The insurance industry has joined forces with technology companies and governments in a new initiative led by the World Economic Forum that will work on avoiding catastrophic levels of uninsured risks in the innovation economy.
The Mitigating Risks in the Innovation Economy working group, launched last week, aims to close gaps in existing governance frameworks to manage risks from innovations, determine the liabilities, roles and responsibilities involved with these risks and will also set up a data-sharing mechanism to manage the risks, said the WEF in a statement.
“No one currently knows the magnitude of the risk exposure of society to new, uninsured technologies,” said Ms Victoria Shirazi, Project Lead of the Mitigating Risks in the Innovation Economy project at the World Economic Forum. “A technology failure that was once both small and contained can cascade into potentially catastrophic losses. This initiative will help societies prevent, respond to and recover from these new risks.”
The insurers point to potential risk scenarios of emerging risks with vastly varying estimated costs:
· A cyber-attack on the US Northeast electrical grid could result in economic losses as high as $222 billion.
· A disruption of the cloud could result in economic losses ranging from $15.6 billion to $121.4 billion.
· A compromised software upgrade for globally interconnected systems could put between $4.5 trillion and $15 trillion of global GDP at risk over five years due to losses to global GDP output.
Most of such innovation-related risks are uninsured currently, noted the WEF statement; with insurance gap is as high as 83% in a cloud service disruption scenario and 93% for a mass vulnerability setting. Other risks are yet unknown.
Insurance industry participants in the initiative include Allianz, Lloyd’s, Marsh & McLennan, Sompo Holdings, Swiss Re, Willis Towers Watson, XL Catlin and Zurich. Technology companies include Cisco, Hitachi, IBM and Siemens, while senior officials represent European Commission, India, Japan, Netherlands, Singapore, Switzerland, United Kingdom and the United States.
Lloyd’s CEO Inga Beale said: “As technologies emerge on their own, the risks are becoming so big and complex that businesses and governments will not be able to handle them. With this initiative, we want to address that.”
Mr Matthew Leonard, Partner at Oliver Wyman, and a member of the initiative, said that the group needs to resolve two stark realities that consumers face: “First, people do not fully understand the risks they are running; and second, those who seek to mitigate their risk with insurance are faced with a decided lack of choice and/or affordability.”
The members of this initiative have committed to further multi-stakeholder actions to be developed and piloted in 2018, starting at the World Economic Forum Annual Meeting in January.
They have issued an initial joint report setting out the risks and goals, prepared by the Forum in collaboration with Oliver Wyman. Throughout the process, the insurance industry will also explore how it can best fulfil its new capacities, such as risk advisory and analytics.