Uptake in technology:
The adoption of technology has become necessary in the modern world of business, but are organisations being smart about their technology investments and have the risks been considered?
Businesses and consumers will only become more dependent on and more vulnerable to the technologies that drive our prosperity.
Firms across all industries are being challenged to make and provide more efficient products and services that continue to meet this growing demand.
But for organisations to survive and thrive, managing vulnerabilities alongside opportunities is an essential part of providing solutions.
The consequences, both reputationally and fiscally, for a poorly managed outage, malicious or non-malicious, are too great to ignore.
The velocity of risk means C-suite executives are faced with situations that escalate and transform into numerous scenarios beyond what was originally envisioned, and that means they need to pivot and remain agile.
When faced with a technology breach, outage, or human error, executives need to be able to react quickly to get ahead of additional issues that may arise.
Technology in Vouge – what happens when popular technology spreads?
With firms fighting for competitive advantage, technology has become the key for many firms to stay relevant and competitive to their customer basis.
The issue with this is that many firms fall foul of the so-called Hype Cycle, where expectations of what this technology can do are invested in, and everyone needs to have the latest technology without checking if it is necessary for their client base.
Often, this is done in a way that spreads the promise of expectations among those who are unfamiliar with the technology itself, including its limitations.
These technology “hypes” can cause issues when the nuances within a technology are not understood.
Many firms are, and have been for some time now, working with AI under machine learning to better improve services, provide feedback, and improve their overall tech stack.
However, with the popularity of generative AI, there is often confusion on where on the AI spectrum a firm may or may not sit.
For example, many financial institutions have been using Machine Learning for a number of years to better understand client needs and combat Fraud and money laundering.
These AI models are becoming more accurate in the fight against money laundering and helping financial institutions meet their obligations and ultimately protect their customers.
However, with the popular narrative of GenAI, many firms are now being asked questions by regulators, customers, and employees about what AI means for them, and in many cases, they are having to educate their regulators and client base on exactly what AI is.
The risks to arise from new technology adoption:
To protect against the risks that can arise when a new technology is implemented, firms should explore;
How this technology may affect customers/clients, employees, and other stakeholders.
What are the data and privacy implications of the new technology? Many innovative solutions push the boundaries on privacy and data security, GenAI for example
The new technology processes data in accordance with the Office of the Australian Information Commissioner's (OAIC) Guide to Data Analytics.
What other regulatory pressures could there be?
Impact on the insurance landscape:
The misunderstanding of what new technology is isn’t found only with customers and regulators, but importantly with the insurers who underwrite and ultimately act as the backstop for many firms' balance sheets.
For many businesses, risk profiles have been collated over a number of years where the human error factor is a known and calculated piece of risk.
This has allowed insurers to set rather stable pricing for specific exposures, such as professional liability for accounting firms.
However, with technology being implemented within firms that either automate or respond directly to clients, there is a growing uncertainty on the reliability and connection to the “traditional risk”.
This disconnect means that models that once fit certain firms are no longer accurate, which can result in premiums and claims being out of alignment.
In the best-case scenario, we see a reduction in claims costs and, ultimately, premiums, but in the worst-case scenario, we see a vast uptake across multiple industry sectors resulting in high claims and, ultimately, a reaction for higher premiums.
Business considerations:
Technology growth and development are vital for firms to maintain competitive advantage.
However, firms should understand exactly what the technology does and, importantly, doesn’t do.
Alongside the strategy for implementing this technology, what is the firm hoping to achieve, and ultimately how to articulate the process and how they have mitigated the risks?
Future outlook:
Technology adoption is going to continue at a pace.
The key here is how firms will manage and stay ahead of the opportunities and, importantly, the risks.
Firms that have strategic partners, insurers, and advisors who are with them on this journey will be set up to manage the risks and ultimately respond to them when they occur.
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.
