Insuring the IoT: Who’s Liable in a Connected World?

Connected devices are supposed to make our lives easier. Autonomous vehicles will effortlessly drive us around. In the home, connected Things from the sprinklers to the security system will automate mundane tasks. In the workplace, industrial IoT technology will make us more productive and free to focus on innovation. But what happens when something goes awry? It looks like the IoT may make life in the highly regulated insurance industry a little tougher.

The risks borne of connected devices are different than in our more manually-operated world. When a car that is driving itself crashes, who is responsible for the damages? When a connected oven botches the Thanksgiving turkey and torches the house, who is on the hook? The insurance industry is not blind to the issues of shifting liability in a connected world. Here is some insight into their current thinking from Insurance Business Magazine:

Internet-enabled devices, from connected, self-driving cars to wifi-enabled toasters, are a game-changer when it comes to liability.

While on the surface it may seem as though the risks are limited to cyber, as these products develop the risks are going to start creeping into other lines such as general liability, personal lines and property, Allianz’s global head of cyber, Emy Donavan, told Insurance Business.

“With the interconnectedness of the world, every company – it’s such a trite phrase – but every company is becoming a tech company to a certain extent,” Donavan said during an interview at the Risk Management Society’s annual conference in Philadelphia, USA.

One of the key transitions that will be especially “eye-opening” for people, is when automobile companies start becoming tech companies, she explained.

“When you see the day that Chevy is making cars for Uber or Lyft or one of the other ride services, I think that will be a really interesting liability shift, because no longer will people need their individual auto insurance – because they don’t own the vehicle,” she said.

That potential shift in liability will also include a shift in the type of people making claims – “so all of a sudden you see the company that made the auto being more of a technology service provider that’s providing a bespoke technology product that happens to drive on the road or happens to fly in the air,” she said.

Connected devices in the home – which can include items as seemingly benign as toasters – will also create exposures in the future. Manufacturers of connected consumer products may end up facing “huge issues” and product recalls if they are unable to get a handle on the vulnerability gap these devices open up, which can include the threat of hacking, as well as malware programs that can break devices.

“Being in the reactionary industry that we are in, no-one’s going to write a policy until someone wants to buy it, and we’re not there yet, but over time we’re going to be moving in that direction,” Donavan explained.
“I do think that we’re moving in that direction where we’re going to see cyber exposures permeating a number of areas.”