Risks and rewards of a digital revolution

Technology advancements are transforming business in a big way. The past few years have seen the development of highly intelligent, automated and super-efficient solutions, which are reinventing how companies in all industries and markets are doing business. Some are calling this global trend the Fourth Industrial Revolution.

The Internet of Things (IoT) is at the forefront of this revolution. Organisations are embedding IoT into their operational processes, products and service platforms. Combined with AI, traditional machinery like automobiles, are applying AI subsets, machine learning and reinforcement learning, to enable autonomous driving.

Virtual reality (VR), while still in its infancy, is set to augment learning and development for the tasks that intelligent computer systems cannot replace. Combining this technology with data on environments, scenarios and outcomes, VR creates simulated environments, placing individuals in ‘real-life’ situations, where they learn by interacting with the ‘environment’, rather than simply analysing it.

Advanced visualisation tools include extended reality mediums like VR, augmented reality, and mixed reality. These can provide risk managers with greater insight and understanding of their supply chains and more incisive risk assessment of natural catastrophes, for example. Combining IoT, AI and super computing thereby offers a plethora of new opportunities for risk management. They are not, however, without their challenges.

Liability risks: knowing too much

IoT adoption generates huge volumes of data on just about anything and everything that can be connected, running the risk of information overload. The challenge for risk managers is in extracting meaningful and actionable information from a sea of seemingly unstructured data. There is also the potential of new liability issues.

Take an example of a connected piece of manufacturing machinery. If IoT sensor information identifies the developing potential for an issue to occur, would the manufacturer incur legal liability for failing to act upon it or notify the user? Similar questions arise when it comes to wearable technology. Sensors on these devices have the capability of indicating a potential or future health or safety issue.

Like the machinery example, if an employer fails to act or notify the individual, they too could be potentially liable. Liability challenges also exist with AI. Through algorithms, these technologies change as they begin to recognise and categorise items. As it continues machine-learning, the technology will, over time, evolve and act differently to the technology that you started with. The tricky question is, in an event of a loss, who is liable: the user whose ‘behaviour’ trained the algorithm or the manufacturer?

The Insurer’s Response

Insurers are front and centre in recognising the opportunities and challenges associated with these technologies, keeping a pulse on how they evolve and their impact on the risk landscape. We are also coming together as a community to share our learning and to help companies understand the risks and the risk transfer and mitigation solutions available. At AIG, we are at the forefront of testing these new technologies, learning both about the successes and the failures. This helps us in creating risk transfer and mitigation solutions that are fit for the future.

For more on business transformation in the Fourth Industrial Revolution, click here.