Essay Sample on Liability Insurance and Emerging Technologies

Introduction

Increased digitalization and new technologies have provided new distribution channels and opportunities for the insurance industry. Various breakthroughs have spurred a fundamental transformation in the insurance industry over the years. Some of these breakthroughs include but are not limited to the Internet of Things (IoT), advanced analytics, cloud computing, digital platforms, mobile phones and so on. Continued digitalization of the insurance business' modalities is key to enabling the improvement of the quality of the services and products offered by the insurers. Emerging digital developments rouse new and previously unknown risks and new liability inquiries. A comprehensive understanding of these emergent risks, the challenges faced in evaluating them and the way liability insurance covers them is a prerequisite for any insurance firm's strategy discussion and decisions (BerryStolzle et al. 381). Most insurance companies are now innovating around the use of emerging technologies to ease the distribution of their products and services, but could it cause more harm than good in the short and long-term from a risk management perspective? Least likely. Is the insurance industry or the Information Technology sector being innovative enough with their solutions? True.

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Liability insurance is the type of insurance policy that helps protect a business or an individual from the risk of being sued and being held liable for things such as injury, negligence or malpractice. This type of insurance covers both legal payouts and legal expenses for which the insured would be held accountable if found liable according to the law. Contractual liabilities and intentional damages are usually not insured under this kind of policies. There are various sub-categories of liability insurance such as indemnity insurance, product liability insurance, worker's compensation and employer's liability, and commercial liability insurance. This type of insurance policy, therefore, offers recompense for lawsuit investigation or defense, court costs including police report costs, attorney fees, medical costs for the injured victims, and any settlement or judgment resulting from the suit. Here, the insurance companies have the right to organize a defense for any legal suit directed against the insured resulting in property or bodily damage. The insurance regime is premised on a set of certain constraints. For example, special cases such as errors and omissions need specialized liability policy covers (BerryStolzle et al. 383).

Emerging technology refers to new technologies that are still are currently under development, or will undergo development within the next five or ten years. The role of emerging technologies in the insurance industry includes providing new was for measuring, controlling, and pricing risk. They also offer new ways of engaging with clients, reducing cost, improving efficiency, and expanding insurability in the market liability insurance market segment. Emerging technologies' share of the insurance market stands at $4.5 million. These new digital players present potential competitive challenges due to their low-cost innovative technology platforms and varying insurance business models that assist them in competing asymmetrically through the targeting of insurance value chain niches. Another advantage of these technologies is that they face fewer legacy costs. They also benefit from greater risk tolerance, agility, and specialization. 44 percent of insurance tech firms have less than ten employees. The emerging technologies have resulted in different risks and opportunities with regard to the insurance industry as is the case with the other major industries. Therefore, technology is altering the nature of risk and is facilitating for new services, products, and channels within the insurance industry. This leads to increased insurability for the low-income populations in the society.

The current liability insurance systems are not exactly sufficiently serving the needs of the market, producers, and consumers. Ananda Gotami, the chief actuary of GEICO insurance company, said that new dedicated insurance models conditioned on the fast-changing customer needs are necessary to take on the opportunities presented by the emerging technologies. He is of the opinion that the current distribution channels can be significantly improved upon to serve a wider range of customers. This is especially true for the rapidly increasing population of the millennial generation. This segment of consumers is associated with a high rate of adoption of insurance products and services that have a technology aspect embedded in them. Contrary to what most people are inclined to imagine, increased use of technology to distribute liability insurance products would not threaten the relevance of insurance firms that are overly dependent on brokers and agents. The change represents new opportunities for driving growth (Cummins and Xiaoying 34).

Even slight alterations to the current liability insurance model and approach would have a major impact on the distribution of insurance products and business. Better technological innovations mean cheaper insurance products for the customers. Negative impacts of technology happen when the proper market preconditions are not sufficiently met. This could imply poor match of insurance products with the emerging technologies used to expand the distribution and offering of the insurers. This may increase the price of premiums or a low liability insurance uptake. These consequences would, in turn, affect the economy significantly since lower insurance uptake means less float for the insurers. The float is the capital that is pooled from the premiums paid by the insured persons (Gotami, GEICO, 2018). When more people are insured, the insurer gains more revenue that is optimized to provide for the homogenous and other risks involved. It is rare that all persons under a common risk to simultaneously make claims. As such, the accumulated float is used in other investment activities that in the long run help in the growth of the economy.

Challenges are threatening the progress of the ongoing disruptive innovation in the insurance industry. New technology and innovation results in increasing emerging risks whose liability cannot be solved in single legislation. Various emerging technologies, including those in the same category (e.g., the Internet of Things), foster very diverse risks and trigger a variety of liability issues. Such risks are therefore likely to demand a customized insurance policy. Determining the role of emerging technologies and the function of insurance as single kind of business activity excludes different insurance models, insurance consumer market structures and risks that only exist for each distinct technology (BerryStolzle et al. 382).

According to Joseph Godin, Product Development Manager at AON Minet Insurance Company, emerging technologies have a considerable impact on liability insurance claims and liability rules. These factors vary from one state to another depending on how the new technology is used and the culture that surrounds that utility. For example, different technologies require different safety standards and practices, certification and licensing. Godin cautions that different specifications should be provided for varying technological niches and insurance markets to avoid the fallacy of hasty generalization where impositions are made on consumers. This might lead to a sharp decline in consumption of the liability insurance products (Godin, AON, 2018). Therefore, there is need always to foster favorable market conditions to ensure the continued success of liability insurance business.

Increased access to data has enhanced advanced risk modeling which is critical for product development. Godin believes that emerging technologies present insurers with new risk modeling opportunities. This would enable the insurers to build and implement more comprehensive and integrated claims handling modalities as they work towards the adoption of new technology changes (Cummins and Xiaoying 34). Continued improvements in this direction would enable insurers to predict the severity and frequency of risks within a reasonable level of accuracy and certainty. Optimization of these emerging technologies and big data generated thereof will improve the insurers' capacity to predict future emerging risks. This would bring about and cultivate more innovative and affordable policy covers (Godwin-Jones 44).

Conclusion

Emerging technologies have significantly led to the improvement of how liability insurance was viewed and distributed in the traditional markets. The flourishing of these technologies leads to increased distribution of insurance products and expansion of the market segments for the insurance industry. Innovation should be encouraged and supported by the insurance industry for further growth. There is still a big chunk of the population that lack liability insurance either because they erroneously view it as too expensive or because the distribution channels and covers lack the most effective technological elements embedded in them. Resources devoted to other things such as maximization of shareholder value should be restructured to cater for innovation needs to drive growth. Furthermore, emerging technologies will keep improving and thus should be optimized for guaranteed business growth both in short and in the long-term.

Works Cited

BerryStolzle, Thomas R., et al. "Determinants of corporate diversification: evidence from the property-liability insurance industry." Journal of Risk and Insurance 79.2 (2012): 381-413.

Cummins, J. David, and Xiaoying Xie. "Mergers and acquisitions in the US property-liability insurance industry: Productivity and efficiency effects." Journal of Banking & Finance 32.1 (2008): 30-55.

Godwin-Jones, Robert. "Emerging technologies." (2010).