI a risk multiplier across many industries, insurance included.

Artificial intelligence is already surrounding us. More and more, common — and evolving — intelligent devices at home, work, school and play are woven into the fabric of our lives. Some we recognize. Some we don’t. But either way, it’s here; it’s not going away. Nor should it. With the potential to do many things better, quicker, cheaper and safer, AI is a force to be embraced.

For example, AI can perform fraud detection much more robustly than humans can. Look at medical billing fraud as an example.

Thompson (Tom) Mackey, risk management consultant, EPIC Insurance Brokers and Consultants, said the auditing of Medicare cases with an eye toward fraud detection is 8 percent successful when conducted by humans. Using AI, the detection rate increases to 80 percent.

Instead of fearing AI, experts say, it’s better to identify risks and work to mitigate them.

Adam Cottini, managing director, cyber liability practice; area senior vice president, Gallagher

Adam Cottini, managing director, cyber liability practice and area senior vice president, Gallagher, New York City, where he is responsible for the overall direction of the cyber liability practice, said “a shift in liability” is an AI risk that should be on the radar of insurers and insureds.

“Technology allows machine learning in things such as robotics, self-driving cars, drones and other items. These things are deployed in a variety of industries. What happens if there is a massive failure? When something goes wrong you need to assess the loss and determine who is liable.”

Despite the dangers, Cottini feels that AI offers a great opportunity to increase safety and decrease injuries and losses.

“The predictive algorithms have given AI an edge over humans. There is a small percentage of decisions where a human has an advantage. For most decisions, in driving or other areas, the machine is going to perform at a higher level.

“If you are a risk manager of a vehicle fleet, you need to look at the cost-benefit of the automated technology. But you also consider how AI is helpful. It can quickly find and diagnose problems. It’s the best of both worlds — it does what it can, and if need be, it also involves a human,” he said.

Take, for example, self-driving cars. “What is the safety mechanism?” Cottini asked. “These devices are all connected. How do they deal with a failure at the command center? What is the back-up plan? Can they communicate locally?”

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In this scenario, Cottini said liability is likely to shift from auto policies to product liability policies; from drivers to product manufacturers.

Mackey specializes in the design and implementation of risk management programs for clients. Mackey identified a range of internet-related risks that fall under the umbrella of cyber security and also named business interruption as an exposure. But, the biggest risk, Mackey said, is the risk of the unknown.

“AI is a newer risk, but it’s also a game changer. It changes every day,” Mackey said. “With fire or property or anything else, the risks are well known. There are risks that are inherent in AI that we don’t know about yet. In my mind, the main risk associated with AI is basically the uncertainty that comes with it. It’s a brand-new frontier.”

“Liability is likely to shift from auto policies to product liability policies; from drivers to product manufacturers.” — Adam Cottini, managing director, cyber liability practice, Gallagher

Kelly Geary, Integro’s U.S. cyber practice leader and managing principal, also said AI is a risk multiplier in the form of increased cybercrime.

“Cybercrime is already at pandemic levels,” Geary said. “The ROI for a cybercriminal is 1,000-plus, and the risk of getting caught is low. AI makes it easier for these criminals to perpetrate crimes en masse.”

Also high on Geary’s radar is what she called a shift from financial risk to personal risk: “AI can now threaten people personally,” she said. “Lives, health and health care are at risk. People with medical devices such as pacemakers could be affected. Criminals can control heating and cooling systems in a hospital ICU. The more connected we become, the more at risk we are,” Geary said.

Manufacturing companies, Mackey said, are becoming ultra-lean, and therefore leveraging AI through machine learning and automation.

If a machine breaks down, it could cause significant business interruption losses and contingent losses. Also, as machines work and learn, they are collecting data. A desire for that data could make manufacturers vulnerable to a cyberattack from a competitor, a bad actor or a foreign entity.

Mitigating the Risk

When it comes to cyber security, AI is a double-edged sword. The same technology that can cost insurers and insureds millions of dollars, enable theft of trade secrets, weaken reputational status and even jeopardize personal safety can help organizations combat the constantly evolving bag of tricks used by cyber criminals.

Protecting your business from cybercrime requires a cultural shift, said Geary. “Someone at the top has to prioritize awareness and solutions and make sure they permeate through the entire organization.”

Kelly Geary, U.S. cyber practice leader and managing principal, Integro

Cybercrime was previously the specialty of the “freelancer,” someone toiling away nights in a clandestine garage. But that’s shifted in the last 5 to 10 years, Geary said. Today’s cyber criminals are sophisticated, organized crime entities with call centers and often unwitting employees doing their dirty work.

“The motivation behind cybercrime is high,” Geary said. “It’s a mature and profitable business model. Organizations need to view this risk like a competitor and protect themselves vigorously.”

To get started, Geary said “organizations should ask questions that include, ‘What is important to us and what is our risk tolerance?’”

Armed with that information, organizations can create tailored, company-specific safeguards. “If leveraged properly and applied for a specific industry, AI can make it more difficult for cyber criminals to prevail,” she said.

Proactive steps also can help protect your organization from regulatory or civil litigation related to a cyberattack, such as the information breeches that plagued national retailers and a credit-rating organization.

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Mackey, too, is a proponent of actively protecting one’s interests.  One very effective way to help combat cybercrime, especially practices such as spear-phishing and social engineering, he said, is to educate human workers to know the signs of these crimes and put in place safeguards and best practices for transferring money and information.

“Hold a mock spear-phishing campaign, during which employees are sent emails and have to decide whether to open them,” he said. Many large companies do this and successfully improve their employees knowledge and “don’t-open rate” for suspicious emails.

Employee training is key. In fact, a Poneman study found that “businesses that roll out training programs see improvements of between 26 percent and 99 percent in their phishing email click rates, with an average improvement of 64 percent.”

“Too many companies are not fighting fire with fire. They are responding in traditional ways to an increasingly sophisticated problem.” — Kelly Geary, U.S. cyber practice leader and managing principal, Integro

When facing changing liability scenarios, insurers and insureds can protect themselves by being very thorough in contract language. Choose your words carefully, because those words determine liability.

The same holds true for unknown risks. “I’d offer the same advice I do on any new risk,” Mackey said. “Pay ultra-close attention to the language. If there is a failure, how does the policy language affect you?”

“Too many companies are not fighting fire with fire,” Geary said. “They are responding in traditional ways to an increasingly sophisticated problem.” &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession: Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

R&I: How did you come to work in risk management?

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

R&I: What is the risk management community doing right?

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I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

R&I: What could the risk management community be doing a better job of?

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

R&I: What emerging commercial risk most concerns you?

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

R&I: What insurance carrier do you have the highest opinion of?

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Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

R&I: What have you accomplished that you are proudest of?

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

R&I: What is your favorite book or movie?

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

R&I: What is the most unusual/interesting place you have ever visited?

The Grand Canyon. It is just so vast. A close second is Stonehenge.

R&I: What is the riskiest activity you ever engaged in?

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A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

R&I: What about this work do you find the most fulfilling or rewarding?

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

R&I: What do your friends and family think you do?

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]