Editorial: Expansion of tech creates conundrum

Technological developments in the insurance and risk management sector continue to evolve and compound in terms of opportunities and threats.

On the positive side, as we report here, insurtech and other technology companies are increasingly collaborating with traditional insurers to make processes more efficient and introduce powerful analytical capabilities.

The process of integrating technology — whether it be cloud services, satellite imagery or artificial intelligence capabilities — is multiplying the benefits of the individual elements and has the potential to significantly enhance the risk management process, simplify insurance purchasing and speed claims payments. 

The knock-on effect of these advancements should be better management of exposures, safer workplaces and reduced losses.

The potential negative implications of increased digitization and the spread of technology, though, can’t be ignored, and the convergence of the various elements also greatly intensifies the threats.

In its annual “Future Risks Report,” French insurer Axa SA surveys the general public in countries around the world and experts from Axa and other financial services companies on what they view as the major risks they are likely to face. Unsurprisingly, in the recently published 2023 edition of the report, climate change remains the No. 1 risk that concerns all. But after that, technological developments of various forms are perceived as significant risks. While results vary by region, in the United States both the experts and the general population view cyber risks as the No. 2 concern, and both sets of respondents also rank highly the risks related to AI and big data.

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Other top risks rated by both groups include social tensions, pandemics and monetary risks. None of the risks stand in isolation. The report uses the term “polycrisis” to describe the interconnection between risks, such as the social upheaval that results from climate change-related migration or global conflicts.

The intertwining of technology risks is almost created by design — increased reliance on digital commerce inevitably heightens cybersecurity risks, and automation of processes through AI requires more sophisticated technological safeguards.

And as more and more systems and organizations are linked via technology the systemic risks they face grow exponentially, potentially to the point where individual companies and their insurers can’t address the risk on their own.

Turning the clock back on technology is neither practicable nor desirable, but the rapid advancements and the heightened risks they represent require even more careful risk management and risk financing.

Efforts should be doubled to foster collective knowledge to develop new risk management techniques for technology risk and fend off the huge threats they pose. Collaboration between organizations and the sharing of best practices on how to handle technological risks have never been more important. And the possibility of a government backstop to address the most devastating systemic risks should be seriously considered.