Big Data, Climate Change and the Talent Gap: The Biggest Risks We Need to Prepare for Now

With the ever-evolving risk landscape, risk professionals have to stay on top of today’s biggest drivers of change to combat tomorrow’s business roadblocks.
By: | April 14, 2020

The world is changing. Now more than ever, individuals and companies alike are connecting across the globe, expanding their enterprises as well as opening themselves up to potential risk.

As technologies advance and transportation connects far off places — giving the world’s inhabitants even more access to one another — mitigation strategies to combat these interconnecting risks are also shifting.

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Take the coronavirus pandemic as an example. Because of how the world is connected, what started as a localized outbreak in Wuhan, China spanned the globe in a matter of weeks, causing many businesses to shut their doors while countries worked to contain the global pandemic.

Social and news media covered the virus morning, noon and night. Employers scrambled to create business continuity plans as work-from-home and telecommuting became the sole drivers of business operations.

“What was once known as a human resources perk at U.S. firms has now become a critical link in the business continuity and resiliency chain; the ability to telecommute,” wrote Les Williams, CRO and co-founder of Risk Cooperative in a Risk & Insurance Risk Insider.

While the risk lessons from COVID-19 are still being learned, the pandemic has set the stage for risk professionals to think more critically about what the future holds. What happens if another pandemic arises? What other unseen, yet potential risks exist that can impact how a business will thrive?

But how should professionals go about addressing these dynamic risks of the future today?

It starts with understanding how these risks are coming into play.

“The insurance industry is facing seismic change. Data, technology, expectations from customers and society are just some of the forces that are changing the way insurers will operate,” said Sasha Sanyal, global business leader for insurance, Genpact.

It is with this in mind that Genpact conducted a study entitled “Insurance in the Age of Instinct” to better understand the world its clients of today will be operating in tomorrow.

A Study in Risk: Data and Technology

Genpact’s study found data to be the biggest driver of change in the industry.

“The biggest opportunity — and challenge — for insurers is how to harness data and advanced technologies like artificial intelligence most effectively to manage risk,” said Sanyal.

Our world is hyper-connected, with everything from the Internet and smartwatches to alarm systems and self-driving cars now being linked together by technology. Each connected device or intelligent design enables insurers to collect data on consumers.

Is this individual driving too fast? Do they have sensors at their business to detect flooding? How fast is this employee’s heart beating when performing specific on-the-job functions?

Kera McDonald, chief underwriting officer, bespoke, Swiss Re Corporate Solutions

All this information can be collected through devices and used to find the exact product or service that the customer needs.

“[Tech] is enabling the proliferation of eCommerce, the use of data, personalized services and sharing of assets. Consumers are increasingly demanding personalization, effortless experiences, on-demand and tailored-to-their-needs products and services,” said Daniela L. Lohse, associate vice president, innovation leader, property & casualty, Nationwide.

“For insurers, it’s all about what do to with that data [they’ve collected] and how to use it to deliver more personalized services that increase value to customers,” Sanyal added.

With these avenues of data, however, come risk.

Data and technology open businesses up to significant cyber threats. One Cybercrime Ventures study estimates that cyber crime damages to businesses are anticipated to reach as high as $6 trillion annually by 2021.

Additionally, technology itself is leading to potential global tension, according to one AXA XL study.

“Geopolitical competition over emerging technologies is leading to more fragmented supply chains, increasing costs for businesses. Indeed, countries may eventually develop entirely separate technology ecosystems, raising the costs of compliance for businesses,” the study authors wrote.

“These developments would create new risks and vulnerabilities, alongside new threats exposed by the eventual development of quantum computing.”

AXA XL’s Emerging Risks Survey is an annual study collecting industry leaders’ thoughts on the future of risk management. Data and technology, according to the report, remain in the top five for a second year in a row.  It’s important to note, however, that the survey was published before the 2020 COVID-19 pandemic, which has its own implications on the future global economy.

“Most specialists agree that the full-scale implications of cyber threats are yet to be experienced, especially since technology is rapidly evolving,” the authors wrote.

“Data is everywhere and it’s only going to keep growing,” Sanyal added. “The key to success in the future is how to capture the data and integrate it agilely throughout enterprise operations to make faster, smarter decisions that show customers you care about them.”

A Deeper Dive: Technology and Transportation

One thing is clear: While technology brings risk, so too does it bring reward.

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“Technology is both a risk in itself and a possible help in mitigating risks if we can harness its power. Technology is connecting us in ways that are pervasive and evolving. At the same time, it is allowing us to better analyze events and root causes,” said Kera McDonald, chief underwriting officer, bespoke, Swiss Re Corporate Solutions.

One industry seeing a huge impact from technology is transportation, where the risk landscape is ever-changing as vehicles become more dynamic and consumers have a need for on-demand mobility.

“Electric content in vehicles has grown dramatically,” said Susanna Gotsch, director, industry analyst, CCC Information Services. With new technologies coming into play, cars can now park themselves, brake automatically if a sensor detects a sudden stop, alert a driver to lane departure, set windshield wiper speed based on rainfall and so much more.

Because of this, many transportation industry initiatives have focused on the scale of and investment in connected and shared cars. Technology has effectively shifted the industry from a reactive to a proactive approach.

“Rapidly advancing availability and proliferation of data generated through evolving technology has enabled insurers to begin including connected car data into their pricing models,” said Nationwide’s Lohse.

Jacqueline LeGrand, founder and CEO of MAPTYCS

Traditionally, auto insurance would step in after an accident or incident to help the insured. Now, with technology that’s essentially gathering everything about a vehicle from average speed to pressure applied to the brakes, insurers have an opportunity to understand a business’s drivers and underwrite to their specific risks.

As for the sharing economy, the likes of Uber and Lyft have certainly changed the way the public views transportation. Lohse predicts that this new cultural expectation of on-demand transportation will likely result in a transition from personal vehicle ownership to shared mobility.

“It will ultimately drive growth in an evolving commercial auto insurance market amidst the decline of the personal auto insurance market,” she said.

The final piece of the transportation risk puzzle is autonomous vehicles.

According to Gotsch, 2019 was a bit of a wake-up call for manufacturers: “2019 showed the industry how far it still needs to go before we make autonomous vehicles a reality,” she said.

But with autonomous vehicles as the end goal, the risk landscape is likely to see big change in the coming decade.

“There will be an even bigger debate on liability versus personal liability during accidents,” said Gotsch.

“Vehicle technology is rapidly evolving from human-controlled to machine-controlled vehicles, reducing accidents and saving lives … and ultimately resulting in a decline in traditional insurable risks and a shift in risk accountability from driver/owner to manufacturer/supply chain,” Lohse added.

Once autonomous vehicle technology advances to fully autonomous and becomes accessible to the public via fleets and mobility services companies, “risks will shift from basic auto liability to liability for technologic failures, data security and privacy breaches. At the same time, auto manufacturers will become a major bearer of these risks [and] will attempt to capture much of the revenue associated with these risks by self-insuring and providing additional coverages to vehicle owners,” Lohse predicted.

The Biggest Concern: Climate Change

All the bells and whistles of a tech car, however, aren’t going to prevent damage in the event of, say, a hailstorm.

“Weather is more severe in recent years than it has been in the past. Hailstorms, wildfires, hurricanes are all getting bigger with more power,” said Gotsch. And it’s causing higher losses across many industries — not just transportation.

In the AXA survey, 67% of respondents said climate change is the industry’s number one risk. The 2019 survey also marked the fourth year in a row climate change held the number one spot.

“The insurance industry is facing seismic change. Data, technology, expectations from customers and society are just some of the forces that are changing the way insurers will operate.” — Sasha Sanyal, global business leader for insurance, Genpact

“Respondents emphasize most the physical risks stemming from a changing climate. They are worried by increased exposure to and changing patterns of extreme weather events such as floods, storms, and rising sea levels, which are perceived as having more tangible effects than financial risks or liability risks related to climate change,” reads the report.

“Climate change is here to stay and will affect global economic drivers such as transportation and agriculture,” said Jacqueline LeGrand, founder and CEO of MAPTYCS, an Insurtech company dedicated to connecting data with risk management.

“Risk management and insurance will play an important role in providing new types of coverages such as parametric insurance, but SMEs, large corporations and countries will need to move faster to adjust their processes and the regulatory environments to adjust to the new challenges we are facing, because not all risks can be insured at a reasonable cost,” LeGrand added.

Experts agree that climate change is adding more than a little heat. Volatile storms, prolonged wildfire seasons and extended droughts are disrupting globalized businesses everywhere, from their physical store to their supply chain.

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“Climate change and the interconnected nature of the global economy are creating dynamics that the world hasn’t experienced in the past,” said McDonald of Swiss Re.

“In insurance terms, the severity of events is increasing drastically — whether it be from the concentration of risk due to urbanization or the global supply chain creating correlation between industries. When this increased severity is combined with the increased frequency and volatility of natural catastrophe events, our customers and the industry are facing a very different risk landscape,” she said.

According to McDonald, over the last 25 years, the average insured losses from extreme weather events more than doubled.

“More than half of all insurance losses are now driven by so-called ‘secondary perils’ linked to extreme weather … The evolving nature of the climate change impact and the risk landscape in general means that risk managers can no longer simply look to the past for indications of what we can expect to happen in the future,” she said.

“We have to use the additional transparency and access to information that technology provides to be in front of risks as they emerge.”

Never in Short Supply

Technology, data collection, transportation, climate change — these are just some of the areas that are playing a role in the future of risk.

Daniela L. Lohse, AVP, innovation leader, property & casualty, Nationwide

But many others exist that risk professionals need to have a pulse on as they continue to grow their mitigation strategies. Here are just a few more growing risks affecting the future risk landscape:

The Talent Gap

The RIMS’ Risk Management Talent 2025 report shows only 16% of insurance professionals believe there will be enough graduates to fill open risk management positions by 2025.

But the search for talent is not limited to insurance and risk management; as more of the baby boomer generation retires, every industry is feeling the talent strain.

“The patterns of talent shortage are a screaming blinking light that there is a massive retirement bubble. There has to be a dramatic reconsideration of the type of talent that companies are seeking. It’s deeply concerning how poorly prepared organizations are to face this,” Anna Beninger, global head of diversity & inclusion, AXA XL, told Risk & Insurance.

“New and evolving ways of attracting talent are important considerations in this changing environment,” added Genpact’s Sanyal.

Financial Instability

“A decade after the Great Recession, growth is still in recovery mode,” wrote the AXA XL study authors. “Should growth slow before subsisting financial imbalances recede completely, imbalances may create risks that need to be carefully monitored over the next five to ten years.”

This is even more pressing in the aftermath of the COVID-19 pandemic, which has its own implications on the future global economy.

Ethics and Social Responsibility

Consumers are searching for ethically sound companies to support in business: “People are demanding greater transparency with companies, often expecting businesses take a stand, and valuing companies when they do,” said Sanyal.

“A company’s broader ethics runs deeper with customers today, and we see this trend continuing over the next decade and consumers continue to look for business that align with their personal values.”

Reputational Risk

In tandem with sound ethics, a business’s reputation also holds weight in the public eye. Businesses that fail to act in a timely manner or instead act tactlessly risk a decrease in public support — and a potential increase in litigation.

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According to Nir Kossovsky, CEO of Steel City Re and an R&I Risk Insider, between July 2018 to July 2019, “25 complaints were filed or amended in federal court that alleged, at least in part, board-level responsibility in connection with corporate reputational damage. Only six such cases were filed in the preceding year.”

Yet, despite these growing risks, risk professionals have the tools to start mitigating and protecting their businesses today.

Sanyal suggests risk professionals start with whole-system planning.

“Whole-system planning will provide greater resilience for insurers to survive in the long term—not just two, but 20 years and more. It allows more protection against systemic risks like climate change and cyber threats.

“Insurers [will] need to consider innovation partnerships with government, infrastructure planners, research universities, manufacturers of smart devices, telematics technology providers, etc. New business models are necessary to determine the appropriate and most effective risk strategies.” &

Autumn Heisler is the content strategist at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
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.

PART ONE: CRACKS IN THE FOUNDATION

Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.

PART TWO: BETRAYAL

As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.

PART THREE: FALLING DOMINOES

Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.




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