Industries Insurance

Friend or foe?

New technologies can pose challenges for risk managers

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Print this page by Joan Tupponce
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Dubai’s Road and Transport Authority is introducing drone taxis. AP photo/ Sipa USA

Years ago, artificial intelligence was a figment of the imaginations of Hollywood filmmakers. Remember the malevolent computer in “2001: A Space Odyssey”?

Now the increasing use of artificial intelligence and other data-driven technologies represent potential risks for businesses.

The impact “of AI (where a computer program can think and learn like a human) and other forms of new technology already rank as the seventh-top business risk, ahead of political risk and climate change,” according to the Allianz Risk Barometer 2018, which is based on the insights of nearly 2,000 risk experts in 80 countries.

A common challenge for AI users is the proper handling of data. “AI runs on data — and a lot of it,” says S. Eric Boyum, national practice leader for Aon Risk Solutions Technology and Communications Industry Practice.

Managers have to consider a variety of the risk factors in dealing with data. “When collaborating with outside organizations to develop AI-related applications, it’s critical to understand who owns that data and who is responsible for ensuring its safekeeping,” Boyum says. “Does the manner in which the company uses the data comply with regulations? And, for data that is procured from other sources, does the usage comply with current and future use cases?”

New AI technologies are making their way into the American economy. They can be friends or foes to businesses, depending on who controls the technology.

“There are emerging risks of all kinds,” says Tim Cook, director for the Risk and Insurance Studies Center at Virginia Commonwealth University.

Most of these risks concern “how to handle the damage that is going on because of new technologies not in use before,” says Walter Smith, state insurance president of BB&T Insurance Services Inc. “How are you using new technologies? What are you doing to make sure there are no damages? These are just changing times.”

Technology and cyber-risks go hand-in-hand, and problems can pop up in untraditional places. Personal smartphones, for example, often are used for business purposes. Employees also use laptops at offsite locations, such as coffee shops, using public WiFi systems that can expose important information. “Technology can cause real challenges for risk managers,” Cook says.

Data from wearables
The basic principles of risk management include “avoid the risk, mitigate the risk, transfer the risk and accept the risk is what it is and budget for it,” says Roy Bucher Jr., chairman of Lunsford Insurance in Roanoke. “Risk management is the best way to control insurance cost, and the best risk management is to be aware of things that come across your computer that don’t look right.”

Some new technologies can help management reduce risks. For example, wearable technology, ranging from watches to belts, can monitor activities and motion. “If you can imagine it, there is a wearable for it,” says Lars Skari, managing partner at California-based Altumai Group, which helps companies take advantage of developments in data and technology to reduce risks.

Wearables can determine how someone is sitting, bending, walking, reaching or twisting on the job. “It can understand body movement, heart rate, surrounding environment or your geographic location through GPS,” Skari says. “These are the types of capabilities different wearables can provide. They can help you guard against back injuries, slips and falls. They can also monitor exertion and fatigue.”

By capturing data, companies can take measures to improve safety and prevent injuries. “It’s actionable information available to the worker and the employer so they can be aware of activities that may be unhealthy or risky and do something about it,” Skari says.

Drones and self-driving cars
Managers also are beginning to evaluate the potential risks posed by the movement of two new types of inanimate objects, drones and self-driving cars. Commercial use of drones is increasing. A variety of U.S. industries — including construction, agriculture, insurance and real estate — employ drones to make inspections. In China and Dubai, drone taxis transport passengers from one place to another. “It is a drone, and it flies you,” Cook says. As use of drones continues to rise, accidents and injuries — and potential lawsuits — are expected to follow.

Meanwhile, self-driving car technology, which still is being tested, has come under increased scrutiny since a couple of recent fatal accidents. Self-driving cars pose “an exposure that is a concern,” says Smith.

Insurers also are concerned about the behavior of some drivers. “Distracted driving is a big deal for carriers,” Smith says. “Rates are going up across the board whether you have had an issue or not. Cars have gotten safer and smarter, but drivers have gotten dumber while using smartphones and technology. It’s all about human behavior.”

Risk management today also involves the potential effects of mergers and acquisitions. In M&A transactions, risk managers have to be proactive, experts say.

“I tell folks to ask a lot of questions and understand what the goal is. Sometimes the goal is to take property, sometimes it’s to utilize a name or eliminate competition,” says Lindsey Harris, risk manager for Chesapeake-based discount retail giant Dollar Tree Inc. “Are you minimizing or expanding your risk profile?”

In 2015, Dollar Tree bought the Family Dollar chain for $9.1 billion. “We more than doubled by acquiring Family Dollar,” she says. The company’s goal in the acquisition was to extend its reach to more customers and diversify its footprint.

Combining the two companies meant taking stock of their existing resources, practices and business relationships. “Those two companies had long histories and cultures,” Harris says. “You need to ask, ‘Why were decisions made to mitigate, avoid or insure’ to help you figure out what’s missing.”

Her best asset as a risk manager is her curiosity, she adds. “I ask a lot of questions and get to know a lot of people in the business. It’s what you haven’t asked and who you haven’t talked to that ... keeps me up at night.”

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