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Measuring Risk in 2017


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Think of the insurance industry as your personal guide to forecasting the future climate of the construction industry. Tracking the insurance industry’s trends can give us a better understanding of the kinds of changes and risks that are to come in our industry to stay one step ahead of the game. 

On January 25, Marsh, insurance broker and risk management firm, held a webcast covering the risk environment in 2017 for companies and investors. Technology topped the list of areas seeing great change.  

“Tech is going to play a critical role in years to come. We’re going to see advances leading to greater economic productivity, innovative healthcare solutions, climate change solutions, and more,” explained Michael Rodgers, West Zone leader, Marsh Multinational Client Service. 

Areas requiring companies to exercise more diligence include robotics and artificial intelligence. These two technologies will lead to job losses for both blue and white collar workers. They are already raising questions about the liabilities companies will face as their use becomes more mainstream. 

As more of construction’s critical business moves to the cloud, companies should consider their levels of risk if they were disconnected from the Internet, and consider mitigating or insuring. 

Some of these concerns come from the industry’s increasing use of the technologies found in self-driving cars. Construction uses many of the same global positioning systems for placing locations and mapping. It also uses computer vision technology in autonomous or semi-autonomous equipment. These technologies pose unique liabilities that are crucial for construction companies to consider. If, for example, two pieces of autonomous equipment get into an accident, who is liable? Is it the manufacturer? Or is it the software developer who wrote the code?  

While very broad definitions of artificial intelligence could include software that uses algorithms to deduce the best materials for a foundation under specific soil conditions, the AI on the very near horizon comes much closer to human “thinking,” augmented by computing power. 

Examples include:

  • Model-based estimating

  • Energy modeling and prediction

  • Predicting structural damage from seismic events

  • Site and urban planning

As AI continues to interface with the core processes of businesses, it will begin to operate in areas that increase risks to individual privacy, collaboration across teams, recruiting, and daily operations. When AI begins making humanlike judgements that people rely on when making decisions, the risk scenarios expand quickly.

Trending Coverage

Property insurance is staying buyer-friendly, and there are new entrants to the market, said Duncan Ellis, Marsh’s US Property Practice leader. Ellis said he expects the marketplace to remain competitive in 2017, but predicts the rate of reductions will level off. 

Insurers are monitoring terrorist activities across regions looking at past, present, and potential future terrorist activity. In the U.S, property insurers are continuing to offer terrorism policies with broad coverage and competitive pricing. But, policy pricing will reflect a particular area’s exposure to terrorism. 

Ellis said it’s a good time to try to lock in favorable premium prices currently offered in the property insurance market. Look at multi-year aggregated and non-aggregated deals as well as alternative structures such as parametric insurance models.

Inland flooding is also continuing to be a loss leader, so companies should consider their exposures, look at modeling results, and use parametric non-indemnity to cover exposures.

The Cyber Challenge

“Cyber has long been viewed as a third party privacy event, meaning the theft of sensitive information that’s sold or used on the dark web,” said Ellis. “Cyber is moving now to be more viewed as equally important from a first party point of view, especially when looking at time element coverage such as business interruption, and or contingent business interruption…”  

Ellis explained these types of losses are coming without physical events, marking a significant change. Historically, claims were triggered by physical events causing physical damage leading to the business not being able to continue its operations. 

Cyber policies, and balloon cyber policies generally cover malicious network attacks relative to Internet service providers, but do not address third party suppliers of products that get compromised and can’t supply the mission-essential products the insured need to continue operating. There are endorsements for first party issues that can be added to all-risk programs, and some insurers include wording to cover first party cyber events within their policies. 

The cyber insurance market remains favorable for buyers, and is expected to continue in 2017. The greatest risks lie with companies that hold a significant amount of third party data, such as retail and healthcare.

As more of construction’s critical business moves to the cloud, companies should consider their levels of risk if they were disconnected from the Internet, and consider mitigating or insuring.

Workers Compensation 

“With such a competitive landscape insurers are finding it more and more difficult to secure the rate increases that they’d like to get,” said Stephen Kempsey, Marsh’s U.S. Casualty Practice leader. “The growth for the carriers needs to come from new business, so as a result, insurers are continuing to expand their appetite, and even some of the more challenging risks may have multiple suitors vying for their business in 2017.”

He emphasized, however, that factors in each state will affect insureds’ renewals. He cited difficulties stemming from court rulings in Florida as one example. Another factor affecting rates is limited marketplaces which are continuing for:

  • Large employee concentration risks

  • Professional employer organizations

  • Monoline placements

  • Workers compensation risks related to adverse experience

Kempsey also said the changing workforce is capturing more attention of insurers. Remote workers and independent contractor status remain under close watch by insurance companies.

General Liability Stays Favorably Priced

The general liability marketplace remains favorable for people buying insurance. Classes of business that will find challenges in 2017 include construction in New York because of labor law claims, new business models like those in the sharing economy, residential real estate, and companies with wildfire exposure. 

Kempsey also pointed out that insurers are paying closer attention to policy wording related to exclusions. New technologies used in business cause insurers to transfer risk related to unknowns, to other policies. He cited cyber-related exclusion as one example where insurers are transferring those risks to cyber policies instead of leaving them in general liability. Insurers are also excluding drones, production of genetically modified organisms, and traumatic brain injury.  

Auto continues to be the most challenging of the primary general liability lines. The frequency and severity of auto losses mean that insurers are not writing policies for certain risks, like long haul trucking. Better rates are possible by purchasing multiple coverages from one insurer. Sharing economy transportation claims are being looked at more closely to determine when a claim belongs to a personal auto policy or commercial policy. Autonomous vehicle coverage is another gray area in terms of assigning liability.  

While the excess casualty lines are generally favorable for insureds in 2017, there is an exception for very large umbrella policies where some insurers are reducing their exposures. To counter, insureds might need to add new partners to their towers, or change existing structures.    

Regulatory Remains Uncertain

There’s a lot of uncertainty about what a Trump presidency will actually mean, but there are a number of specific issues that unquestionably will have to be addressed,” Spore said. “The bottom line is while we can speculate about Trump’s administration and future direction, the reality is that in many ways the practical consequences in the change of administration remains to be seen.” 

He said there is a strong possibility the judiciary will shift, leading to more conservative outcomes in cases. Besides, the Supreme Court vacancies, there are many vacancies in the federal judiciary. Cabinet appointments and other key administrator appointments will also affect the insurance regulatory landscape. 

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