Risk management and the impact of Artificial Intelligence

Risk management and the impact of Artificial Intelligence | Insurance Business America

Risk management and the impact of Artificial Intelligence

Risk management, like many other industries, is at a crossroads right now, thanks to the emergence of new technologies such as artificial intelligence (AI). These technologies bring sweeping changes that some risk managers may find hard to keep up with.

To learn more about how new technologies shaping the risk management industry and how risk managers can adapt, Corporate Risk and Insurance spoke with Angus Rhodes, global product manager of Ventiv Technology, an international provider of risk, insurance, and claims software solutions.

AI and IoT
According to Rhodes, AI, which is one of the most popular new technologies, is an agent of change, particularly for its capability for altering business models, comparable to the Industrial Revolution.

“To me, this is a huge opportunity,” he said. “In the same way Uber and Facebook changed transportation and the internet, AI is going to give a new range of opportunities for businesses.”

As such, Rhodes believes that risk managers should look at how AI will alter their business model, and what areas will create opportunities and risks. One major risk is what he calls a timing risk, which organisations many times struggle to get right.

“When do you adopt [a technology]?” Rhodes said. “If you’re too early, it’s too expensive and there’s a chance of it failing. But if you do it too late, then you could’ve missed the boat.”

If a company ignores a new technology which turns out to be industry-changing, then it will be at a disadvantage against its competitors.

Other major risks that are brought about by AI include increased cyber risk, as AI makes phishing and hacking much harder to counter, as well as proliferation of misinformation or “fake news”.

“Combined with AI, it may be hard to understand what real news is anymore,” Rhodes said.

AI also has a profound impact on jobs, and Rhodes believes that certain roles will indeed be replaced by technology. He illustrated this by citing the example of the London cabbie. Their top selling point was their knowledge of the streets of London. However, with the emergence of smartphones with maps, the need for this knowledge has been lessened.

“I’m not going to predict what will those new jobs be or will there be enough for everyone,” he said. “[AI] will change where the jobs will be placed and who will be involved, but there will be less physical-style jobs.”

Aside from artificial intelligence, another common term being heard today is the Internet of Things (IoT). At its core, according to Rhodes, IoT is about generating data.

“One thing the IoT does for sure is generate more information,” he said. “To me, for risk managers to catch up, it’s actually how they use that information to make better decisions and to understand what’s happening.”

This is where AI comes in, which will help risk managers to analyse the huge amounts of data collected.

“AI tools such as IBM’s Watson analytics tool are nothing unless you connect them to a broad data set,” Rhodes said. “All of these advanced technologies are useless if you have all of your business information sitting inside siloed systems with no connection – they won’t be able to predict much. Although this creates risks, this is the only way you’ll be able to take advantage of the latest AI toolset. It’s all about getting connected.”

Evolution of the risk manager
In the future, Rhodes sees the risk manager going beyond the traditional compliance and governance aspect of business and becoming more involved with innovation.

“I can see the risk manager becoming more involved in strategic business planning, and that’s where they should be innovating,” he said.

However, despite all the changes brought by new technologies and the emergence of digital ecosystems, the nature of risk, and risk management, remains mostly the same at its core. Rhodes cited the impact of the 2010 volcanic eruptions in Iceland, which caused massive disruptions to flights and businesses across Europe, and even globally. The risk of volcanic eruption has been present since the earliest of times.

“Most people think that the digital world is isolated from the natural world,” Rhodes said. “But the digital world is in fact relying on the physical world.”

He stressed that risk managers must evolve but still keep in touch with their roots.

“Technology doesn’t eliminate the basic disciplines risk managers have always had. It’s all new, but it’s also all the same.”

Rhodes concluded that even in an AI-dominated future, there will always be a role for risk managers.

“I don’t see AI anywhere close to replacing the role of risk managers, at least in the short term,” he said. “Risk managers must evolve to be comfortable with using these advanced analytics tools and they should know when to rely on these tools and when to rely on their own decision making.”