A risky proposition
Sharad Goel

Augmented reality, face recognition, driverless and electric cars are fast gaining mainstream momentum with companies like Apple, Tesla, Google, Ford and Lyft (among others) determined to embrace technological advantage to offer superior products and disrupt status quo.

Recently, Apple unveiled its new range of phones that bought augmented reality into the realms of actual reality by taking it mainstream and embedding it as an integral part of its product. A wide variety of the changes will not only drive consumption differently, it will also change the eco system around it.

But will these changes impact risk and, therefore, force insurance companies to change?

Consider a few examples. What happens to your insurance if a driverless car rams into a sidewalk pillar damaging the building and hurting individuals. What happens, when picking up a Pokeman in Pokeman Go, a player jumps out of a railing from a building, and falls. What happens, while playing a game of AR, the heart beat of a patient rises so much that he collapses. Or for that matter, what happens when while using AR, one ends up inadvertently transmitting images of sensitive information of office on public platform.

How are insurance companies going to underwrite and price these added risk — health risk, accident risk, risk to life and security risk — into the premiums.

Insurance companies, what I learn from various experts, are risk averse and need a lot of data before they can price any risk into their premiums. It was not before a good few many years had passed before the insurance companies could price their risk on a deadly disease like AIDS which was once thought to be something that would change the health insurance sector forever. Over time, the industry observed the data from AIDS instances and found that the overall instances, compared to the overall insured universe, was not as gigantic as it was thought to be and then offered niche products to cover the disease.

One of the CEOs of life insurance companies told me that the average life expectancy of people in Japan is much higher than that of India and therefore people in Japan should be paying less premium when compared to lower life expectancy countries.

However, the same is not true as the premium for both these countries —  India and Japan — are same.

This is primarily because the risk premium for life insurance does not differ from demography to demography, as life expectancies for insured population are not significantly different for insurable population though the same may be different for whole population

Similarly, in non-life insurance cases, the overall instance of accidents arising out of such technology driven incidents may not actually warrant any change in the pricing of existing products as the overall impact of these may be miniscule.

Also, a large part of risk is already re-insured so the overall impact of any claim is limited. This further limits the urgency for any insurer to expedite and enforce any new changes in their products

Augmented reality holds a promising future as it now adds a layer of imagination in the real world and enables an experience that can be personalised while remaining connected to reality. The advancements in this sphere will allow companies and users to engage with each other in much more complex but engaged manner. However, deaths and instances arising out of these advancements have not gone beyond numbers that will dent claims and overall insurance kitty. The day it does go beyond the numbers that are large enough to warrant sizeable premium, that will indicate that the technology has not been able to scale up to provide a secure experience, thereby risking future adoption.

Similarly, in case of driverless cars, the technology will only be adopted en masse once it is able to fully satisfy the safety feature that will be a key ingredient for its adoption.

Industry players feel that it is too soon for any insurance company to price these risk for now. The best that would done by them is to exclude any damage or loss arising in case of using these technological advancements till the time the industry gets enough numbers to assess and price the risk.

However, this will also be an opportunity for small niche players to debut this space with innovative products and have a first mover advantage which can be later integrated with bigger players depending on the scale and underwriting experience.

Risk appetite of nonlife insurers are much more than life insurers and they very often learn on the go . So it will not be unusual to see some nonlife insurers underwrite these new risks without much experience to win an edge over competition!
(The writer is a communication strategist and crisis manager)