Risk Insider: Chris Mandel

Risk, Disrupted

By: | February 22, 2016 • 3 min read
Chris Mandel is SVP, strategic solutions for Sedgwick and Director of the Sedgwick Institute. He is a long-term risk management leader and a former president of RIMS. He can be reached at [email protected]

With increasing frequency, the world of risk and insurance is facing challenges that are leading to disruptive interventions from a variety of sources, the aggregate of which portends some significant shifts in an industry often viewed as being stuck in a lower gear.


Well known and understood among underwriters is the challenge of the investment environment, which has been disrupted continuously since 2008 with returns being artificially suppressed by the federal government’s economic strategy. This fact only exacerbates the reality of the conservative investment limitations already imposed on the industry by regulators.

In the health care world, the Affordable Care Act has surely disrupted medical benefit plans. Most Americans have been accustomed to leveraging their benefits to protect their assets from catastrophic health events and, perhaps to an even greater degree, manage their day-to-day medical costs.

While one of the few clear benefits of the ACA is the catastrophe protection enabled by the removal of aggregate expense caps (previously the lifetime maximum was $1 million in many plans), many other changes brought about by the ACA have been at a minimum, disruptive. Common sense would suggest you can’t expand an exposure and constrain an underwriter’s ability to charge the appropriate premium for risk underwritten, without a significant negative impact on premiums. Underwriting disrupted.

Disruption has the potential to drive innovation and improve the industry for the better as players are forced to respond to with ideas and solutions that are often outside [the box].

We find ourselves inexplicably surprised that the $2,500 average savings promised by the administration has been anything but the reality. In fact, just the opposite is emerging for many who are not eligible for subsidies (estimated by the CBO to be over $300B in 2016).  Corporate medical/benefits budgets and planning continue to be disrupted while benefit levels are reduced and/or premium increases are increasingly common.

In the property/casualty world, two new exposures are fanning the flames of the unknowns for underwriters. First, social media risk emerges as a potentially more damaging source of loss than even more well-known and better understood exposure to hacking. The latest example is hot off the press with Kalobios filing for chapter 11 after its CEO used both regular and social media to trumpet his decision to exploit the pricing of a newly deregulated drug to the detriment of the customer. This rapidly led to disclosures of alleged criminal (yet unrelated) conduct, leading to the CEO’s firing and now the demise of another potentially great company.


Total elapsed time from first negative media to bankruptcy: three months.

Another emerging exposure of growing concern is “domestic” terrorism. Since Ft. Hood, San Bernardino, the Boston Marathon and other assorted instances of targeted violence in recent years, domestic terrorism is becoming more “expected” than one would have hoped, yet the industry’s ability to predict the impact or severity remains limited.

Assessing and pricing exposures accurately where there is insufficient historical data to support conclusions is a challenge for an industry so heavily reliant on data to accurately price risk. Disruption looks to be evolving into a more frequent and accelerating characteristic of this industry.

While challenging, disruption has the potential to drive innovation and improve the industry for the better as players are forced to respond to with ideas and solutions that are often outside the typical considerations of an industry constrained by regulation and the vagaries of new and often poorly understood exposures. Accordingly, I see disruption as a necessary sign of likely progress ahead.

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Marine

Crewless Ships Raise Questions

Is a remote operator legally a master? New technology confounds old terms.
By: | March 5, 2018 • 6 min read

For many developers, the accelerating development of remote-controlled and autonomous ships represents what could be the dawn of a new era. For underwriters and brokers, however, such vessels could represent the end of thousands of years of maritime law and risk management.

Rod Johnson, director of marine risk management, RSA Global Risk

While crewless vessels have yet to breach commercial service, there are active testing programs. Most brokers and underwriters expect small-scale commercial operations to be feasible in a few years, but that outlook only considers technical feasibility. How such operations will be insured remains unclear.

“I have been giving this a great deal of thought, this sits on my desk every day,” said Rod Johnson, director of marine risk management, RSA Global Risk, a major UK underwriter. Johnson sits on the loss-prevention committee of the International Union of Maritime Insurers.

“The agreed uncertainty that underpins marine insurance is falling away, but we are pretending that it isn’t. The contractual framework is being made less relevant all the time.”

Defining Autonomous Vessels

Two types of crewless vessels are being contemplated. First up is a drone with no one on board but actively controlled by a human at a remote command post on land or even on another vessel.

While some debate whether the controllers of drone aircrafts are pilots or operators, the very real question yet to be addressed is if a vessel controller is legally a “master” under maritime law.


The other type of crewless vessel would be completely autonomous, with the onboard systems making decisions about navigation, weather and operations.

Advocates tout the benefits of larger cargo capacity without crew spaces, including radically different hull designs without decks people can walk on. Doubters note a crew can fix things at sea while a ship cannot.

Rolls-Royce is one of the major proponents and designers. The company tested a remote-controlled tug in Copenhagen in June 2017.

“We think the initial early adopters will be vessels operating on fixed routes within coastal waters under the jurisdiction of flag states,” the company said.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.”

Once autonomous ships are a reality, “the entire current legal framework for maritime law and insurance is done,” said Johnson. “The master has not been replaced; he is just gone. Commodity ships (bulk carriers) would be most amenable to that technology. I’m not overly bothered by fully automated ships, but I am extremely bothered by heavily automated ones.”

He cited two risks specifically: hacking and fire.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.” — Rolls-Royce Holdings study

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty, asked an even more existential question: “From an insurance standpoint, are we even still talking about a vessel as it is under law? Starting with the legal framework, the duty of a flag state is ‘manning of ships.’ What about the duty to render assistance? There cannot be insurance coverage of an illegal contract.”

Several sources noted that the technological development of crewless ships, while impressive, seems to be a solution in search of a problem. There is no known need in the market; no shippers, operators, owners or mariners advocate that crewless ships will solve their problems.

Kinsey takes umbrage at the suggestion that promotional material on crewless vessels cherry picks his company’s data, which found 75 percent to 90 percent of marine losses are caused by human error.


“Removing the humans from the vessels does not eliminate the human error. It just moves the human error from the helm to the coder. The reports on development by the companies with a vested interest [in crewless vessels] tend to read a lot like advertisements. The pressure for this is not coming from the end users.”

To be sure, Kinsey is a proponent of automation and technology when applied prudently, believing automation can make strides in areas of the supply chains. Much of the talk about automation is trying to bury the serious shortage of qualified crews. It also overshadows the very real potential for blockchain technology to overhaul the backend of marine insurance.

As a marine surveyor, Kinsey said he can go down to the wharf, inspect cranes, vessels and securements, and supervise loading and unloading — but he can’t inspect computer code or cyber security.

New Times, New Risks

In all fairness, insurance language has changed since the 17th century, especially as technology races ahead in the 21st.

“If you read any hull form, it’s practically Shakespearean,” said Stephen J. Harris, senior vice president of marine protection UK, Marsh. “The language is no longer fit for purpose. Our concern specifically to this topic is that the antiquated language talks about crew being on board. If they are not on board, do they still legally count as crew?”

Harris further questioned, “Under hull insurance, and provided that the ship owner has acted diligently, cover is extended to negligence of the master or crew. Does that still apply if the captain is not on board but sitting at a desk in an office?”

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty

Several sources noted that a few international organizations, notably the Comite Maritime International and the International Maritime Organization, “have been very active in asking the legal profession around the world about their thoughts. The interpretations vary greatly. The legal complications of crewless vessels are actually more complicated than the technology.”

For example, if the operational, insurance and regulatory entities in two countries agree on the voyage of a crewless vessel across the ocean, a mishap or storm could drive the vessel into port or on shore of a third country that does not recognize those agreements.

“What worries insurers is legal uncertainty,” said Harris.

“If an operator did everything fine but a system went down, then most likely the designer would be responsible. But even if a designer explicitly accepted responsibility, what matters would be the flag state’s law in international waters and the local state’s law in territorial waters.


“We see the way ahead for this technology as local and short-sea operations. The law has to catch up with the technology, and it is showing no signs of doing so.”

Thomas M. Boudreau, head of specialty insurance, The Hartford, suggested that remote ferry operations could be the most appropriate use: “They travel fixed routes, all within one country’s waters.”

There could also be environmental and operational benefits from using battery power rather than conventional fuels.

“In terms of underwriting, the burden would shift to the manufacturer and designer of the operating systems,” Boudreau added.

It may just be, he suggested, that crewless ships are merely replacing old risks with new ones. Crews can deal with small repairs, fires or leaks at sea, but small conditions such as those can go unchecked and endanger the whole ship and cargo.

“The cyber risk is also concerning. The vessel may be safe from physical piracy, but what about hacking?” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]