Risk & Business Magazine Bowen Miclette & Britt Spring 2017 | Page 7

IS INSURANCE OBSOLETE?
Google, Uber, Tesla, and Volvo are
conducting test programs right now. By
2030, mass adoption will be underway.
What does this mean for insurance?
First, the main goal of driverless cars is
to keep them from running into each
other. That means we have eliminated
a lot of the risk of driving through
technology. And the remaining risk
will no longer be something the average
person needs to insure against. When
you are not doing the driving, you don’t
need to buy insurance. You may not
even need a license. There will certainly
be some accidents, but that risk is now
transferred to the manufacturer and
becomes a product liability exposure.
Tesla actually has plans to include
insurance in the purchase price of the
car, like a warranty. So, in effect, the
Personal Auto Insurance market will
become obsolete. If you like Flo, the
Gecko, and Mr. Mayhem, enjoy them
now while you can.
And it won’t be just cars. Uber and
Freightliner are testing autonomous
semi-trucks right now. Uber has
a self-driving taxi pilot underway
in Pittsburgh and is expanding to
San Francisco. Nearly every type of
commercial vehicle is a candidate for
autonomous operation. About five
million people are employed in this
country driving something. If you run a
trucking company, you can eliminate a
lot of the risk in operating your fleet and
transfer at least some, if not all, of the
liability to the truck manufacturer. And
your Workers’ Compensation premium
will go down—probably a lot. If you
underwrite Workers’ Compensation
insurance, what does it mean for your
business when large job classifications
change or are eliminated?
INTERNET OF THINGS
In addition to cars, sensors are showing
up everywhere. Just about every
new product is “smart” in that it can
communicate over the Internet to relay
information to you: thermostats, water
sensors, smoke and fire alarms, motion
sensors, cameras. Just like sensors in
cars, these devices can eliminate a lot of
property risk. Consider these examples:
• Every 85 seconds, there is a home
fire caused by unattended cooking
equipment. Wallflower makes a
sensor that connects to your stove
and alerts you if you leave it on too
long. If you don’t respond, it can
automatically shu t the stove off.
• Home water and mold damage
claims total $2.5 billion annually
in the United States. Roost makes
a water-and-freezer sensor you
put near your water heater or
dishwasher, and it can alert you if
there is a leak. It can even turn the
water main off with a “smart” valve
if a pipe freezes and breaks. Roost
also makes a battery that makes
your existing smoke and fire alarms
“smart.”
Just these two devices have the potential
to dramatically reduce property damage
claims by eliminating most of the risk of
fire and water damage.
WHEN WE CAN
PREVENT MOST
LOSSES FROM
HAPPENING,
THE ROLE OF
INSURANCE IN
MANAGING RISK
IS SMALLER.
It is entirely possible that an insurance
company’s primary business model will
shift from compensating you after a loss
to preventing losses from happening.
Instead of an annual premium, you will
pay a monthly fee for home monitoring.
There will still be an insurance policy
that covers you for storms and natural
disasters, but it will be an incidental
part of the overall service.
3D PRINTING
If you have heard about 3D printing, it
is probably in connection with making
plastic models of products or printing
replacement parts for appliances. That
is only a small part of the story. These
printers are being used to “print” food,
casts for broken limbs, bicycles, cars —
even replacement organs like hearts and
kidneys. All of these uses are interesting,
but the most dramatic example is
3D-printed houses.
The concept of desktop 3D printers
has been adapted to create a large scale
“printer” that can build an entire house
with concrete as the “ink” and that
will include electricity and plumbing.
The process requires 50%–80% less
labor, 60% less material cost, and
70% less time. The finished house
has a wall-strength that is three times
that of traditional concrete block
construction, far exceeding building
codes for earthquake and flood zones.
The Chinese are aggressively using this
technology to address a shortage of
affordable homes.
What will this mean for the
construction industry? Well, the largest
component of the cost of a home is
labor. With savings in labor, materials,
and time, you can build more houses
more quickly and more profitably.
Plus, your premiums for Workers’
Compensation will be dramatically less.
If you write Workers’ Compensation
insurance, this is yet another area
where job classifications will change
dramatically.
Will exponential technology make
insurance obsolete? Not completely. No
matter how good we get at preventing
losses, making driverless cars, “printing”
buildings, and making worksites
safer, there will always be unforeseen
events that will require insurance. But
technology does have the capacity to
make some coverages obsolete — like
Personal Auto — and dramatically
reduce premiums in others. Insurance
will always be the DNA of capitalism,
but a safer, less risky world is good for
everyone. +
Bill Hartnett is president of Hartnett
Advisors, providing strategic advice on the
transformational power of technology in
business.
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