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Challenges of the 4th Industrial Revolution to the insurers of our time

The threat to the personal data of individuals and businesses is another result of the 4th industrial revolution, digitalization, said Inga Beale, ex-CEO of London Lloyd’s, London First. She told about risks for companies in this area at the XV International Conference on Risk Management in Almaty, organized by the insurance company Eurasia on April 11.
Challenges of the 4th Industrial Revolution to the insurers of our time

Lifeinsurance.kz presents to your attention the main excerpts from the speech of Inga Beale, one of the main guests of the conference.

Innovation Risks

Everything we do now in our phones and computers is reflected in the form of data, including age, location, expenses, says Ms. Beale. All these data are valuable for companies, social networks, their platforms and governments. And all these organizations have to prove that their behavior is very responsible, especially when they collect data about us.

Insurers should always take into account innovation, as well as the associated risks. For example, Uber used unmanned taxis, and in Arizona such a car hit a pedestrian. Thus, when we use new technologies and believe we make progress in human society, we cannot ignore the risks associated with this.

Of course, impressive progress has been made in the development of artificial intelligence today; it allows make large calculations, process huge volumes of data. In 2018 alone more data was generated than the entire history of mankind! I could not believe it! By 2020, 222.5 billion (!) of internet devices will be generated in the world, and all of them will be interconnected. In 2016, there were 6.6 billion of them. Trillions of dollars are being invested in these technologies.

Cyber ​​attacks

There is one more thing that unites all these technologies, it is susceptibility to cyber attacks, Inga Beal continued her speech, and it starts affecting global economic development. Forbes predicted that by 2021, the cost of the global economy to fight cyber risk may reach $6 trillion a year. Scientists published data that cyber-attacks cost us about 1.5 trillion dollars now.

There are other serious consequences, such as loss of reputation, trust, and breaks in the drive chain. I know that in 2013, when there was an issue with major cyber attacks, the executive directors were dismissed because of them. And these numbers were frightening: 14 million cards, 17 million pieces of information were lost. See how fast the world moves on. Three years later, in 2016, 3 billion Yahoo accounts were hacked. And now a lot of incomprehensible is in this digital revolution; the businesses face serious risks; the structure makes them very vulnerable.

The dark side of global digitalization: what's next?

As insurers, we grew insuring physical risks - buildings, cargoes, airplanes; in the 20th century we began to insure liabilities. The world of intangible risks began to grow so quickly that the most valuable companies achieved success without owning physical assets, but creating intangible assets, such as software, algorithms collecting data. The interrelatedness of the global economy has led to increased efficiency. It breaks traditional business models. But there is also a dark side, Inga Beale intrigued.

According to her, there are 4 main areas of development that will worsen the current situation:

First: As more and more processes go digital placed in the cloud, more and more organizations will appear, everything becomes complicated and brings benefits. But the vulnerability to service failures has also grown. For example, one cloud technology provider has disappeared, literally on a second day. This can lead to serious losses for business and economy.

Secondly, the digital landscape becomes complex and interconnected. Internet things, cars without drivers, other systems are all exciting, but we have to pay a price for it. More things are interconnected in terms of access points that criminals can take advantage of. The increased use of social systems complicates this challenge.

Digital threats are constantly evolving, and our approaches will not be enough to adequately protect organizations. The interdependence of IT systems and business processes has reached such an extent that simple failures may have disastrous consequences. And this is very serious, because people use partner outsourcing around the world, and every time you connect to a provider through outsourcing, you increase your vulnerability in terms of attack. But as soon as you build defense, new methods of attack appear, and we all along with hackers are involved in the arms race. And I see there will never be winners here. Cyber ​​crime will always be part of business life.

There is legislation that penalizes companies for the personal data loss. Last year, European legislation entered into force, according to which companies must report a security breach within 72 hours, or face fines of 3% of turnover, or 20 million euros. Some countries have already done it, others will follow their example. Many rapidly developing economies of the world are going to continue this trend.

What to do?

We cannot escape cyber risks. Everything depends on how we will mitigate these risks, says Lloyd’s ex-head.

First of all, they can no longer be considered only as problems for IT experts. This should be taken seriously by board members. There must be a strategy to manage these risks.

Secondly, risk managers should play a leading role in developing risk management programs, there should be digital risk management officers who have the resources to promote this work, they should cooperate with other colleagues, including from information security, to be true leaders in their organizations to properly respond to these threats and have plans to mitigate them.

Thirdly, the business must develop a cyber-security culture throughout the organization. Regular employees are often the weakest link when attacking a company. And it is for every organization to have all employees trained and understand the importance of what they do by simply clicking on something harmless.

And the last, Inga Beal noted. Companies must use insurance as part of a cyber-risk strategy to mitigate them, given the increased costs with emerging threats. Insurance should cover the process of business disruption. It can also help protect your reputation, resolve legal issues so that your systems work fully again. And we, insurance companies, should adapt our product offers as quickly as possible, as digital risks appear.

New technologies are the driving force of progress; everything is moving very fast, there are many business opportunities. But if we are complacent as companies, we can go bankrupt, Ms. Beale concluded. And the key element in dealing with this threat is cooperation within the organization. The risk manager can be the glue that will unite everyone within the company. But we also need to cooperate within the entire insurance sector, as well as with the government and state. The solution to this problem should not be in the framework of one company in isolation, the government should direct this work in a normal shift and move faster in this direction. We also need to cooperate with the pioneers of technology, invest in new technology platforms and work with them to understand what innovations will emerge, as well as what possible risks.

I want to ask all of you not to be complacent about these threats and shift the responsibility to someone, Inga Beal noted. Let us be innovative, think differently, so that the insurance market responds to these threats, and that human progress continues in the future.

Photos are from open sources.

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