A BIBA Brokers’ Guide to
New Technologies
The legal issues
2015 - Issue 2
In association with
3D
Foreword
printing
New technology
Product liability insurance
What better time to talk about new technologies
than in our spring supplement, when change and
new growth is all around? While these technologies
will certainly pose challenges to the insurance sector,
brokers are in the ideal position to lead the way.
Steve White, Chief Executive , BIBA
We have collected for you some of the key innovations
which are either emerging now or will soon be with us.
Some of these will directly impact how you run your
businesses, such as ‘Big Data’, drones and telematics.
Others are technologies which will change the way
your clients do business, and the risks you have to help
them manage, such as 3D printers, driverless cars,
and space travel and satellites. Some will do both.
The ‘Internet of Things’ is said to be as much of a step
change in the way we all experience the world, as the
internet itself was. I can’t wait for the time when my
fridge will automatically place an order for milk when it
runs out, or my house will send me updates on leaks or
even break-ins.
Looking at the supplement as a whole, what is
fascinating is that in nearly all cases data is the central
driver. That says to me that proactive management of
data, and understanding of the legal framework, will
become increasingly important. The better control we
have over data now, the harder we can make that data
work for us, and the easier it will be for us to take full
advantage of these new technologies. So, perhaps now
is also the time for a good spring clean of the data we
all hold.
This series of legal supplements is brought to you
through a partnership of BIBA, DAC Beachcroft and
Allianz. We hope that you find DAC Beachcroft’s legal
expertise, Allianz’s industry knowledge and BIBA’s
desire to share these with you helpful and we welcome
any suggestions for future subjects.
2
Steve White
Olya Melnitchouk
Associate,
Global Risk,
DAC Beachcroft LLP
implications of 3D printing
The emergence of 3D printing has been described as paving the way for a
third industrial revolution. The technology enables small businesses and even
individual consumers to make products that previously could only be built
by large manufacturers. We consider some of the implications of this new
technology for the insurance sector, particularly in the realm of product liability.
3D printing is a process of making three dimensional
solid objects from a digital file on a computer. The
creation of a 3D printed object is achieved using
software to slice a digital 3D model into layers. Additive
processes are used to create the object by laying down
successive layers of material such as plastic or metal
until the entire model is created. Toys, shoes, jewellery,
medical devices, cars, houses and even human tissue
have been built using 3D printing.
printer, the company printing the 3D product, or the
distributor. Thus, brokers need to assess the risks at any
stage of the supply chain.
For some time, manufacturers have used 3D printers in
their design process to create prototypes for traditional
manufacturing and research purposes. However, 3D
printers are increasingly being used by consumers at
home, with 3D printers available for purchase in UK
retailers for well under £1,000.
Other risks which must be considered by brokers
include traceability issues. For example, it is very
important to be able to trace the designs used, which
can be challenging in light of the online platforms that
exist for users to share designs and can be customised
for printing. The traceability of raw materials and
components is also very important, but the potential
complexity of the supply chains may make it harder to
trace problems.
As more and more companies are utilising 3D printers,
brokers need to understand how the technology
is being used by their clients to ensure the most
appropriate insurance cover is selected.
Liability for products made by 3D printing can
potentially lie with one or more of several parties,
including the designer of the original product, the
designer of the software, the supplier of the raw
material for the 3D printer, the manufacturer of the 3D
3D printed products could be defective for a multitude
of reasons including a defective digital design, the
use of inappropriate or hazardous printing materials,
a defect with the printer itself, or human error in
executing the digital design or using the 3D printer.
The ease with which personalised products can be
made with 3D printing will also raise questions as
to whether manufacturers will need to test each
individual product or whether such items will be
considered a mass product. Companies will need to
ensure their quality control testing methods are robust
and properly address the risks posed by 3D printing.
3
Io T &
pr oper t y
insu ran ce
The Internet of Things (IoT)
and Property Insurance
Emma Bate,
Partner Insurance
Advisory,
DAC Beachcroft LLP
IoT describes the ability of every day physical objects to connect
and interact with each other through the use of smart technology
contained in such objects. Typically the smart technology will make use
of sensors and chips embedded in that object, which will store data
and communicate it in real time over the internet to other devices with
compatible technology and individual users. IoT has been spoken of for
some time, but the move towards it is gaining momentum. Driverless
cars are just one example.
The possibilities of IoT are endless, including when
we are thinking of the impact on property insurance.
Information generated by objects, otherwise known
as the “digital shadow”, could be used by insurers,
brokers, claims handlers, loss adjusters and lawyers,
and will change every stage of property insurance from
underwriting to claims management to litigation.
The provision of real time data could also lead to a
change in the property insurance model as more agile
pricing could allow for pay-as-you-go insurance. As
an example, contents insurance could update as and
when items are brought into the home with checks to
allow for visitors.
Furthermore, the data generated by the object could
be relied upon rather than customer disclosure,
leading to a reduction in claims being avoided for
non-disclosure and fraud. For example insurers could
automatically receive details of freezer contents in
relation to a claim for ruined food from a freezer
default.
4
The IoT is however, likely to pose a challenge to the
current IT infrastructure of the insurance industry. The
benefits of IoT will only be realised if insurers, brokers,
claims handlers and loss adjusters are able to receive,
interpret and act upon the data generated by these
objects.
Two key legal issues for insurers and brokers will be,
first the need to ensure all personal data collected is
used in accordance with data protection law. Second,
the implications of TCF; on the one hand policyholders
who do not have smart buildings or smart household
appliances may be treated differently in terms of
pricing and underwriting. On the other hand IoT could
mean better pricing and underwriting for everyone.
“More accurate predictive modelling, risk
assessment and underwriting are the key
benefits for insurers as increased data from
objects enables more precise evaluation and
pricing.”
John D u nn, Unde rwriting Manage r Strate gi c Initiati v e s, Al l ianz Ins u ran c e
More accurate predictive modelling, risk assessment and underwriting are the key benefits for insurers as increased
data from objects enables more precise evaluation and pricing. Data on risk features such as the type of equipment,
age and usage generated and shared with brokers and insurers, enables cover and services to be tailored as this
information could alter a property’s risk profile. Combining data, analytics and technology will allow insurers to reserve
underwriting skill for exceptional cases leading to operational efficiency gains.
IoT creates the ability to eliminate or significantly reduce risk in unprecedented ways. This applies to hazards such as
fire, theft and flooding, as well as gradual deterioration such as subsidence. As the number and intelligence of “smart”
offices, buildings and homes increase generating continuous real time data and notifications, alerts could help to avoid
and reduce substantial damage occurring and lower claims severity and frequency. For example, in the case of a pipe
burst, a smart water valve – controlled remotely by a smartphone app - is able to detect the burst and automatically
shut off the water supply. Smarter security systems will allow for real-time notification, remote camera monitoring and
the ability to control other connected devices such as lighting systems to make the house appear occupied.
So, what does all of this mean for brokers?
Brokers stand to gain client relationship benefits from reductions in the claims processing cycle time as IoT enables
automatic loss notification. In the event of a loss or damage to property, brokers could immediately receive an
inventory form from the property detailing the objects that have been broken without the need to appoint a loss
adjustor. This should also help to reduce claims disputes.
The real challenge for brokers will be establishing the best way and developing the means to present data to insurers
for pricing and risk management. Equally, insurers will need to invest and develop technology and architecture to best
leverage their capability in this market. However, these challenges may be mitigated as technology changes aid faster
and more efficient collaboration between brokers and insurers.
These are exciting times, when all that is certain is that
IoT has the potential to impact the property insurance
market as well as every aspect of our lives.
5
dro nes
u av s
Drones/ UAVs – what are they?
Hans Allnutt,
Partner, Global Risk,
DAC Beachcroft LLP
Unmanned Aircraft Systems (UAVs), more commonly known as “drones”
are becoming ever more prevalent in both private and commercial
spheres, opening a new chapter in the history of aviation.
The use of drones raises a number of interesting legal issues in respect
of liability and privacy concerns. In July 2014, a small UAV allegedly flew
within 20ft of a plane landing at Heathrow. In November 2014, a real
estate company marketed a property using a drone-captured photo
which unfortunately included a next-door neighbour sunbathing topless.
The commercial use of drones
UAVs will bring new ways of working in almost every
conceivable sector which operates outdoors. UAVs
are highly cost-effective in comparison to existing
access options having the ability to access dangerous
and difficult areas, providing high-definition live video
without the need for suspending operations and
building expensive scaffolding.
It is no surprise that by September 2014, over 300
companies and public bodies in the UK had obtained
permission to operate UAVs - an increase of one-third
from the previous year. Insurers are beginning to
use UAVs in loss adjusting; for example they may
be useful in quickly assessing agricultural claims or
contaminated areas.
Regulation governing drone usage
The use of UAVs is regulated by the Civil Aviation
Authority (CAA). The CAA regulates UAVs according to
their weight and/or purpose. Anyone who uses a drone
for commercial purposes must hold a licence from the
CAA and have appropriate insurance in place. There
are also restrictions on distances and locations that the
UAV may be operated.
Hobbyists do not need CAA permission for UAVs
weighing less than 20kgs, provided they adhere to the
distance guidance and restrictions in airspace. In April
2014, a man was prosecuted for flying his UAV over a
nuclear submarine facility.
6
The European Commission is currently considering
whether to develop an EU-wide set of safety rules, and
in the UK the industry have suggested the creation
of an online database through which commercial
operators can log their flight plans and data protection
policies.
Data protection and privacy
An operator that collects personal data via a UAV
would have to comply with the Data Protection Act
1998 (DPA). The general use of a UAV might also
breach laws governing nuisance, harassment, rights to
privacy and trespass.
The Information Commissioner’s Office (ICO), which
governs the DPA, said that drones “can be highly
privacy intrusive”, capturing images of individuals
“unnecessarily”. The ICO Code of Practice stipulates
that a strong justification must be provided for the use
of UAVs that capture images, which can be aided by
performing a privacy impact assessment. Continuous
video/image recording must be both “necessary and
proportionate” for the purpose of the business in
which it is used. Commercial drone users must only
store any personal data collected for “the minimum
time necessary for its purpose” and thereafter securely
dispose of it. What that minimum time will be, will
depend on how it is to be used. If it is used as evidence
for an insurance claim, it should be kept with the rest
of your claim file until any realistic possibility of the
claim being re-opened has passed.
“UAVs are currently being used in the
insurance industry for a variety of roles
and their usage is set to continue.”
Cl aire White , Engine e ring Unde rwriting Ac c ou nt M anage r, al l ianz ins u ran c e
UAVs are currently being used in the insurance industry for a variety of roles and their usage is set to continue. The first
thing that comes to mind is their use in investigating claims. Within Allianz group, we are starting to gain experience
with the use of UAVs as a tool to examine property damage in instances where human assessment is very dangerous
or impossible, such as major fire cases or buildings with a high risk of collapse. UAV collected data on distance and
height can also be used to model damaged buildings in 3D to facilitate reconstruction.
UAVs are also aiding engineering inspection services and have the potential to revolutionise future inspection
techniques. Already used in aircraft inspection - with potential similar application for windfarms, towers and cranes high specification cameras laser-scan exterior surfaces to check for deficiencies and report back to qualified operators
with ultimate gains for customer and broker service. This combined with condition monitoring and stress analysis may
ease inspection requirements, increase accuracy and avoid putting inspection engineers in hazardous work conditions.
Finally, there is the question of insurance solutions for UAVs as such. UAV insurance is a relatively new product
with property covers required for the physical vehicle and aviation liability cover for the actual flight risk – or more
accurately, the flight failure risk and subsequent damage to third party property, or death or bodily injury to a member
of the public. Casualty exposures include invasion of privacy and potential nuisance actions brought as a result of
these, as well as actions brought under section 13 of the Data Protection Act for damage or distress suffered. For
non-casualty areas of cover, there are some important questions. Unlike liability, costs for damage to the drone and
ensuing business interruption should be reasonably confined and known – over time, the industry will be able to
assess frequency as well. Which policy to cover drones under is an interesting conundrum. Drones themselves could
relatively easily be covered under a Contractors All Risks or Contractors Plant policy, however, neither of these routinely
provide BI cover and not all clients are contractors. In addition, many would not want the inconvenience of setting up
yet another policy. Cover under Computer or Electronic Equipment policies are potential options which would enable
insurers to react quickly and comprehensively to clients’ needs with minimal requirement for adaptation
7
tel emati c s
Telematics
When telematics was the new kid on the insurance technologies‘ block (and
now admittedly one of the more established technologies covered in this
supplement) many commentators anticipated it would be hampered by
data protection concerns. A few years on, we look at where we are now…
Rhiannon Davies,
Partner,
Insurance Advisory
DAC Beachcroft LLP
Ownership: Ownership of telematics data
continues to be a hot topic with insurers, hardware
and software suppliers and data analytics providers all
attempting to negotiate a deal in which they “own”
the data. In reality, ownership of data is a somewhat
artificial concept; from a data protection perspective
we look at who “controls” the data, and with this
comes compliance obligations under the Data
Protection Act 1998 (“DPA”) as a data controller.
Access to Data: With many telematics products
Standardisation: Looking to the future, the
proposed Data Protection Regulation (predicted to
come into force in March 2018) imposes a right of
“portability” on Data Controllers, meaning data would
have to be easily transferrable between insurers. The
latest draft requires data portability only where it’s
“technically feasible and available”. We await the
final draft to assess whether the wording imposes an
obligation on telematics providers to work together on
a common data standard.
provided through the use of apps showing dashboards
of driving behaviour, we haven’t seen the influx of
individuals requesting copies of their telematics data
as permitted by the DPA - but they do occur. The
technology needs the capacity to provide the data in an
intelligible form to the data subject.
Driverless Cars
Peter Allchorne,
Partner,
DAC Beachcroft
Claims Limited
8
Insurance is all about assessing risk. It therefore stands to reason that by
removing the ‘human element’ – which is the cause of 90% of accidents
on Britain‘s roads, there will be a need to assess risk in a different way, with
greater emphasis on the vehicle itself.
A clear distinction will need to be drawn between
semi-autonomous and driverless cars. There is a
clear analogy with the world of civil aviation here.
Manufacturers are increasingly producing vehicles
with a number of driver assistance and collision
avoidance systems on board, which effectively allow
the vehicle to drive itself on ‘auto pilot’. However, much
like an aeroplane, the vehicle has manual controls, and
the driver is expected to monitor the progress of the
vehicle throughout the journey and assume control
under certain circumstances. It remains a grey area as
to the extent to which any liability may be passed from
driver to manufacturer in the event of a collision.
The development of the fully autonomous ‘connected
car’ which can talk to others around it will help to
significantly reduce both the frequency and severity of
accidents on Britain’s roads as the potential for human
error is removed. It follows that premiums should
ultimately fall. But like all technology it will, from time
to time, fail. In the future, any resultant claim may fall
to be dealt with by the Product Liability insurer of the
vehicle or system manufacturer, as opposed to the
motor insurer. In the meantime, both insurers and
legislators will potentially need to react to a situation
where Britain’s roads are occupied by a combination of
driverless, semi-autonomous and traditional vehicles.
“Driver telematics has received a lot of
media and industry attention over the
past few years, and this has now moved
on to the Government‘s radar with
the Department for Transport recently
commissioning research to put telematics
to the test.”
Gl e n Cl ark e , He ad of T e l e mati c s, al l ianz ins u ran c e
Driver telematics has received a lot of media and industry attention over the past few years, and this has now moved
on to the Government‘s radar with the Department for Transport recently commissioning research to put telematics to
the test. With the primary aim of scoping a better understanding of how telematics currently impacts road safety for
young drivers, the research will conclude with a controlled investigation to gauge how wider adoption of telematics
could be used to improve the future safety of our roads. Nonetheless, there are still a variety of challenges – strategic,
economic and technical – that must be overcome before telematics reaches critical mass in mainstream motor
consumer groups. However, this research and study could actively support measures such as a zero-rate insurance
premium tax (IPT) to help reduce premiums and generate further demand.
The telematics market has built up volume principally in the high premium young and new driver space with
investment and projected profitability generally driven through self-selection of safer driving risks. Although still
maturing, this sector has now become relatively saturated so we can expect to see a fair amount of consolidation
over the coming years as service providers and insurers struggle to overcome the inherent challenges of sustaining a
viable business model in an increasingly competitive market. These economic challenges centre around significant
technology costs including devices and hardware, operating platforms, analytics and the operational changes required
to service telematics policies and subsequent claims.
However, as device technology develops, digital IT infrastructure matures and the connected car becomes more
embedded and mainstream, the costs to operate will reduce thus expanding the potential market. Coupled with
broader product and service offerings driven from connected technologies, such as automatic emergency assistance
services (E-Call / B-Call) or car parking solutions, telematics is capable of not only reducing risk but providing new
revenue streams. This will allow telematics to compete not just on price but increasingly on proposition.
Finally, success depends on ensuring that insurers and brokers build and maintain trust around the use of data. In an
industry with innately low consumer confidence, the insurers who are able to trade on the premise of a reliable and
prudent reputation, stand to gain.
9
big data
Big Data
‘Big Data’ is exactly what it sounds like: vast amounts of data.
There is no doubt that Big Data is becoming an increasingly hot
topic for all industries as the potential benefits become clearer.
Geetu Bhan,
Associate,
Insurance Advisory
DAC Beachcroft LLP
Ironically, one of the practical challenges associated
with using Big Data is sheer volume. You need to
determine how best to harness the terabytes of raw
data available. Data is only useful to the extent that it
can be collated into datasets and properly analysed.
Telematics is regularly named as a good example of the
insurance industry using Big Data. Big Data also links
to the Internet of Things. eCall is a European initiative
in which a car involved in an accident automatically
calls the emergency services. There is also talk of
transmitting to the response team heart rates and
pulse data from the passengers’ smart watches and
in-car CCTV images. This means that the response
team should be better prepared for what they will
face, resulting in better treatment and reduced
rehabilitation times; this of course could reduce the
insurance claim.
So how can the insurance industry use Big Data to its
advantage? Two examples are:
• Underwriting: Historic data has always been
used by insurers to model risks but the increase in
potential sources of data makes modelling all the
more accurate, ultimately improving risk pricing. For
example some health insurance products are linking
premiums to how active the insured is, measuring
activity via specifically designed apps.
• Claims handling and fraud: Claims can be
handled quicker and more cheaply by using Big
Data to assess the validity of a claim such as using
information from social networking sites, GPS data,
and CCTV footage.
10
Data Privacy
The main legal issue is data privacy. Under existing
UK data protection laws, Big Data faces the challenge
that personal data should only be held for as long
as necessary, bearing in mind the reason it was
collected, and personal data may only be used for
that original purpose. A key to Big Data is combining
different datasets, for example to improve customer
understanding and predictions. If the data was not
collected for that purpose, or the customer was
not informed that his/her data may be used in this
way when it was collected, it may not be possible to
combine data in that way.
Insurers may have to rely on consent to comply with
data protection law. Customers are only likely to
agree to the use of detailed behavioural data if it leads
to (lower) personalised prices. There is a risk that
customers who do not agree will face prohibitively
expensive premiums and have no real choice but to
consent to such use, which may not be consent at all.
FCA Interest
Another consideration is that as we store more data
the risk of loss or misuse increases and regulated firms
already face unlimited fines from the FCA for data
breaches.
The FCA has announced in its 2015 business plan
that it will be conducting a market study into the
use of technology and Big Data by insurers. The
study is intended to identify potential benefits and
risks for consumers and will also consider whether
the regulatory regime unduly constrains beneficial
innovation in the use of technology and Big Data.
Some final food for thought: a recent report
commissioned by the ratings agency Fitch suggested
that an insurer’s use of Big Data may impact on its
credit rating. The insurance industry should be thinking
creatively about how Big Data can be used to produce
better outcomes for the industry and insureds.
Space insurance:
prospects for growth
UK Government plans for a spaceport, increasing interest
in space tourism and new satellite technologies point to a
growing market for space insurance.
The outcome of a three month UK Government
consultation regarding the construction of a spaceport,
published in March 2015, paves the way for the UK to
become the hub of European commercial spaceflight.
The Government has proposed a shortlist of potential
locations for the spaceport, and the next step is for
the Department for Transport to provide a detailed
specification of the spaceport’s requirements.
The creation of a spaceport creates a huge opportunity
for the insurance industry, including covering the
spaceport’s insurance risks, which will be similar to that
of an airport, together with the associated risks of the
spaceflights such as the distribution of space tourism
products. While satellite launch insurance is already
well understood, there will be new risks needing
insurance, in the form of passenger services.
Despite last year’s crash of Virgin Galactic’s
SpaceCraftTwo which resulted in a number of Virgin
customers seeking to cancel their purchase of a seat
on the first Virgin Galactic spaceflight (not to mention
a £31 million insurance claim), interest in space
tourism does not seem to be waning. Sarah Brightman,
the singer, has recently paid a reported £34 million for
a 10 day spaceflight to the International Space Station,
scheduled for later this year.
The spaceport will also provide satellite launching
capability which, at a time when new technologies
are making satellites cheaper to launch, suggests
the opportunities are increasing for the provision of
satellite launch and in-orbit insurance cover.
space
insurance
Matthew Wixon,
Solicitor,
Insurance Advisory
DAC Beachcroft LLP
Many legal issues related to space flight are yet to
be resolved. For example, jurisdiction over incidents
occuring in space. Serious crimes are likely to come
under the jurisdiction of the United Nations, and
countries are expected to exert jurisdiction over its
spacecraft as it does over its shipping. That does not
address the issue of, for example, jurisdiction in the
International Space Station or space debris causing
damage to other satellites or spacecraft.
A concern for insurers and brokers may be that new
space and satellite technologies do not have sufficient
data available for confident underwriting.
Lloyd’s is monitoring the
trends in space insurance and,
in January 2015, issued new
‘Realistic Disaster Scenarios’,
which all Lloyd’s syndicates
insuring space risks must
report upon on a quarterly
basis. The scenarios include
undetected generic defects in
new satellites, which points to
a concern with new satellite
technologies – such defects
may not be identified until the
satellite is in-orbit, potentially
for a year or more.
The challenge for the insurance industry is to assess
the increased risk of technical failures arising from new
space technologies and markets. In a niche market in
which losses can be exceptionally high, even minor
faults could lead to a total loss of a spacecraft or
satellite.
11
Other guides in this series are available from the BIBA website – www.biba.org.uk
- Employment Law
- LASPO
- Advertising, Marketing & Branding
- Claims
- Consumer Credit Regulation
- Cyber Risks: Data Protection
- Cyber Risks: Part 2: Business Interruption
- The Sharing Economy
- Key Legal Developments 2014/2015
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