Mitigating Risks in the Innovation Economy How Emerging Technologies Are Changing the Risk Landscape September 2017 World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 Email: [email protected] www.weforum.org World Economic Forum® © 2017 – All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. REF 260517 Project Team and Steering Committee Project Team World Economic Forum Abel Lee, Head of Insurance and Asset Management Industries Victoria Shirazi, Project Lead, Mitigating Risks in the Innovation Economy Oliver Wyman (Adviser and Knowledge Partner) Prashanth Gangu, Partner Matthew Leonard, Partner Laura McKay, Consultant Contact For feedback or questions, please contact: Victoria Golshani Shirazi [email protected] Sincere thanks go to our Partners for their valuable insights, thought leadership, contribution to this White Paper and overall support of the Mitigating Risks in the Innovation Economy initiative. Members of the Steering Committee Steve Arora, Head, Casualty Underwriting Reinsurance, Swiss Re, Switzerland Inga Beale, Chief Executive Officer, Lloyd’s, United Kingdom John Doyle, President, Marsh LLC, USA Shigeru Ehara, Director, Senior Managing Executive Officer, Sompo Holdings, Japan Nick Gerhart, Insurance Commissioner of the State of Iowa, Iowa Insurance Division, USA Mario Greco, Chief Executive Officer, Zurich Insurance Group, Switzerland John Haley, Chief Executive Officer, Willis Towers Watson, USA Michael Morrissey, President and Chief Executive Officer, International Insurance Society, USA Sarah Street, Executive Vice-President, Strategy and Innovation Initiatives, XL Group, Bermuda Dieter Wemmer, Chief Financial Officer, Allianz, Germany Members of the Working Group Katinka Barysch, Director, Political Relations, Allianz, Germany Dario Biggi, Senior Technology Executive, Poste Italiane, Italy Anna Bordon, Executive, Innovation, Lloyd’s, United Kingdom Michael Bruch, Head, Emerging Trends, Allianz, Germany Maya Bundt, Head, Cyber and Digital Strategy, Swiss Re Group, Switzerland Silvana Chilelli, Head, Special Projects, Intesa Sanpaolo Vita, Italy Yongmin Choi, Vice-President, Hanwha General Insurance, Republic of Korea Rowan Douglas, Chief Executive Officer, Capital, Science and Policy Practice, Willis Towers Watson, USA Bhargav Dasgupta, Managing Director and Chief Executive Officer, ICICI Lombard General Insurance Company, India Claudia Donzelmann, Head, Chief Financial Officer Office, Allianz, Germany Effie Epstein, Senior Vice-President and Head, Strategy and Planning, Marsh & McLennan Companies, USA Arne Holzhausen, Head of Insurance, Wealth and Trend Research, Allianz SE, Germany Jonathan Ibbott, Director, Strategic Operations, Global Specialty, XL Catlin, United Kingdom John Jones, Senior Vice-President, Business Planning, Marsh, USA Trevor Maynard, Head of Innovation, Lloyd’s, United Kingdom Yoji Nakajima, Head, Strategic Business Development, Sompo Holdings, Japan Lindsay Nieman, Head, Business Development, Crisis Management, XL Catlin, United Kingdom Gregory Renand, Global Head, Thought Leadership Initiative, Zurich Insurance Group, Switzerland Hajime Sano, Head, Catastrophe Analytics, Canopius Managing Agents, United Kingdom Enrico Santarelli, Head, Business Development, Poste Italiane, Italy John Scott, Chief Risk Officer, Zurich Insurance Group, Switzerland Mitigating Risks in the Innovation Economy 3 4 Mitigating Risks in the Innovation Economy Contents Foreword 3 Foreword Consistent with the World Economic Forum’s mission of applying a multistakeholder approach to address issues of global impact, the creation of 6 Executive Summary this White Paper involved extensive outreach and dialogue with the insurance community, technology community, academia and government. The dialogue 8 1. The Present Roles of Insurance included numerous interviews and interactive sessions to discuss the insights and in Society opportunities for collaborative action. 11 2. The Changing Risk Landscape Sincere thanks are extended to the industry experts and emerging disruptors who contributed their insights to this White Paper. In particular, the members of 12 2.1 Increasing clockspeed the project’s Steering Committee and Working Group played an invaluable role as experts and patient mentors. 14 2.2 Growing technological penetration Deep gratitude also goes to Oliver Wyman for its generous commitment and 14 2.3 Technology roundup: support in its capacity as the official professional services adviser to the World New and changing risks of Economic Forum for this project. the innovation economy 15 Unmanned aerial vehicles 16 Driverless cars 17 Artificial intelligence 18 Smart utilities and other smart infrastructure 19 The internet of things 19 The sharing economy 22 3. Risk Mitigation in the Innovation Economy 22 3.1 The evolving role of insurance 23 3.2 The evolving role of government 24 3.3 The evolving role of technology players 25 3.4 The evolving role of risk owners 25 3.5 Global dialogue to strengthen the outcome 27 4. A Call to Action: Seek Ways to Accelerate This Revolution and Not Hinder It 28 Acknowledgements 29 Endnotes Mitigating Risks in the Innovation Economy 5 Executive Summary The core purpose of the insurance industry is to enable risk- Insurers taking, support economic growth, encourage innovation and enhance the resilience of society and the economy. – Insurers need to play a larger role in risk education. As Fundamentally, insurance allows individuals or entrepreneurs public and private organizations adopt new technologies, to manage risk better than they would without insurance. insurers will need to support them to better understand the risks of emerging technologies and ensure the In the past, when new risks emerged, the insurance industry appropriate risk management capabilities are in place to was able to adapt and offer the necessary protection to manage these new risks. society. However, the age of globalization combined with the digital era has led to unprecedented technological – The lack of historical data will require insurers to embrace advances and breakthroughs globally. These developments alternative sources of information to better understand will bring a radical shift in the nature of risks to society, and emerging technology risks. In addition to alternative data the insurance industry is expected to struggle to use its old sources, insurers may consider new forms of modelling playbook to address these emerging risks. where past losses are not solely effective in predicting future threats. The growing interconnectedness in society will, in many ways, mitigate the risks with existing systems. However, – Predicting emerging risks is made difficult by general accelerated digitization and growing open and connected technical complexity and the lack of information digital environments are creating new vulnerabilities and regarding their potential damages. This could lead to potential consequences that are less predictable than large-scale adoption delays or higher prices. In the ever before. The key challenge will be finding the balance future, insurers should look to uncover and ultimately between the risks and rewards of new technologies. address protection gaps and unmet needs. At times this As the world stands on the brink of the Fourth Industrial may require harnessing digital innovation and advanced Revolution, the large benefits that these technologies bring analytics to deliver new solutions. must be embraced while preparing for a potential array of unforeseen implications. Governments Over the last year, the World Economic Forum project – Some forward-thinking governments have navigated Mitigating Risks in the Innovation Economy has worked challenges related to emerging technologies by to examine how emerging technologies are causing a radical first establishing a framework upon which future shift in the nature of risks faced by individuals, businesses governmental action will occur. By providing markets and society. This information, gathered through research, with their latest thinking on an emerging issue, interviews and roundtable discussions, was used to develop governments are able to give markets a heads-up before a shared set of recommendations among the Steering introducing a new rule. Committee and Working Group members to support society in anticipating and tackling the changes arising from the – Governments can accelerate the development and emergence of technological innovations. use of “regulatory sandboxes” to get ahead of the governance challenge. In the future, the roles of insurers, governments, technology firms and risk owners will need to evolve to address the Technology firms changing risk landscape: – Technology players should start thinking of themselves not only as innovators, but also as stakeholders in shaping the future of risk mitigation. This industry has deep technological, data science and related expertise. As experts in this area, they have the opportunity and responsibility to take on a larger role in supporting the development of risk mitigation solutions. 6 Mitigating Risks in the Innovation Economy Risk owners – Consumers and companies will need to find ways to manage the trade-off between adopting innovations in an unrestricted way and taking the time to first understand their potential consequences.