Determining which risks will emerge as major liabilities to insurers means looking both to the past and to the future. Self-driving vehicles and drones are technologies of tomorrow that are appearing today, while floods and a global pandemic bring history’s feared disasters to the present.
During the Verisk Velocity session Emerging Risks from the Reinsurance Perspective, executives from three leading reinsurers who specialize in forecasting future liability discussed these developing challenges for the insurance industry, as well as the potential for new business serving the legal marijuana industry.
The reinsurance experts highlighted five emerging issues and offered their thoughts:
Autonomous Vehicles: Self-parking cars and autonomous shuttles are likely to be the first real taste the public gets of autonomous vehicles, which have been slow to gain traction despite rosy forecasts.1-3 In 2020, we’re nowhere near seeing 30 percent of the auto fleet equipped with the technology as was predicted. A 2018 crash in Tempe, Arizona, may have put the brakes on acceptance of the technology when a pedestrian was killed by a self-driving test vehicle.4 Despite bad publicity from related crashes and the ongoing challenges inherent in creating a vehicle capable of reacting to unpredictable human behavior as well as variable weather conditions, the opportunities for self-driving technology will likely continue to expand in such arenas as commercial trucking.
Drones: When drone technology first emerged, insurers worried about exposure over trespass nuisance and invasion of privacy claims, but those fears have waned. Insuring damage to drones has been an area of growth because when the often-delicate aircraft crash, it’s usually a total loss. The challenge for wider commercial adoption of the technology—or when you’ll see packages delivered to your location by drone—will depend in part on lawmakers sorting out clashing federal and state rules about various issues, including permission to fly over private property.
Marijuana: Insurers and reinsurers remain wary of the legal marijuana market because of the variations between state and federal laws. Marijuana is a Schedule I substance under the federal Controlled Substance Act, grouped with LSD and ecstasy.5 Schedule I drugs are defined as having no currently accepted medical use and a high potential for abuse. To date, the FDA has also approved one cannabis-derived drug product and three synthetic cannabis-related drug products, all of which are only available with a prescription from a licensed healthcare provider.6 The insurance industry is taking a wait-and-see approach with the marijuana market as it looks to changes in currently applicable federal law.
Flood: Despite the increasing risk of devastating floods, the gap between coverage and losses is still wide because many property owners have insufficient or no flood insurance. Just 5 percent of single-family homes in the United States have flood insurance.7 Reinsurers can play a major role in helping insurers provide flood coverage as their risk capacity can help fill unmet need, while real-time underwriting powered by scientific expertise and computer modeling can help reduce exposure.
Pandemics: The “New Normal” of life during the COVID-19 pandemic is upending assumptions insurers relied on in the past, such as the number of miles driven commuting to work. Even if people begin to return to work on a hybrid basis, there’s a strong possibility that working from home will permanently become a larger part of the work world, which triggers the question: Has the personal auto market reached full maturation? On the commercial lines front, the pandemic may have changed the liability risk profile for property owners. For example in scenarios where their buildings aren’t equipped with ventilation that can prevent the transmission of airborne diseases.
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- Mark Phelan and Phoebe Wall Howard, “Detroit parking garage will feature automated parking system by Ford, Bosch in self-driving car demonstration,” Detroit Free Press, August 28, 2020, <https://www.freep.com/story/money/cars/2020/08/28/self-driving-cars-ford-bosch-automated-valet-parking-detroit/5642487002/>, accessed on October 18, 2020.
- Tim Wronka, “Tampa’s First Driverless Shuttle is on the Road,” Spectrum News 13, October 10, 2020, <https://www.mynews13.com/fl/orlando/news/2020/10/10/tampas-first-driverless-shuttle-is-on-the-road>, accessed on October 18, 2020.
- Kamil Karamali, “Here’s a look at Toronto’s 1st self-driving shuttle bus,” Global News, October 14, 2020, <https://globalnews.ca/news/7397017/toronto-electric-driverless-shuttle/>, accessed on October 18, 2020.
- Kate Conger, “Driver Charged in Uber’s Fatal 2018 Autonomous Car Crash,” The New York Times, September 15, 2020, <https://www.nytimes.com/2020/09/15/technology/uber-autonomous-crash-driver-charged.html>, accessed on October 18, 2020.
- Drug Schedules, U.S. Drug Enforcement Administration, <https://www.dea.gov/drug-scheduling>, accessed on October 18, 2020.
- FDA and Cannabis: Research and Drug Approval Process, U.S. Food & Drug Administration, <https://www.fda.gov/news-events/public-health-focus/fda-and-cannabis-research-and-drug-approval-process>, accessed on October 18, 2020.
- “The flood insurance gap in the United States,” Munich Re, August 28, 2020, <https://www.munichre.com/topics-online/en/climate-change-and-natural-disasters/natural-disasters/floods/the-flood-insurance-gap-in-the-us.html>, accessed on October 20, 2020.