During his presentation Monday morning at IRMI's Construction Risk Conference, XL Group Ltd. CEO Mike McGavick delivered a wake-up call that the insurance industry needs to evolve in tandem with the accelerating pace of change in a digitally powered, evolving world: Some of the innovations that will shape our collective destiny, including autonomous vehicles, will arrive faster than some may think.
"I believe completely that we're living in the Renaissance of the insurance industry," McGavick told the audience at the J.W. Marriott in downtown Indianapolis during the IRMI conference’s kickoff session. "The rate of change is extraordinary, and will not slow down."
Power of digital media
McGavick likened our rapidly connected world and the data-dissemination power of digital media to the way the invention of the printing press quickened the pace of spreading information and inspired new ideas across a variety of sectors.
What concerns him, however, is not the inspiring pace of change, but rather the declining contribution by the insurance industry to the growth in global economic activity. The insurance business' contribution, he explained, is not even keeping pace or growing, but rather, shrinking.
The problem, McGavick noted, is that the insurance industry does not innovate as fast as it should. This, he explained, is due to three factors: cost, insight and trust. Cost, he said, is an inhibitor to buying insurance protections, as the perceived value is diminished by the amount paid versus the benefit received. Insight must be gained through partnerships with the insured and through frank conversations about new and evolving risks around which solutions can be crafted.
Trust, the third factor, was one for which McGavick delivered a frank assessment. "People feel when they buy insurance that they're playing against the house," he said, using the gambling metaphor to convey the way insurance buyers seldom feel that they can trust their insurer, which in turn leads to a cascade of distrust with the entire insurance industry. "We use the word 'claim' as if we're predicting there’ll be a debate, not a payment."
Steps to insurance evolution
McGavick then ticked off several key areas in which the insurance industry must change. The first, he said, and the most quickly is the way risk is pooled; for example, having devices on various construction sites throughout the globe communicate with each other to share information to make sites safer, leading to stronger best practices, fewer losses and fairer, more appropriate rates for better risks; second, the way risks are priced, where dynamic rates could lower costs for more safety-minded construction firms, and charge for machinery when it’s actually in use and not when it's immobile for longer periods of time ("Is there anything more irritating than paying insurance for something that isn’t in utilization?" he asked the audience); and third, finding ways for "uninsurable" risks like flood to be written by those who know it best.
Additionally, said McGavick, liability theory (for example, when a policy is triggered by non-humans, who is responsible?) must evolve, and the ever-expanding puzzle surrounding data privacy needs to be solved in a much faster, continual manner in which all the major stakeholders can contribute. Cyber Liability coverage, he noted, needs to be better to catch up with the risks around it "before we can move confidently into [using] new tools."
The Guardian newspaper recently reported that the driverless vehicle industry could be worth $26 billion by 2025, with "potentially millions of vehicles on the road in just a few years." (Photo: iStock)
During a Q&A with the audience following his remarks, McGavick tackled a variety of topics including drones; the number of construction industry fatalities (up) versus injuries (down); and the talent shortage in both the construction and insurance industries. But perhaps his most surprising comments came while answering an audience question about how the application of automated vehicles would affect the construction industry. (At the moment, Commercial Auto losses continue to be seen in the construction sector, and insurers are eager to stanch that bleeding.)
The CEO noted that Accelerate, XL Catlin’s internal innovation team, entered into a partnership this year with U.K.-based insurtech startup Cytora — which, among other things, uses artificial intelligence and open-source data to provide risk-selection insights. McGavick said the work the carrier is doing on that front has provided XL deeper insight into the development of autonomous vehicles — and he said those will be here sooner than many believe.
The future is ... sooner than you think
The adoption of driverless vehicles "will come faster than others think, not slower," he said. Solving the equation around how autonomous vehicles will be insured and the liability questions around them "will be the thing that slows down adoption — not the technology."
One positive result of this new technology's wider implementation, he added, is that persons too old to drive safely and the physically challenged will have greatly improved transportation options. "It will be an explosion of mobility for those who don't have it," which he referred to as "a social good."
There will be a period of transition, he continued, as driverless vehicles hit the blacktop while standard cars and trucks remain on the road, which may prove challenging for the automated systems as they interact with those operated by humans. "There’s nothing a system likes less than unpredictability," he noted.
Although driverless cars will not eliminate traffic deaths, as some might think, McGavick said those fatalities will be "but a fraction of what you see now." Long-haul trucking, he added, will be one of the biggest sectors in which automated vehicles will play a major role.
If an accident occurs involving a driverless vehicle, however, who will be to blame? That's one of the questions that will be answered in part by insurers and partly as federal and state statutes evolve in step with court rulings, said McGavick.
Questions of that sort fall under the category of "liability theory," which the XL executive addressed multiple times during his presentation. As new technology and the threats that can arise from them come to light, questions around insurers’ liability must — and will — evolve beside them.
"It's an astonishing time for both of us," McGavick added as he concluded, noting the symbiotic relationship between the construction industry and the insurers who serve to mitigate and cover its losses. "We intend to stand as close to you as we can in that process." The dream of zero loss, he said, "will be our North Star."
Contractors, he noted, should be mindful of the insurance component of their work and talk to their broker or agent when they innovate. Those conversations will, in turn, spark new coverage innovations.
"Information is at the heart of the solution to this," McGavick said of developing better risk-mitigation tools for construction firms. "No progress on our end happens until there is progress or a need on your end. Following you is our way into the future."