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.


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?”


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.


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 Scenario

A Recall Nightmare: Food Product Contamination Kills Three Unborn Children

A failure to purchase product contamination insurance results in a crushing blow, not just in dollars but in lives.
By: | October 15, 2018 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.


Reilly Sheehan, the Bethlehem, Pa., plant manager for Shamrock Foods, looks up in annoyance when he hears a tap on his office window.

Reilly has nothing against him, but seeing the face of his assistant plant operator Peter Soto right then is just a case of bad timing.

Sheehan, whose company manufactures ice cream treats for convenience stores and ice cream trucks, just got through digesting an email from his CFO, pushing for more cost cutting, when Soto knocked.

Sheehan gestures impatiently, and Soto steps in with a degree of caution.

“What?” Sheehan says.

“I’m not sure how much of an issue this will be, but I just got some safety reports back and we got a positive swipe for Listeria in one of the Market Streetside refrigeration units.”



Sheehan gestures again, and Soto shuts the office door.

“How much of a positive?” Sheehan says more quietly.

Soto shrugs.

“I mean it’s not a big hit and that’s the only place we saw it, so, hard to know what to make of it.”

Sheehan looks out to the production floor, more as a way to focus his thoughts than for any other reason.

Sheehan is jammed. It’s April, the time of year when Shamrock begins to ramp up production for the summer season. Shamrock, which operates three plants in the Middle Atlantic, is holding its own at around $240 million in annual sales.

But the pressure is building on Sheehan. In previous cost-cutting measures, Shamrock cut risk management and safety staff.

Now there is this email from the CFO and a possible safety issue. Not much time to think; too much going on.

Sheehan takes just another moment to deliberate: It’s not a heavy hit, and Shamrock hasn’t had a product recall in more than 15 years.

“Okay, thanks for letting me know,” Sheehan says to Soto.

“Do another swipe next week and tell me what you pick up. I bet you twenty bucks there’s nothing in the product. That swipe was nowhere near the production line.”

Soto departs, closing the office door gingerly.

Then Sheehan lingers over his keyboard. He waits. So much pressure; what to do?

“Very well then,” he says to himself, and gets to work crafting an email.

His subject line to the chief risk officer and the company vice president: “Possible safety issue: Positive test for Listeria in one of the refrigeration units.”

That night, Sheehan can’t sleep. Part of Shamrock’s cost-cutting meant that Sheehan has responsibility for environmental, health and safety in addition to his operations responsibilities.

Every possible thing that could bring harmful bacteria into the plant runs through his mind.

Trucks carrying raw eggs, milk and sugar into the plant. The hoses used to shoot the main ingredients into Shamrock’s metal storage vats. On and on it goes…

In his mind’s eye, Sheehan can picture the inside of a refrigeration unit. Ice cream is chilled, never really frozen. He can almost feel the dank chill. Salmonella and Listeria love that kind of environment.

Sheehan tosses and turns. Then another thought occurs to him. He recalls a conversation, just one question at a meeting really, when one of the departed risk management staff brought up the issue of contaminated product insurance.

Sheehan’s memory is hazy, stress shortened, but he can’t remember it being mentioned again. He pushes his memory again, but nothing.

“I don’t need this,” he says to himself through clenched teeth. He punches up his pillow in an effort to find a path to sleep.


“Toot toot, tuuuuurrrrreeeeeeeeettt!”

The whistles of the three lifeguards at the Bradford Community Pool in Allentown, Pa., go off in unison, two staccato notes, then a dip in pitch, then ratcheting back up together.

For Cheryl Brick, 34, the mother of two and six-months pregnant with a third, that signal for the kids to clear the pool for the adult swim is just part of a typical summer day. Right on cue, her son Henry, 8, and his sister Siobhan, 5, come running back to where she’s set up the family pool camp.

Henry, wet and shivering and reaching for a towel, eyes that big bag.

“Mom, can I?”

And Cheryl knows exactly where he’s going.

“Yes. But this time, can you please bring your mother a mint-chip ice cream bar along with whatever you get for you and Siobhan?”

Henry grabs the money, drops his towel and tears off; Siobhan drops hers just as quickly, not wanting to be left behind.


“Wait for me!” Siobhan yells as Henry sprints for the ice cream truck parked just outside of the pool entrance.

It’s the dead of night, 3 am, two weeks later when Cheryl, slumbering deeply beside her husband Danny, is pulled from her rest by the sound of Siobhan crying in their bedroom doorway.

“Mom, dad!” says Henry, who is standing, pale and stricken, in the hallway behind Siobhan.

“What?” says Danny, sitting up in bed, but Cheryl’s pregnancy sharpened sense of smell knows the answer.

Siobhan, wailing and shivering, has soiled her pajamas, the victim of a severe case of diarrhea.

“I just barfed is what,” says Henry, who has to turn and run right back to the bathroom.

Cheryl steps out of bed to help Siobhan, but the room spins as she does so.

“Oh God,” she says, feeling the impact of her own attack of nausea.

A quick, grim cleanup and the entire family is off to a walk-up urgent care center.

A bolt of fear runs through Cheryl as the nurse gives her the horrible news.

“Listeriosis,” says the nurse. Sickening for children and adults but potentially fatal for the weak, especially the unborn.

And very sadly, Cheryl loses her third child. Two other mothers in the Middle Atlantic suffer the same fate and dozens more are sickened.

Product recall notices from state regulators and the FDA go out immediately.

Ice cream bars and sandwiches disappear from store coolers and vending machines on corporate campuses. The tinkly sound of “Pop Goes the Weasel” emanating from mobile ice cream vendor trucks falls silent.

Notices of intent to sue hit every link in the supply chain, from dairy cooperatives in New York State to the corporate offices of grocery store chains in Atlanta, Philadelphia and Baltimore.

The three major contract manufacturers that make ice cream bars distributed in the eight states where residents were sickened are shut down, pending a further investigation.

FDA inspectors eventually tie the outbreak to Shamrock.

Evidence exists that a good faith effort was underway internally to determine if any of Shamrock’s products were contaminated. Shamrock had still not produced a positive hit on any of its products when the summer tragedy struck. They just weren’t looking in the right place.


Banking on rock-solid relationships with its carrier and brokers, Shamrock, through its attorneys, is able to salvage indemnification on its general liability policy that affords it $20 million to defray the business losses of its retail customers.


But that one comment from a risk manager that went unheeded many months ago comes back to haunt the company.

All three of Shamrock’s plants were shuttered from August 2017 until March 2018, until the source of the contamination could be run down and the federal and state inspectors were assured the company put into place the necessary protocols to avoid a repeat of the disaster that killed 3 unborn children and sickened dozens more.

Shamrock carried no contaminated product coverage, which is known as product recall coverage outside of the food business. The production shutdown of all three of its plants cost Shamrock $120 million. As a result of the shutdown, Shamrock also lost customers.

The $20 million payout from Shamrock’s general liability policy is welcome and was well-earned by a good history with its carrier and brokers. Without the backstop of contaminated products insurance, though, Shamrock blew a hole in its bottom line that forces the company to change, perhaps forever, the way it does business.

Management has a gun to its head. Two of Shamrock’s plants, including Bethlehem, are permanently shuttered, as the company shrinks in an effort to stave off bankruptcy.

Reilly Sheehan is among those terminated. In the end, he was the wrong person in the wrong place at the wrong time.

Burdened by the guilt, rational or not, over the fatalities and the horrendous damage to Shamrock’s business. Reilly Sheehan is a broken man. Leaning on the compassion of a cousin, he takes a job as a maintenance worker at the Bethlehem sewage treatment plant.

“Maybe I can keep this place clean,” he mutters to himself one night, as he swabs a sewage overflow with a mop in the early morning hours of a dark, cold February.


Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are their recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

Shamrock Food’s story is not an isolated incident. Contaminations happen, and when they do they can cause a domino effect of loss and disruption for vendors and suppliers. Without Product Recall Insurance, Shamrock sustained large monetary losses, lost customers and ultimately two of their facilities. While the company’s liability coverage helped with the business losses of their retail customers, the lack of Product Recall and Contamination Insurance left them exposed to a litany of risks.

Risk Managers in the Food & Beverage industry should consider Product Recall Insurance because it can protect your company from:

  • Accidental contamination
  • Malicious product tampering
  • Government recall
  • Product extortion
  • Adverse publicity
  • Intentionally impaired ingredients
  • Product refusal
  • First and third party recall costs

Ultimately, choosing the right partner is key. Finding an insurer who offers comprehensive coverage and claims support will be of the utmost importance should disaster strike. Not only is cover needed to provide balance sheet protection for lost revenues, extra expense, cleaning, disposal, storage and replacing the contaminated products, but coverage should go even further in providing the following additional services:

  • Pre-incident risk mitigation advocacy
  • Incident investigation
  • Brand rehabilitation
  • Third party advisory services

A strong contamination insurance program can fill gaps between other P&C lines, but more importantly it can provide needed risk management resources when companies need them most: during a crisis.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]