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Internet of Things ripe for risk exposures

Posted On: Nov. 16, 2015 12:00 AM CST

SINGAPORE — Risk managers need to act proactively to protect their organizations from liabilities arising out of the so-called Internet of Things, an insurance executive says.

With between 10 billion and 20 billion products and devices connected to the Internet, risk managers need to exert influence within their companies to ensure that liability considerations are addressed before digitally connected products are introduced, said Rudi H. Spaan, president and CEO of AIG Insurance Hong Kong Ltd., a unit of American International Group Inc.

In addition, insurers need to partner with their policyholders to ensure that insurance policies address the rapidly changing risks that arise as a result of the changing technology, he said during a presentation at the Pan-Asia Risk & Insurance Management Association conference being held in Singapore this week.

The liability landscape is growing more complex as a result of the Internet of Things, Mr. Spaan said.

In one scenario, for example, an industrial machine manufacturer might send out an update to a customer operating the machine over the Internet. If the update is not received, the machine may malfunction and cause property damage. The operator may say that it did not receive the update, and the manufacturer may say that its own Internet was connection was faulty and failed to deliver the update. “Everybody is going to point fingers at each other and at this moment, because it is such a new exposure, it is not always clear who is liable,” he said.

In other examples, products might function normally but still create unforeseen liabilities. For example, a driverless car may stop or swerve to avoid a pedestrian but cause an accident with another vehicle, Mr. Spaan said.

To address these issues, risk managers should engage with their research and development departments to address the risks before the products are manufactured, he said.

“You as risk managers need to know very quickly what's cooking in the kitchen so that you can interact and play with it right then and there as opposed to being on the reaction side. And the more lead time you give to your brokers and insurers, the better our products can be to help you out,” he said.