Technology and AI

Greener skies ahead: electric air taxis offer a sustainable future

Hyundai’s Supernal is set to unveil a prototype of its electric flying taxi at the Consumer Electronic Show in 2024, signalling a transformative year for urban mobility. The electric vertical take-off and landing aircraft aims for a test flight in December 2024, marking a new era in efficient, sustainable transportation. Supernal’s development suggests a future where clean flight becomes commonplace, offering a swift and environmentally conscious solution to modern transportation challenges. As investments pour into this futuristic venture, companies can redefine the skies and drive us into a greener future. However, in order to make this a reality, regulatory frameworks and infrastructure must also develop in tandem.

Blockchain will take off in the aviation industry

In 2024 the aviation industry will see growing adoption of blockchain technologies. We expect blockchain to streamline various aspects of aviation, from supply chain management to ticketing and maintenance. The global aviation blockchain market is projected to be worth US$ 5.7bn by 2032. Blockchain is capable of creating immutable records of aircraft maintenance, ensuring compliance with safety standards and minimising the risk of counterfeit components entering the system. Smart contracts powered by blockchain can automate and authenticate transactions, reducing the risk of fraud and errors, while increasing transparency. Passengers may also experience a smoother travel experience with blockchain securing personal data and simplifying the ticketing process. Stakeholders in the industry have an opportunity to leverage this technology to promote safety and efficiency within the sector.

Space debris will impact satellite insurers

In 2024 we expect more regulations around space debris, and increased risk for satellite operators. Insurers will likely need to re-evaluate policies and premiums to account for the heightened risks associated with space debris. The fine imposed by the US government on Dish Network for failing to remove a satellite from orbit is pivotal for the industry, highlighting the growing concern over space debris. This development suggests a shift towards greater accountability for satellite operators if they fail to safely retire satellites or defunct equipment from orbit. In addition, more satellites and space equipment are being launched into space, adding to the risk of collisions. Expect a push for regulations and increased scrutiny to ensure responsible space exploration.

Increased focus on drone risk exposures in the UK

The UK government Risk Register 2023 highlighted the risks associated with a malicious drone incident as being limited but with a moderate impact. This translates into the prospect of such an incident being between 0.2% and 1% (compared to, for example, less than 0.2% chance of an aviation collision over UK skies). The government report highlights the significant increase in drone use, for business and pleasure, in recent years. In 2018, the PwC report “Skies Without Limits” predicted 76,000 drones being in use in the UK by 2030. The second edition of the report, published in 2023, has revised that number to more than 900,000. Increased use and numbers does not automatically mean an increased prospect of accidents, but from a risk analysis perspective, it does potentially speak to greater access to hardware which could be used to malicious ends. It will be interesting to see how the UK government continues to assess and mitigate risk in this arena, against what we predict will be the development of European Union Aviation Safety Agency/EU rules (or as a minimum, guidelines) on counter-drone steps.

Changes to the civil justice system will impact casualty claims

Further technological and procedural changes to the civil justice system will affect casualty claims. Initiatives such as the introduction of compulsory mediation for civil claims valued at up to £10,000 are intended to reduce the workload of the courts. Although unspecified personal injury claims will not be within the first tranche of claims to be subject to the compulsory regime (no start dates for any part of the scheme having yet been announced), the change will come. Other developments and initiatives can also be expected. We have seen a huge increase in the use of technology within the civil justice system, ranging from the creation of claims portals for certain work types to virtual hearings. These changes are here to stay and we expect further use of technology in the civil justice system to help reduce the workload of the courts.

Data ethics will play a greater role in guiding the use of personal and non-personal data

We expect many organisations to begin codifying an approach to data ethics in a formal governance framework to guide not just whether they can use personal and non-personal data, but also whether they should use it. Ethical considerations around the use of data are increasingly coming to the fore, particularly in light of rapidly evolving developments around the use of AI. These considerations are not new. In the past they may have manifested informally, taking into account general considerations such as good outcomes for your customer base or employees, public perception, use of the ’cool v creepy’ test and your organisation’s ‘inner conscience‘. However, the ever increasing reliance on data has brought - and will continue to bring - about a greater responsibility on organisations to handle data responsibly (in the broadest sense) and deal with the moral challenges arising out of its use.

The UK will rebalance its ‘pro-innovation’ approach to AI regulation

We expect to see more action and guidance from the UK government and regulators on the management of the risks of AI, whether building on existing regulatory frameworks or implementing new measures. Organisations seeking to engage AI within their business will need to keep abreast of these developments. In recent months, there has been increased pressure on the UK government to shift from its ‘pro-innovation’ stance on AI towards a more balanced approach. An interim report by the Science, Innovation and Technology Committee on the governance of AI urged the government to “accelerate, not pause, the establishment of a governance regime for AI“. Further recent recommendations for greater AI regulation have come from bodies such as the Trades Union Congress and the Ada Lovelace Institute. The UK government has already made a move in this direction through the launch of the Artificial Intelligence Safety Institute and we have seen countries around the world endorsing ‘frontier‘ AI safety under the Bletchley Declaration.

Regulators will increasingly collaborate and expand their traditional functions in respect of AI and digital technology

The Financial Conduct Authority and Competition and Markets Authority will continue to play larger roles in the regulation of AI and digital technologies, and increasingly collaborate with the Information Commissioner’s Office. These regulators are already working together as part of the Digital Regulation Cooperation Forum (DRCF) and will shortly launch a multi-regulator sandbox (the DRCF AI and Digital Hub) to support organisations in meeting regulatory requirements for digital technologies. Cross-collaboration is evidently in the minds of policymakers, with the Science, Innovation and Technology Committee interim report on AI governance also concluding that resolving challenges posed by AI “may require a more well-developed coordinating function”.

Connected product legislation will create new risks for insurers of manufacturers and distributors

We predict future discussions within the insurance industry as to whether risks and claims associated with connected products legislation sit within cyber, product liability, technology errors and omissions coverage or whether they will justify an entirely new insurance class. Regulations under the Product Security and Telecommunications Infrastructure Act will come into effect in April 2024, aimed at ensuring that consumer-connectable products are more secure against cyber-attacks. Manufacturers, importers and distributors of such products will need to comply with new security requirements (including bans on default or easily guessable passwords) and provide adequate reporting systems and transparency on a product’s security updates. Penalties for non-compliance include compliance, recall and stop notices and large fines up to £10mn or 4% of worldwide revenue. The recoverability of such fines under a policy will be subject to any exclusionary language and/or the usual ‘illegality defence’ and public policy doctrine(s) surrounding such matters. These are entirely new legal risks for manufacturers and distributors which may prompt discussions as to which insurance line is best suited to meet them.

Low value breach claims will stack up

Claimant representatives will continue to try and circumvent small claims allocation for data breach claims in order to seek recoverable costs. This is despite the courts clearly indicating that low value data breach claims should be allocated to the small claims track and dealt with in the County Court. Recent trends have included data breach claims being pleaded as personal injury claims, with supporting medical reports submitted, in order to seek fast track allocation. These claims are not being submitted in the appropriate low value EL/PL portal, bypassing the fixed costs regime. Another trend is to ‘stack’ data breach claims together on one claim form, bringing the total damages sum above the small claims track threshold, circumventing existing group litigation mechanisms. There is some uncertainty as to whether these are appropriate routes for such claims to be brought and it is likely that future judgments will give greater clarity on these points.

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.

While cryptocurrencies may become less volatile, investment firms must exercise caution to avoid investor claims

When interest rate rises are seen to have peaked and even begun to reverse, investment firms will look again at digital assets as an investment class. It is likely that sentiment will return so investment in cryptocurrencies is seen as a risky but likely rewarding venture. In a more benign financial environment, however, any investment firm taking this step for even moderately risk averse investors risks claims being made against it if further failures hit the crypto-market. Investors must understand that despite some forms of regulation, mostly around marketing to consumers, it remains largely unregulated and therefore inherently risky as an asset class.

Expect more data breach claims in the education sector

Following the move to online tuition during the COVID lockdowns, recent years have seen a number of education establishments fall victim to cyber-attacks, with threat actors obtaining personal data and seeking to extort ransoms, and as a result some data subjects affected presenting claims for damages. While claims for damages following cyber-attacks may be expected, data breaches also arise where data is disclosed accidentally, as the Information Commissioner’s Office has highlighted following recent losses of data by police forces. Despite a number of recent judgments and the extension of fixed recoverable costs, given the financial pressures faced by many claimants, claims for damages following data breaches are expected to continue to be presented.

Increased risk of fires caused by e-scooters in student accommodation

With the increased use of e-scooters and e-bikes comes the challenge of how and where students charge the batteries given the shortage of suitable and secure communal charging points. Where students do not use the correct charging points and instead charge batteries within their own accommodation, this may be in breach of the terms of building insurance cover which the accommodation owner or provider has put in place. Damage to the accommodation or part of the wider building may not then be covered, leaving the building owner with an uninsured loss and potentially having to bear the costs of making good the damage. The increasing risk of such fires, and the resultant claims, is potentially magnified across a large portfolio of properties. Accommodation providers should ensure tenancy agreements reflect the provisions of insurance policies.

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.

…And consider too the impact of AI on insurance products

While there is plenty of commentary on the risks and rewards of AI to the insurance sector, what is considered less is the impact that AI may have on insurance products themselves. One issue will be the insurance of AI-related risks. This will require an assessment of the fitness for purpose of traditional policies to manage and mitigate enhanced AI risks and consideration of whether new types of products are required. There is also the threat of “silent AI”. The industry will need to be mindful of potential exposures contained within more traditional policies which may not specifically deal with AI risks. Another issue will be the challenges around policy wordings and coverage more broadly. A specific issue, similar to what we saw with cyber, will be establishing an adequate definition of AI. There will also be the related challenge of how to establish effective and credible exclusions and endorsements. The sector will also need to consider the impact of AI, and the additional data it gives access to, on the duty of fair presentation, which is somewhere we see that AI could really shift the balance.

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.

Insurers will need to do more to support decarbonisation R&D

In order to meet the International Maritime Organisation’s 2050 and interim targets, shipping will need to ramp up its investment in new fuel and propulsion technologies. This will require significant investment in research and development, with pilot schemes to demonstrate proof of concept, safety, and that any new technology can be scaled. Equipment manufacturers and shipowners who are willing to make such investments will need the support of the marine insurance market to ensure that these projects are viable, helping to lower the barriers to innovation. This collaboration will in turn provide insurers with valuable data on the risks of insuring these solutions, should they be adopted at scale.

Marine cyber threats will move from external to internal

Shipowners and operators will continue to adopt solutions for greater connectivity at sea, bringing more equipment and crew online. Increased connectivity will increase the external cyber threat landscape, making internal threats easier to overlook. Older legacy technology, where patches or updates are no longer being published, could create a new internal threat of equipment failure. New International Association of Classification Societies regulations coming into force in 2024 will embed cyber security by design into new build vessels but vulnerabilities for existing vessels and equipment will remain, whether through improper integration of individual equipment into the vessel’s overarching cyber-security plan or through outdated equipment that is not properly segregated.

Transport companies need to prepare for a surge in new regulations

EU ETS, CRSD, CII, CSDDD, ESG…the acronyms, and compliance requirements, for maritime supply chain regulation are seemingly endless. With increasing focus from regulators on supply chain transparency and emissions reporting, this trend is likely to continue, forcing companies to better understand their supply chains and their role in the supply chains of others. As key nodes in global supply chains, transport companies will need to ensure they are able to provide visibility to customers and provide accurate and complete reporting to satisfy the regulators. This will almost inevitably mean getting to grips with a lot of data and using digital tools to ease the compliance burden. For cargo insurers this should translate into better risk management, and better data availability for risk analysis, as their insureds gain a greater understanding of who their suppliers are and how their goods are transported.

Increased focus on wind assisted propulsion systems

The shipping industry is aiming to achieve net zero emissions by 2050 and as part of the efforts to decarbonise we expect further research into the viability of wind assisted propulsion systems (WAPS). WindWings, a type of WAPS and the result of a collaboration between BAR Technologies and Yara Marine Technologies, is already gaining traction in the industry. It is estimated that the technology could increase the fuel efficiency of a vessel by up to 30% thereby reducing CO2 emissions. To date, WindWings have been retrofitted on two bulk carriers in collaboration with Cargill and MC Shipping on the Pyxis Ocean and Berge Bulk on the Berge Olympus. However, given the early stage of this initiative, there is little data on their effectiveness in a commercial environment. We anticipate that there will be further advancements in WAPS including competing technologies in the market as well as further trial runs of WindWings on other types of vessels. Marine insurers will need to get to grips with the potential new risks these modifications will bring to the operation and structure of the vessel.

Continued trouble with subsea cabling

The Global Underwater Hub has estimated that approximately 85% of the total value of insurance claims emanating from offshore wind projects is related to subsea cables, with the average settlement claim being approximately £9 million. Subsea cables are a critical part of the infrastructure of offshore wind projects as the conduits for transferring the energy generated by the wind turbines to the onshore grid. Failure of these cables not only disrupts the transmission of energy but is also very costly to remedy. With the number of offshore wind farm projects predicted to increase, we expect there will be further significant claims on insurance policies which will likely lead to higher premiums and a knock on effect on the financial viability of these types of projects. However, we also expect new technologies to emerge that seek to address the issues regarding the durability of subsea cables.

Healthcare AI litigation will raise liability apportionment issues and litigation costs

The benefits of healthcare AI are already being seen in radiological analysis. However, as more AI devices come to market, there will also be increased risks. For example, as the devices self-learn, the thought processes by which they make decisions may not be transparent (known as the ‘black box problem’). The present law of medical negligence is ill-equipped to deal with AI, causing uncertainty over how claimants will litigate AI claims. Will they pursue AI claims through Bolam negligence, on the basis that the AI product should be judged according to the same principles as a human clinician? Will they pursue these claims as product liability claims? Or even a mixture of both? In addition, there will be the question of how blame should be apportioned between clinicians and AI producers. These factors will increase litigation complexity and costs.

Automated Vehicles Bill will face bumpy road to become law

The Automated Vehicles Bill will face significant challenges in becoming law before the conclusion of the current parliament. Adopting a number of the Law Commission’s recommendations, the draft legislation focuses on a safety framework, clear legal liability, data sharing and security, and responsible marketing. It also accommodates the divergence in regulation as between private cars and automated passenger service vehicles. There will need to be substantial stakeholder involvement on multiple points before secondary legislation can be finalised. The Automated and Electric Vehicles Act 2018, a relatively narrow piece of legislation forming part of the rolling programme of regulation for AVs, concluded its parliamentary journey in around 9 months. The proposed Automated Vehicles Bill will deal with many of the fundamental issues necessary for the effective deployment of automated vehicle technology. If there is a general election in May 2024, then the Bill is unlikely to pass. A later election would allow more parliamentary time, but would still not guarantee the Bill’s passage onto the statute books. In addition, a Labour government may not prioritise automated vehicles in its initial transport agenda.

Limited respite expected in the continued rise in repair and vehicle costs

Third party property damage costs in motor claims will continue to increase, with a corresponding effect on motor insurance premiums. With added costs related to advanced driver assistance systems and sensor calibration, as well as increases to the Auto Body Professionals’ labour rate and additional charges like the new-for- 2023 energy cost supplement, motor premiums hit a record high in 2023. Insurers are also facing significant claims relating to electric vehicles, with higher repair costs and a shortage of trained repairers. Despite a reduction in general inflation, we expect that the continuing increased repair and vehicle costs will keep motor premiums high.

The digital transformation of low value claims will pick up pace

A combination of market forces and the reform agenda will drive a continued focus on digital claims solutions. The recent establishment of a new Online Procedure Rules Committee, coupled with the Civil Justice Council’s recommendations to mandate and regulate pre-action processes and behaviours will demand greater use of technology to help front load claims investigations and drive process efficiencies.

Tech developments will take on the pretenders

Trade credit insurance will benefit from greater use of electronic trade documents. Credit insurance granted to the traders of commodities brings with it elements of risk beyond non-payment. The nature of international trade and shipping has become increasingly complex, and trade credit insurers who thought they were insuring simple seller A and buyer B transactions can now find themselves faced with multiple (alleged) intermediate trades between A and B, potentially increasing the risk of fraud. The market has been exposed to sophisticated attempted frauds in the past, with perpetrators using fraudulent bills of lading to evidence the existence of alleged insured trades. Developments in technology, increased digitisation and the use of e-bills of lading ought to reduce fraudulent claims as evidence of title to goods becomes automated and far harder to fake by those with nefarious intentions.

Integration of AI into products highlights defects in UK product liability legislation

The development of new products with increasingly sophisticated software or AI capabilities will challenge the efficacy of the UK’s existing product liability regime. The recent consultation on reforming product safety in the UK highlighted succinctly that existing definitions such as ‘product’ and ‘defect’ in the context of product liability are not adequate for consumer connected products with or without artificial intelligence. Manufacturers, importers and distributors have been provided with guidance on security requirements for connected products via upcoming regulations pursuant to the Product Security and Telecommunications Infrastructure Act. However, UK businesses lack clarity on liability triggers in the event that AI or software integrated into a product fails, causing injury and/or damage. The proposed EU Product Liability Directive will extend the definition of product to include software. Manufacturers of components, which can include those integrated or interconnected with products, would also be liable for defects caused by those components. This may serve as a backdrop against which UK legislative change is made.

All professions: The re-emergence of ‘deep pocket’ professional indemnity claims

Technology, ESG and the broader economic horizon will continue to combine to frame the challenges confronting the professions and their risk and liability exposures. Construction professionals, lawyers, auditors, accountants and surveyors are all facing climate change risks and sustainability demands from their clients, consumers and regulators. At the same time, cyber risks in all of their forms continue to be top of the list of threats for professional services firms, and this runs hand-inhand with the need to achieve appropriate risk safeguards around the increasing use of AI in the provision of services. Finally, the broader economic environment presents headwinds for 2024. The Insolvency Service commented on 31 October 2023 that Q2 and Q3 2023 saw the highest quarterly insolvency numbers since Q2 2009. Combined with an apparent slowing in the real estate sector, and the consequent defaults, the potential for the re-emergence of ‘deep pocket’ professional indemnity claims must be real.

Insurance Brokers: Embrace AI but don’t lose the personal touch 

The rapid acceleration of the use of AI in insurance will see brokers engage urgently with the opportunities, and threats, it brings. As insurers increasingly automate their underwriting and claims processes, through use of big data and algorithms, the distribution model is set to change. In personal lines, such as motor and household insurance, the broker has already largely been replaced by online channels and machine-driven underwriting. While commercial clients tend to prefer to deal with humans, brokers can no longer afford to ignore the AI tools that will enable them to find the best products and premiums to meet their clients’ insurance needs. Brokers must ensure their talent strategy promotes those who are comfortable interacting with AI and other technological advances, and those already in the market must ensure that they upskill. It is at the interface with their clients, in forming deep and meaningful business relationships and really understanding their clients’ business and current and future insurance requirements, that the broker will continue to add value in delivering a truly bespoke service – a skill which cannot (yet) be replicated by AI.

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.

Surveyors and Valuers: Risk minimisation will be crucial as the use of PropTech and specialist third party suppliers increases

The use of PropTech and specialist third party providers will increase professional risk exposures if not carefully sourced. Reliance on technology to optimise the provision of valuation, property/facilities management, climate analysis and building design/cost services is on the rise. So too the use of specialist third party providers to assist with innovation and service delivery. The appropriate attribution of risk is, however, crucial to ensuring that professionals do not sleepwalk into potential liabilities for which they should not be responsible or, if genuinely unavoidable, that those exposures are properly understood, managed and priced. Never has it been more crucial to ensure that terms of business, with both those third-party service providers and the end recipients of the professional’s advice, minimise potential risk exposures wherever system/third party supplier defaults arise. The importance of reviewing those terms, particularly reasonable exclusions and/or limitations of liability and clauses designed to legitimately restrict responsibility and reliance, cannot be understated.

Technology Professionals: More AI in judicial decisions

The topic of AI will feature increasingly in judicial decisions. We already have the first cases which discuss the use of AI in an intellectual property, regulatory and data protection context. The prevalence of (elements of) AI in software will mean that the use of AI and the AI’s performance itself will soon become the central topic of legal proceedings. While we expect the resulting decisions to be made along previously established principles governing the liability of the individuals behind the development of the software, the ability of AI to change the human output and to do so at a scale and speed otherwise not achievable means an increased exposure to risk for insurers (including the risk of class actions should the software be widely enough used).

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.

Shining a light on solar energy challenges for insurers

The rise in solar energy and photovoltaic installations is anticipated to be a growing challenge for property insurers in 2024. In August 2023, the Microgeneration Certification Scheme announced that 2023 was the first year to reach a monthly average of more than 20,000 domestic solar panel installations. With a largely unregulated market and a cost of living crisis, we predict customers will increasingly opt for cheaper installation options (often compromising on safety and quality). Insurers will also need to be mindful of the impact of severe weather, maintenance issues, theft and ever improving technologies.

Insurers will Build Back Better in 2024

Flooding remains an ongoing challenge for insurers in ensuring that they support their customers through distressing circumstances while managing their own significant financial impact. As the UK suffers further bouts of flooding, the benefits of Flood Re’s Build Back Better Scheme is brought into sharper focus. The scheme enables homeowners to install flood resilience measures up to the value of £10,000 when repairing properties after a flood. This ensures that the home is better prepared to keep more water out next time the area floods and, when the water does enter, it is quicker and safer for homeowners to clean up and move back in. We predict that more insurers will sign up to the scheme and we will see continued developments in technology in support of flood defence systems for residential properties.

Is there scope for parametric triggers in cyber (re)insurance?

We predict that a cyber loss index is only viable with cross-border co-operation and government imposed reporting obligations. There would need to be wide agreement that data should be submitted to a single entity. This would require an obligation to participate, rapid responses, processing and publication of consolidated data. A common approach to data privacy would also be essential. In light of these obstacles, another model is for a single company to assess whether cover has been triggered, based on agreed objective standards and its own metrics. Intangic has undertaken interesting work in this area and we watch their progress with interest. Another issue is whether a cyber loss index could trigger exclusions rather than cover. This might be part of the solution to alleviating regulators’ concerns about state-backed cyber-attacks. We anticipate further innovation as the market grapples with these challenges.

There will be greater focus on autonomous vehicles and cyber risk

As vehicles become increasingly connected, there will be an increasing exposure to cyber risk. Cyber-attacks can take many forms and may target a single vehicle, or type of vehicle, or all vehicles that have adopted common operating systems. Beyond the constraints of Part VII, Road Traffic Act 1988 and Part 1, section 2, Automated and Electric Vehicles Act 2018, insurers need to consider to what extent such risks should be written as standard and whether they should be sub-limited or excluded. Such risks also require consideration in relation to reinsurance contracts. These may not be entirely back to back to the extent that motor policies protect against more risk than is mandated by the Road Traffic Act.

AI will speed up the M&A process

M&A activity has slowed in recent years and the deals which are going through are taking time to complete as buyers investigate a range of factors including the impact of recent economic challenges, regulatory compliance, tax, ESG and litigation risk. AI technologies will increasingly be used to speed up the due diligence process. AI enables the swift review of large data sets, efficiently flagging inconsistencies and potential risks for further investigation by the buyer and its legal team. Providing sensible human oversight is applied, the opportunities for using AI in the M&A process are significant.