What can risk managers do to try and mitigate some of the risks posed by AI?
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With AI risks being so intangible and unquantifiable, they pose a huge headache for risk managers.
This is compounded by a lack of material from third parties available to help them understand the risk. The educational materials that are so readily available for risks such as property damage are simply not there to the same extent for AI. Only in the last five years have we had enough computer power for AI algorithms to become meaningful for businesses. Previously very few had access to this kind of power, but with cloud computing it is now pervasive in all industries.
As a result, the data sets are young with little material out there to build from. Therefore, risk managers and insurance companies are working with limited data sets to try and make sense of these risks in comparison to the hundreds of years of data they have for property risks.
There is also a lack of skillset when it comes to third party providers they can turn to. There are some specialist companies out there, but they are few and far between. Even when a risk manager understands the risks posed by AI, they find that risk transfer is a lot harder to secure. For example, there is hesitation to insure AI malfunction. The insurance industry needs to understand the risk to an extent they can model and price it. At the moment, AI is so new that insurers are often not able to get hold of enough data in order to be able to model the risk.
The insurance industry and the companies they serve need to form partnerships to overcome this challenge. Risk profiles are changing, and the insurance industry needs to keep itself updated and find a way to price these risks.
Partnerships key to managing AI risks
The partnership Swiss Re Corporate Solutions has formed with Hitachi is truly ground- breaking. Swiss Re and Hitachi have teamed up to deliver and launch insurance-based offerings for the digital era. Under the partnership, Swiss Re and Hitachi will explore insurance products for the rapidly evolving IIoT (Industrial Internet of Things) space with corporate customers. The joint teams of Hitachi, Swiss Re, and the adopting clients will pioneer the analytics and predictive maintenance market to service a new risk pool with complementary products.
The joint offering will see Swiss Re's insurance solution integrated with Hitachi's IT and operational technology, to provide corporate customers with an automated and seamless end-to-end insurance solution. Initially focused on the manufacturing machinery and transport industries, the joint solution will help customers embrace AI and cutting-edge technologies that maximise productivity whilst minimizing risk and insuring against unexpected business disruption.
The integrated warranty solution protects customers against any potential wrong prognosis that cause machinery downtime, and a machine-to-claims system integration facilitates contactless operations for a streamlined claims process. The Hitachi partnership supports the use of AI for the manufacturing machinery and transport industries.
By forming such partnerships, risk managers can work with insurers to build tailored insurance coverages that can protect against shifting risks such as algorithmic risks. Such partnerships can bring together risk expertise from the insurer with the manufacturing and predictive maintenance expertise from the IT provider to combine a solution that takes some of the risk out of adopting AI maintenance models.
What does this all mean for risk managers?
It can be tempting to think of risks from AI as science fiction fantasy along the lines of the apocalyptic Terminator film franchise. However, AI and the associated algorithms are impacting almost every area of our life today. As we have seen its use brings some very real risks. There are endless examples of how AI, while having tremendous positive impact on our society, also has a dark side that must be fully considered when conducting risk assessments.
AI is such a new and fast-moving technology that the risks are constantly evolving, and regulation in many sectors has yet to catch up. This adds an extra challenge for risk managers as they not only have to examine the current risks, but also continue to educate and update themselves on this fast-moving market.
Risk engineers at insurance companies and brokers can help. An AI savvy risk engineer can look beyond simple risk transfer to guide risk managers through the process of assessing the risk as well as facilitating access to third party specialists.
By working together, insurers and corporates can learn from each other to do ground-breaking work on minimising the risk and transfer much of what remains. Partnerships can help customers embrace AI without fear of the risks it brings.