Insurers must take the lead on cyber protection in digitalization

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As technology simplifies our lives and provides us with up-to-the-minute data, it also opens us up to new challenges and potential risks. For example, using a step tracker, you can see how many steps you take a day without actually counting each and every step. You get the data and can use it to make decisions about how to move going forward. But you weren’t expecting your data to be used for location-based and targeted marketing, or to make you more vulnerable to cyber attacks.

Bringing that idea back to insurance, we have seen more and more businesses integrate technology into their day-to-day operations. Whether it’s installing sensors to mitigate slip and fall risks or utilizing smart locks, an influx of data is available, and we need to understand how we can best use it. Sometimes, in an attempt to gather data or introduce simplicity using a technology solution, businesses and brokers can inadvertently expose themselves to elevated levels of cyber risk.

Every year, Argo conducts a survey of brokers in the U.K. and the U.S. to gain insight into perceptions of the insurance industry. In Argo’s most recent survey, respondents showed a great awareness of cyber risks, increasing interest in IoT and AI, and the financial benefit of risk-management tools. Technological advances like the Internet of Things (IoT), automation and artificial intelligence solutions will be key to avoiding excess claims, cutting down on decision making time and lowering the average cost of claims. But as with anything in the insurance industry, nothing comes without risk. Here are some highlights:

Technology Providing Opportunities to Move Ahead
Now more than ever, without the proper technology tools, insurers fear being left behind. There is a general feeling among brokers that if you aren’t moving toward automation, you’ll be left in the past. Eighty percent of small to midsize companies surveyed believe that automation will expose them to new liabilities, while at the same time, 72 percent believe this automation can create new opportunity.

IoT (Internet of Things) Delivers Critical Data
By using IoT solutions such as sensors, insurance companies can make better judgements around client claims and mitigate potential risks. Without IoT integration, brokers are left without research or data to back up their decisions and recommendations. According to the brokers surveyed, IoT can be an effective risk management tool because it provides objective, real-time data that companies and insurers can use to minimize the business interruption that claims and risks can cause.

This number is growing: 64 percent of SMEs (vs. 58 percent in 2018) think that IoT will significantly disrupt the insurance industry within the next five years. As far as its impact, 91 percent of brokers see IoT as the dominant technology opportunity over the next 12 months as sensors and videos can help to inform businesses and underwriters when they are looking to verify and quantify claims.

Predictive Models, AI and Automation
Simply installing IoT sensors or creating automated forms is not enough. The technology needs streamlining to effectively improve the business. Both legacy systems and new technologies like IoT create a major challenge for insurers: data overload. We are tasked with aggregating that data into a uniform and usable format so that our brokers and their clients can benefit.

We’ve found that by working with brokers to create predictive models (when a claim might happen, the severity of a claim, and how much the claim might cost), we can provide more realistic quotes. The goal is to inform predictive models with real-time IoT data, which is constantly learning and becoming “smarter,” to make better recommendations. Building from that, we found that nearly seven in 10 brokers believe AI and automation will enable them to work more efficiently and offer more personalized solutions to clients. In addition to enabling better service, more than half (57 percent) of brokers agree IoT solutions can reduce a company’s cost of risk.

One way we are targeting cyber risks is our new Cyber Sphere solution, a suite of preventive tools and coverages to protect insureds against ransomware, social engineering, malware, DDOS attacks and other cyber-related exposures. This loss-control and risk-management program is created for the needs and resources of small- to medium-size businesses throughout the U.S.

Innovation Can Be a Double-Edged Sword
With these new technological advancements, brokers believe their clients are also more vulnerable to significant cyber concerns. Eight in 10 small to midsize companies (SMEs) think AI innovations will expose them to new liabilities such as cyber attacks. These fears are warranted: according to a survey released this month by the Poneman Institute (which researches data protection), small businesses are more likely to be the target of cyber attacks and hacks. In fact, of the 576 small businesses interviewed in the Poneman survey, 76 percent of them had a cyber attack within the last year.

With such a high number of cyber incidents impacting small businesses, we found that SMEs are purchasing insurance to cover potential damages caused by the implementation of automation technology, and AI and IoT products. At the same time, SMEs are faced with tough choices while budgets are tight: Should they invest in risk management tools like IoT sensors or buy a policy to cover cyber risks?

What does all this mean? Insurers and small businesses must find the right balance of technology to improve their business, while mitigating risks that come with implementing these solutions. There is no one-size-fits-all technology solution. While existing technology already helps to more accurately predict outcomes and lower costs for brokers and SMEs, the industry will continue testing and improving ways to leverage technology in 2020 and beyond.

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