The insurance industry needs to ‘move along quicker’ when it comes to emerging risks in a bid to keep pace with evolving risk issues, according to Lloyd’s Australia country manager, Chris MacKinnon.
MacKinnon took to the stage at the Steadfast Convention, held in Brisbane this week, and spoke of the changing risk landscape the world faces and he noted that the industry needs to do more to match the change.
“Matching emerging risks with insurance solutions is a problem,” MacKinnon said.
“The evolution of risk and the evolution of change in emerging risks, in my view, is currently outpacing the evolution of insurance products. I think we have to move along quicker as an industry in order to be able to keep up with the changing pace of evolving risk.
“Technology is moving very, very fast but insurance has been about analytics and historical statistics for a long time.
“What we are faced with now is a level of uncertainty and a lack of understanding that we really need to try to model and get our head around. This modeling work is being done to help us manage our capital and to provide a sustainable and long-term future for risk sharing.”
MacKinnon used examples ranging from solar storms and human pandemics to driverless cars to highlight how the global risk profile is changing.
“We have looked at scenarios around autonomous vehicles and there is a lot of change that needs to be done in terms of how we manage that risk, how we look at that risk,” MacKinnon said.
“We will cease to be insuring the vehicle and we will start to insure the manufacturer or the software supplier. There will be a liability assignment change in terms of who is responsible, with the recent Google car crashing into a bus, Google came out and said that they accepted some responsibility for that.
“There is a significant change coming in terms of the liability assignment in the motor vehicle space.”
MacKinnon stressed that emerging risks need to be a priority for insurers and those that see such large scale risks as outlandish only need to look to history for proof.
“The issue of emerging risk is a clear priority for insurers, it has to be,” MacKinnon continued.
“In order to ensure that we have model completeness, despite the limited knowledge that we sometimes have it is very clear that the impact of some of these risks is not going to be zero, it is going to influence the way that we look at things going forward.
“Critics should remember that even the most real events would appear ludicrous if they had been suggested as scenarios like we have done today before they actually arose.
“Who would have predicted the scenario of both World Trade Centre Towers coming down at the same time from a coordinated terrorist attack? It didn’t seem conceivable.”
MacKinnon stressed that more traditional risks should not be ignored but discussions around the future of the industry are key to come to terms with the way the industry may look further down the road.
“We are certainly not suggesting that traditional risks should be ignored, traditional methods of looking at risk should be ignored,” MacKinnon said.
“We do believe that by looking at risk from a different perspective, we will improve our capacity to remain resilient as an industry and to manage our capital effectively.”