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Modernising the Workplace

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Modernising the Workplace predictions
#1 AVIATION

Operational resilience will help deliver sustainable airports 

Record breaking temperatures, intense flooding and social awareness around sustainability will all increase pressure to deliver significant airport redesign. As the risks associated with extreme weather events continue to affect airports, many are already considering redesign or are in the assessment phase of performing infrastructure upgrades to mitigate the impacts of these climate stressors. This may include relocating vulnerable electrical equipment to rooftops to protect it from flooding; prioritising energy efficiency; reassessing stormwater infrastructure; implementing permeable pavements to help with drainage; and upgrading runways to handle extreme temperature variations. Operational resilience goes hand in hand with long-term sustainability. 

 

#2 CONSTRUCTION AND ENGINEERING

Construction industry still suffering higher insolvency rates than other sectors - adaptation required 

A record-breaking number of failures occurred in the construction sector over the last 12 months, representing 17% of all insolvencies. In the 12 months to August 2023, 4,263 construction firms collapsed. That has had and will continue to have a domino effect across the supply chain. Firms are also having to deal with labour shortages, though the government has now added construction workers to the ‘shortage occupation list’, which should mean greater availability of migrant workers. The sector needs to consider how to operate more effectively and efficiently, with a close eye on prudent procurement to avoid a race to the bottom. Regrettably, we forecast that thousands more firms will collapse over the next 12 months. 

#3 DATA, PRIVACY AND CYBER

The role of the data protection practitioner will increase in scope 

The issues at the forefront of data protection governance have expanded significantly over the past year. At the same time, the role of the data protection practitioner is evolving to keep pace with business needs. As we look to the future, Data Protection Officers (DPO) will increasingly find themselves being asked to opine on considerations outside the confines of the General Data Protection Regulation and Privacy and Electronic Communications Regulations. Some will look to bring issues such as data ethics and governance of non-personal data within their remit. Others may decide to create new roles such as an AI Ethics Officer. However, given the challenges in determining who is best suited to oversee the likes of AI regulatory compliance, many organisations are likely to default to the DPO, at least in the short term. 

#4 DIRECTORS & OFFICERS AND FINANCIAL INSTITUTIONS

Flexible working is here to stay: 2024 will see an increase in flexible and remote working claims 

The number of remote working claims recorded by the UK Employment Tribunal has grown significantly since the start of the COVID-19 pandemic, rising from just 6 claims in 2019 to 27 in 2021 and 42 in 2022. Over the same period, there was a 52% increase in flexible working claims. These types of claims are predicted to hit a record high in 2024. Surveys of workers also suggest more people expect flexibility in their workplace as a day one right. These trends, coupled with the changes to flexible working laws in 2024 brought in by the Employment Relations (Flexible Working) Act, which will give workers greater rights to request variations in their work arrangements, will inevitably lead to more claims against businesses who do not embrace flexibility. 

 

Financial institutions driving efficiency and productivity through automation must manage AI-vulnerabilities and the risk of consumer claims 

AI has reshaped the financial services industry. It is widely used to interpret information, automate credit and loan decisions, detect and prevent fraud, and is said to drive operational efficiency and productivity, reducing human errors. But if AI learns from incomplete or imperfect data, there is a significant risk of unintended discrimination or unconscious bias and this might inadvertently affect a financial institution’s approach. Customer privacy and moral considerations may also be overlooked. Unchecked reliance on AI could affect large communities within a customer base and ultimately lead to large claims for consumer redress. Financial institutions that carefully manage AI vulnerabilities, balancing the opportunities against systemic risks, will be less exposed than those who only focus on efficiencies and enhanced revenue. A more holistic approach could improve the quality of management information, spot anomalies or longer-term trends that currently go unnoticed, and avoid discriminatory decision-making. 

#5 INSURANCE ADVISORY

The FCA and PRA will drive greater diversity and inclusion in the workplace 

Consultation proposals by both regulators are more far-reaching than expected. They include controversial elements, such as a requirement to set targets to address underrepresentation at all levels of the work force. The proposals are set out in the FCA’s consultation paper entitled “Diversity and inclusion in the financial sector – working together to drive change” and the PRA’s counterpart consultation paper entitled “Diversity and inclusion in PRA regulated firms”, both published on 25 September 2023. Insurers will be required to publish diversity and inclusion (D&I) strategies (including a plan for meeting the goals set out); monitor diversity and inclusion internally; collect and report data across a range of demographic characteristics to the regulators; and make public disclosures of D&I data. It will be challenging to set targets based on characteristics such as sexual orientation or religion, given the heightened sensitivity around the processing of this information on an identifiable basis. Though many larger firms will already have D&I policies and some level of diversity monitoring in place, careful consideration will be needed to ensure compliance with the prescriptive requirements proposed.

 

Plan now for the changing role of the insurance professional in the face of AI … 

The sector will need to grapple with the changing role of the insurance professional in the face of AI. One aspect of this is the looming skills gap. The industry will need experts in both insurance and AI and it should be looking to get ahead of this now, with extensive education and upskilling and, where required, recruitment. This should also involve developing a strategy for ongoing education and training to ensure that organisations keep up with the pace of technological and regulatory change. Another aspect is the issue of job displacement. As the technology evolves, automation may lead to changes for the workforce, with roles reimagined or replaced and a need for retraining. The industry should be planning now for the ethical and economic issues that flow from this. 

 

Expect greater scrutiny around third party service providers in the name of operational resilience 

Financial regulators are becoming increasingly alive to the need for operational resilience around services obtained by regulated firms from third party service providers (TPSPs). TPSPs can pose unique systemic risks where firms are dependent on a limited number of providers; the Bank of England has identified a significant concentration of cloud-based service providers for banks and insurance companies. The Financial Services and Markets Act 2023 establishes a new Critical Third Party (CTP) regime, giving the UK regulators new powers to directly regulate CTPs, rather than rely on firms to manage the risks themselves. This regime will apply where HM Treasury identifies a CTP as ‘critical’ – this is likely to apply to just a small number of TPSPs. In the EU, the Digital Operational Resilience Act will apply broadly similar requirements to EU firms and TPSPs. Firms and potential CTPs alike will need to prepare for much closer regulatory scrutiny than previously. Even where a TPSP is unlikely to be found to be providing ‘critical’ services, more intensive regulatory scrutiny of such arrangements is on its way. 

#6 MARINE, ENERGY AND TRANSPORT

Fuelling crew safety: the vital role of seafarers in decarbonisation 

As the shipping industry strives to decarbonise, in 2024 we expect to see significant developments in seafarer training to facilitate this transition while safeguarding seafarers’ welfare. With the shift towards LNG, hydrogen, ammonia and other low-carbon fuels, seafarer training must evolve to accommodate the safe handling and operation of these fuels. Alternative fuels pose new risks and the lack of specialised training around them is dangerous for seafarers, vessels and the environment. For example, hydrogen is more flammable than diesel and ammonia fumes are highly toxic to humans. Specialised education is necessary, for example, on fuel-specific safety measures, emergency response and equipment maintenance. Balancing the demand to adopt new, cleaner fuels with the need to protect seafarers’ wellbeing will require industry-wide commitment. Underwriters will be interested in investment in training, safety protocols, and support systems, which will be vital to ensure that as the industry pursues a greener future for shipping, it also prioritises the welfare of those who make it possible. 

#7 PROFESSIONAL LIABILITY

Lawyers: The risks associated with the use of AI 

AI is set to fundamentally alter the practice of law but with it brings the prospect of claims. Law firms have been using AI for some time, for example in litigation disclosure platforms. What is new is generative AI that creates or ‘generates’ content so as to assist legal research, the review of contracts and summarising legal documents. Crucially, although the current generation of AI chatbots can possess huge amounts of information, they cannot evaluate its truth. The result is that the answers they provide may not be accurate; so-called ‘hallucinations’. It follows that if lawyers use AI without proper thought or exercise of human judgement, mistakes will be made and claims will follow. The use of AI also creates the likelihood of other types of claims such as breach of confidentiality, intellectual property infringement, breaches of cybersecurity and privacy laws and publication of defamatory content. It can also be used to develop deepfakes, malware, ransomware, phishing attacks and other tools that facilitate cybercrime. In short, AI will bring huge advantages to the legal sector but lawyers who fail to appreciate its risks use it at their peril.

#8 PROPERTY

Lithium-ion batteries fires will increase but may raise causation issues on recoveries 

The rise of lithium-ion battery fires in the UK will continue in 2024. These cells are extensively used in modern technologies, including in laptop computers, mobile phones, vacuum cleaners, DIY tools, electric cars, electric bikes and e-scooters. Lithium-ion batteries are able to store a large amount of energy in a small space and if they do ignite, they burn aggressively and can cause widespread catastrophic damage with multiple seats of fire. With the shift to flexible home working environments, we predict that this type of fire will become more prevalent. This is exacerbated by the trend of replacing batteries at end of life with cheaper versions that can increase the fire risk. The characteristic of multiple seats of fire may also provide causation issues for subrogated recoveries.

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