From Automated Vehicles to Cyber Security · From Automated Vehicles to Cyber Security: What Keeps...

From Automated Vehicles to Cyber Security:

What Keeps Us Up At Night? AICP New England Chapter

Annual Education Day

May 12, 2017

1 @2017 Insurance Services Office, Inc. All rights reserved. Confidential and Proprietary.

Presenters

• Andy Blancher, CPCU Director, Commercial Auto

ISO/Verisk

• Kathy Donovan, MCM

Senior Compliance Counsel

Wolters Kluwer


Our Challenge

“By failing to prepare, you are preparing to fail.”

Benjamin Franklin

“It's tough to make predictions, especially about the future.“

Yogi Berra


Agenda

• Emerging Issues

• The Sharing Economy

– Ride Sharing

– Automated Vehicles

• Drones

• Cyber

• Q & A


Emerging Issues

• What is an emerging issue? – New phenomenon: nature and effects are relatively unknown

• E.g., nanotechnology

– New risk: nature and effects are relatively known but involve unique characteristics

• E.g., hydraulic fracturing

• Potential Impact: – May go beyond existing underwriting and risk management best

practices

– May go beyond existing actuarial calculations


Typical Characteristics of the Sharing (aka Gig) Economy

• Online platform connection

• Types of online platforms:

1. Labor online platform • Freelance/contingent workers perform certain tasks

(Ridesharing, shopping, handyman, delivery)

2. Capital online platform • People sell or rent out their goods/assets

(Home sharing, car sharing, cash lending, clothes)


Typical Characteristics of the Sharing (aka Gig) Economy

• Individuals may earn income from multiple platforms and can work when they want

• Platform income may off-set or supplement an individual’s total income

• Individuals are paid for each individual task or item at a time

• Payment passes through the platform


© 2017 Insurance Services Office, Inc. All rights reserved. Confidential and Proprietary.

Ride Sharing

Ride Sharing Potential Exposure Considerations:

• Insurer awareness

• Operator awareness

• Frequency of operation

• Coverage applicability

• Criteria may include: – Territory travelled; miles driven; frequency

• Potential wide appeal – Young adults, students, teachers, seniors, unemployed


Ride Sharing and the ISO CA Program

• Was not explicitly addressed under ISO CA program

• No eligibility restrictions to preclude TNC driver from purchasing CA coverage

• Rating may have been inadequate


Ride Sharing ISO Commercial Auto Activity

Filed:

• Optional exclusionary endorsements for:

1. Ride sharing activities (as driver)

2. Ride sharing and on-demand delivery activities

• Updated rules, including dedicated ride sharing procedures and loss cost determination

• Parallel changes for Commercial Umbrella


Ride Sharing ISO Commercial Auto Filing Status

• Filed in 53 Jurisdictions; implemented in 48

• Advisory Policyholder Notices provided

• More than a few regulatory inquiries

• Status updates provided via circulars and at Insurance Lines Services web site www.verisk.com/ils

Next steps? Business exemptions?


http://www.verisk.com/ils

ISO Ride Share Resource Center

ISO has developed a number of tools and resources:

• Ridesharing insurance coverage options

• White paper on ridesharing

• Conferences and ISO Webinars

• Ridesharing regulatory activity and emerging issues

ISO Ride Share Resource Center & White Paper www.verisk.com/iso/ridesharing-insurance-resource-center.html


http://www.verisk.com/iso/ridesharing-insurance-resource-center.html







Ride Sharing Legislation


Ride Sharing Regulatory Provisions

• Definitions

• Conditions (logged in/engaged)

• Financial responsibility/Minimum limits

• Disclosures

• Limitations

15

Automated Vehicles


Some Auto Insurance Considerations

• Gradual adoption of autonomous vehicles

• Mix of traditional, semi-autonomous and autonomous vehicles on roads

• Consumers understanding of the difference between various new technologies

• Traditional vehicles with aftermarket autonomous add-on


Potential Outcomes & Implications

• Fewer Accidents

• Premium relocation from personal to commercial auto

• Exposure shift to product liability

• Urbanization / Millennials

• Average Vehicle Age

• Coverage & Rating Adaptation

• Claims handling & settlement


Automated Vehicle

Legislative and Regulatory Considerations


State Financial Responsibility and Compulsory Insurance Laws

Owner of a car to carry liability

insurance

Auto insurance first line of coverage for

an injured party


Legislative and Regulatory Action

21

State Action

Handful of states and Washington DC have passed legislation related to AVs

Federal Action

$4B investment over 10 years

Automated Vehicles Policy

States with Enacted AV Legislation

The Model State Policy “confirms that States retain

their traditional responsibilities for vehicle licensing and

registration, traffic laws and enforcement, and motor

vehicle insurance and liability regimes.”

Source: Federal Automated Vehicles Policy – September 2016 https://www.transportation.gov/AV/federal-automated-vehicles-policy-september-2016 AV Legislation – http://www.ncsl.org/research/transportation/autonomous-vehicles-legislation.aspx

Insurance Regulatory Discussions

• National Conference of Insurance Legislators (NCOIL)

KPMG Presentation on “Autonomous Vehicles and Disruption” (July 15, 2016)

• National Association of Insurance Commissioners (NAIC) Center for Insurance Policy and Research (CIPR)

Event: “Gearing Up for Autonomous Vehicles” (August 28, 2016)


Automated Vehicles & Telematics


Automated Vehicles and Telematics

Does UBI for AVs make any sense?

• Transitional rating

– Manual driving before 100% fully autonomous vehicles are prevalent

– Accurate account of manual vs automated usage



25

• Fully autonomous vehicles in a partially autonomous world

– Road-specific risk

• Conditions

• Driver behavior

– Premium could potentially differ by route

@2017 Insurance Services Office, Inc. All rights reserved. Confidential and Proprietary.


• Beyond driving behavior

– vehicle characteristics

– claim investigation

– sensor status

– location

– maintenance

• V2V communication

– conditions

– routing

– safety


• Sharing economy has emerged quickly

• Driven by technology and potential for people to make/save money

• Opportunity for insurers to serve new markets and innovate

• Requires: – Adjustment to traditional coverage provisions – Creative coverage and rating options

27

The Sharing Economy Closing Thoughts


No part of this presentation may be copied or redistributed without the prior written consent of Insurance Services Office, Inc. This material was used exclusively as an exhibit to an oral presentation. It may not be, nor should it be relied upon as reflecting, a complete record of the discussion.” © 2015 Insurance Services Office, Inc. All rights reserved. Confidential and Proprietary.

Drones

Reported Applications

@2017 Insurance Services Office, Inc. All rights reserved. Confidential and Proprietary. 29

• Creation and publication of a five-year Roadmap to support safe and efficient UAS operations

• Section 333 Exemption process

• Proposed rules for commercial use published February 2015

– In part, limit flights to daylight and visual-line-of-sight operations

• Recreational Use

FAA Modernization And Reform Act


Review of Approved Exemptions (Section 333)

• Key findings1

– 247 unique platforms

– 90% are rotary wing

– All (but one) weigh less than 55 lbs

– Nearly all rely on electrical propulsion

– Median endurance of 25 minutes

1 Association for Unmanned Vehicle Systems International (AUSVI) reviewed the first 1,000 approved FAA Section 333 exemptions

Source: http://auvsilink.org/advocacy/Section333.html


Industry / Operation # of Exemptions

Aerial photography 512

Real estate 350

Aerial survey 301

Aerial inspection 242

Agriculture 164

Construction 134

Infrastructure inspection 102

Film and TV 91

Utility inspection 78

Environmental 61

Top 10 Industries Using UAS via Exemption

Source: AUVSI, The First 1,000 Commercial UAS Exemptions, September 2015


Exposures & Underwriting Considerations


Exposures & Underwriting Considerations

Exposure Range: Nuisance to Catastrophe

Non-owned Drones

Owned Drones

Drones for hire


Drone Exposures Operation of Aircraft

• Lost link

• Fly away

• Depleted battery

• Pilot skill

• Human factors

• Maintenance

• Nature

– Weather

– Operating environment

– Wildlife


Liability

• Design/manu-facture defect

• Collision

• Data-link transmission failure

Drone Exposures Coverage Implications

Personal Injury • Invasion of

privacy • Trespass and

nuisance • Infringement

and defamation

Property Damage • First-party

property damage

• Perils of aircraft and falling objects

• Business interruption losses

• Hacking


• Limited Data on Non-military Drone Losses

• Crashes

– Bodily Injury

– Property Damage

– Will all crashes yield one or the other -- or both?

• Location

– Rural

– Urban

• Drone Characteristics

– Size

– Capabilities and Operations (photography, spraying, payload capabilities)

Drone Rating Considerations Liability


ISO Drones Options

• Liability endorsements implemented 6-1-2015

– 3 exclusionary endorsements

– 3 limited coverage endorsements

• Commercial Lines property products

– Commercial Inland Marine released February, 2016

– Commercial Property and Capital Assets filed in April, 2016

– Rating information released/filed in December, 2016

• Businessowners – Liability endorsements filed in May, 2016

• Homeowners – Endorsements filed in August, 2016


38

Drone Resources

– ISO Drone Resource Center

• www.verisk.com/iso/drones.html

– Ongoing monitoring

• Emerging Issues Portal


39

http://www.iso.com/drones

http://www.verisk.com/iso/drones.html

Currently Available

• Drone Resource Center www.iso.com/drones

• Endorsements for standard liability lines

• Ongoing monitoring

– Emerging Issues Portal

In Development/Under Review

• Coverages for additional lines of business

• Rating information

ISO Solutions Addressing Drone Exposures


http://www.iso.com/drones

Drone-Regulatory Updates

• Surplus lines lists

• New Jersey introduced AB 2946 – minimum limits to be established

• South Dakota SB 80 effective July 1, 2017

41

Cyber


Cyber is the Fastest Growing Segment of Insurance

43

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0-500K 500K-1M 1M-2.5M 2.5M-5M 5M-10M 10M-25M 25M-100M 100M-300M 300M-1B 1B-5B >5B

Cyber Insurance Take Up Rates by Company Size

Trailing 5 Years Take Up Rate Training 3 Years Take Up RateSource: Advisen

0

5

10

15

20

2010 2011 2012 2013 2014 2015 2016 2020 E 2025 E

Bill

ion

s

U.S. Insureds Cyber Premium Growth

Sources: Betterley Report / III / PWC / Allianz

• Market is growing both in scope of products offered and type of clients


Cyber Risk Impacts All Industries

44

Agriculture

Education

Finance and

Insurance

Health

Manufacturing

Media

Professional

Services

Public

Administration

Retail

Transportation

Utilities Others

Percentage of Incurred Historical Cyber Losses by

Industry*

*Based on ISO analysis


Legal Fees

Extortion

Public Relations

Costs

Forensics Costs

Business Interruption

Publishing Liability

Breach Liability

Both First Party and Third Party Loss Potential

45

Notification Expenses

Data Restoration or Replacement


Challenges in Responding to Customer Needs

• What coverages do my customers need?

• What information helps evaluate cyber risks?

• How to equitably price risks?

– Perhaps distinguish by: industry, revenue, years in business, revenue per employee and company type?


ISO Cyber Solutions

47

ISO Program Overview

• ISO Cyber Insurance Program includes stand-alone policies to address specific needs of:

Commercial Organizations

Financial Institutions

Media & Publishing Companies

Small / Medium

Businesses



– Robust: Multiple Insuring Agreements

– Inclusive: Multi State Coverage (admitted and non-admitted business)

– Flexible: Ability to tailor coverages, limits, waiting periods and deductibles to help address your clients’ needs • Limits between $50 thousand and $50 million

– Logical: Underwriting Guidelines and Advisory Applications are designed for ease of use. Short form application available for SME business.

Policy Forms Loss Costs

Insuring Agreements Premium Modification Plans

Endorsements Advisory Applications

Manual Rules Underwriting Guidelines



Insuring Agreements for Distinct Coverages

Security Breach Expense

Public Relations Expense

Extortion Threats

Security Breach Liability

Replacement | Restoration of

E-Data

Web Site Publishing

Liability | Media Liability

Business Income & Extra Expense

Programming E&O Liability


51

Program Developed using Predictive Analytics based on Detailed Company and Incident Data

1,728,386 distinct

risks

$2.5 billion in loss

causing events

32,033 historical

cases

$23 trillion in revenue

1,043 industry classes

represented


Analytics Facilitate Unprecedented Detail in Rating

52

Make Informed Pricing Decisions

Account for Industry Specific Differences in Risk

Access Higher Limit Business

Refine Based on Unique Organization Characteristics

Employ Cyber Specific Rating Modifiers


Make Informed Pricing Decisions

• Loss Costs are available for each insuring agreement and endorsement

• Loss Costs vary by company size – small businesses to $100 billion in global revenue

53

0

5000

10000

15000

1% 5% 10% 25% 50% 60% 70% 75% 80% 85% 90% 95% 96% 97% 98% 99%

Inc

urr

ed

Se

ve

rity

in

Th

ou

san

ds

Incurred Severity Distribution by Insuring Agreement

Security Breach Liability Loss

Security Breach Expense Loss

Public Relations Expense Loss

Business Income Loss


Percent of Incidences

Employ Cyber Specific Rating Modifiers

INFO SEC LEADERSHIP

THREAT SHARING

DATA LOSS PREVENTION

SOC 2

DATA ENCRYPTION

BUSINESS CONTINUITY DISASTER RECOVERY

CLOUD USAGE

INCIDENT RESPONSE

EMPLOYEE TRAINING

54


EMAIL ENCRYPTION

DATA CLASSIFICATION

Cyber Incident Trends | ISO Insights

55

• Generally moderate and positive

• Financial Institutions are seeing a slight dip in frequency due to improved security systems

Frequency Trend

• Generally small and positive

• Severity is rising faster for financial institutions than average

• PCI fines and penalties trends are very high

Severity

Trend


Cyber-Regulatory Updates

• New York – “Cybersecurity Requirements for Financial Services” Regulation

• NAIC – “Principles for Effective Cybersecurity Insurance Regulatory Guidance”

• NAIC – Draft “Insurance Data Security Model Law”

56

Q & A


Presenters:

Andy Blancher Director, Commercial Auto

Email: [email protected]

Kathy Donovan, MCM Senior Compliance Counsel

Email: [email protected]

No part of this presentation may be copied or redistributed without the prior written consent of ISO. This material was used exclusively as an exhibit to an oral presentation. It may not be, nor should it be relied upon as reflecting, a complete record of the discussion.

mailto:[email protected]

mailto:[email protected]

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