Ben Davis, Insurance Lead of Emerging Technologies at Digital Risks
eSports – specific insurance risks:
The video games industry will be valued at $305bn by 2025 according to GlobalData. eSports, the online gaming element of this sector, will be worth $1.8bn by 2022 alone.
Traditional insurance players however have, as of yet, failed to take the eSports industry seriously and are less likely to do so in the near future. They’ll also likely struggle to adapt quickly enough to be able to protect against the emerging risks of a new sector so quickly.
Insurtechs however, that are more agile, and can better relate to the eSports audience, due to regularly engaging in the online channel, will be well placed to protect players, businesses and manufacturers in this industry.
2020 will be a tipping point for the industry as awareness of the sector, and larger investment, continues to flood in. And as the sector continues to grow and mature, there are an increasing number of risks which stakeholders will need to insure themselves against.
The players: eSports players are effectively employees of the gaming company that sponsors them. However, unlike the ‘traditional’ employee, they also often live, travel and work together 24/7 in ‘team houses’. They also require greater protection over their physical body as this is what they use to play games. If one or more players gets sick or injured pre-tournament, sponsors could be seriously out of pocket. Cover of property and physical well-being from damage is therefore crucial.
The team: eSports teams act as the face of their business. Their merchandise and in-game skins are an extension of the brand. Protecting intellectual property is therefore crucial to ensure their ’identity’ both in the virtual and real world can’t be ripped off.
The Tech: As gaming technology such as wearables and headsets become increasingly commonplace, manufacturers will need the right cover in the case of malfunctions. Product recall as well as cover for the products themselves are an exposure that will continue to grow as esports popularity continues to rise. The eSports teams themselves, affiliated with this tech, will also need to be insured if they put their name on a product which comes with faults that leads to damage or injury.
The biggest risks of 2020:
- Natural Disasters – A bold prediction
If there’s one emerging risk that will dominate 2020, it will be the development of natural disasters and the consequential damage they impose on livelihoods across the globe. Most people think that the physical and virtual worlds are separate, but in reality the virtual world is very much affected by the natural disasters of the physical world. Physical damage to technology firms can be a trigger for a cyber-based attack as their defences and resources may be compromised dealing with the physical emergency.
Calculating insurance for businesses against climate damage has largely been built on historical data. But we’re entering a new era of global heating and climate change; with extreme weather events leading to mass damage to businesses worldwide.
Historically the large insurance players have made their money through protecting property, however as climate change increases, and disasters become more commonplace, this will become an increasingly complicated (and loss-making) sector.
2020 could be the year in which the larger insurance players look to ‘balance the books’ to better protect themselves against more claims in this sector. This could mean they could either look to provide new products that are uncorrelated with property losses or reduce their exposure in this sector.
Businesses that do not respond quickly enough to the ‘greenification’ of everything will also be hit by social pressure to change potentially harmful business practices or investment. We are already seeing insurers pull out of businesses that are deemed to be harmful to the planet. 2020 will be important for companies to take a strong stand on climate change and show the world how they’re changing to address it or risk being ostracized for failing to act.
2019 has been a bad year for cybercrime. Security specialists Symantec revealed earlier in the year that over 4 billion records had been breached, with nearly 4,000 separate incidents announced. 2020 is expected to see a continuation, or even an increase in the level of attacks, with Cybercrime Magazine predicting that by 2021 attacks will cost $6 trillion annually.
One of the main issues is that as the fraudster/hacker gets smarter, there are simply not enough trained cyber security professionals to protect every business. In a world of open APIs and shareable data, this means that one weak link in the chain can bring down an entire host of businesses.
Some of the big trends of 2020 will include an increase in ransomware attacks, with businesses happy to pay out rather than fight their way through. As well as the dominance of the ‘Deep Fake’, where scammers can create fake videos purporting to show high level members of staff requesting junior colleagues into giving up financial information/valuable documents.
Insurtechs like Digital Risks are well placed to provide cover against these emerging cyber risks, if there is evidence of clear social engineering.
- A 5G powered IoT
With 5G infrastructure projects well underway, 2020 is expected to be the year in which the technology becomes commercially viable. This greater level of connectivity means that IoT can meet its true potential, with a host of interconnected devices helping to power our cities and advance our day to day lives.
With this however comes a host of emerging risks and security concerns. Connected devices are a paradise for hackers who can access weaker technologies, such as a thermostat or smart-fridge to infect a wider network. We’re already seeing examples where devices such as printers have been hacked to siphon off the printer’s memory to access print jobs containing sensitive files, such as contracts, corporate data or patient information.
The IoT enables botnets which are comprised of thousands or millions of infected internet-connected devices to be used to deny access to a victim’s website. With the amount of IoT devices coming online, this means that botnets could become even more powerful and commonplace. For the insurance industry, it is important to protect our clients from denial of service attacks formed from botnets, but also protect our customer’s devices if they are used in a botnet. Digital Risks insures both.
Businesses will need to be sure that they have comprehensive cover that means their entire network is protected, and that any device installed in their network is verified beforehand. This can be as simple as remembering to change the manufacturer’s default password already installed on the device. Individuals looking to take devices into shared workspaces/offices will also need cover, in case it’s their device which starts a widespread data breach.
More about Digital Risks:
Digital Risks is an insurance provider for the digital age, with pay-monthly subscription cover, proprietary technology and customer experience that reflects the fast-changing needs of small and medium-sized businesses.
With an understanding of the evolving risks and threats facing SMEs, and partnerships with the UK’s best underwriters, Digital Risks uses cutting-edge technology and leverages multiple data points to deliver a personalised experience giving customers the exact protection they need, and the service they deserve.
Digital Risks was founded in 2015 and launched in late 2016 by two friends; Cameron Shearer, CEO, an accomplished marketer, entrepreneur and tech expert, and Ben Rose, chief underwriting officer and all-round insurance specialist. Since then, Digital Risks has been on a mission to reinvent the business insurance industry for the better, creating a competitive, flexible and trusted safety net enabling SME leaders and their business to thrive.
RISK VS REWARD: IS AI TAKING OVER?
Xavier Fernandes, Analytics Director at Metapraxis
A study by Oxford University academics into “The Future of Employment” in 2013 prompted apocalyptic headlines which stated that in the future 40% of jobs will be automated thanks to advancing technology.
The researchers subsequently claimed that the truth was in fact a little more prosaic; rather than facing complete automation, the research found that 40% of jobs faced some aspect of automation in their activity. So with new ‘AI processes a likely reality for almost half us, what does that mean for our current roles and should we be worried?
The fourth revolution?
The first industrial revolution saw machines replacing muscle, both human and animal. The second and third saw electrical power, mass production and computerisation revolutionise the job market. Now, with daily headlines of AI as an employment superpower, there is some concern that AI is bringing a fourth revolution, and with it, unknown circumstances.
This ‘fourth industrial revolution’ is defined by replacing brain power with machines. Our thinking capacity is what inherently sets us apart from other species, so it’s not surprising that any encroachment on it triggers some existential angst.
Evolve to reap the rewards
While many businesses still don’t fully understand the capabilities of AI, those who fear its development are, instead of embracing it, missing all the benefits that it can bring to the workplace. Businesses that utilise AI appropriately are seeing vast improvements across their entire value chain; better customer experience, reduced costs, and more insightful analysis to support management decisions.
AI is particularly useful for supporting tasks with repetitive activity, for example, performing financial checks and assessing large sets of data within financial services firms. AI performs particularly well within this context, spotting outliers before a human expert would notice them, allowing impending problems to be flagged and avoiding costly mistakes.
There is also an increasing focus on maximising customer lifetime value through the use of AI. Being able to predict existing customers’ needs as well as track trends in their financial circumstances is supercharging the old cross-selling approach with testable, predictable outcomes.
With potential benefits like these on offer, management teams of innovative financial services are increasingly relying on AI to help them with some of the heavy-lifting of analysis. Using advanced data capabilities and learned behaviours, AI analyses market trends to provide predictions of future performance. This insight is invaluable and allows management teams to change direction and correct any problems accordingly. This offers a huge advantage over those that have not adopted such tools.
Supporting the workplace
Algorithms and AI are typically ‘smart’ at doing one, tightly-constrained task, but they can be less helpful with many of the activities that humans find straightforward. In most white-collar jobs, automation tends to replace certain tasks in the job, rather than the role in its entirety, as the need for human intelligence is still highly necessary. In particular, we still need human input to first challenge, and then synthesise, this information before taking action. Employees should therefore work with the business to proactively identify what areas of their role could be automated, so that they can focus on the areas that add real value to the business’ commercial goals.
Challenging AI is certainly still important. We know that algorithms can be much better than humans on certain, bounded tasks. However, many algorithms rely on existing data sets to build their understanding. As a result, when a business unit has ‘symptoms’ that fall outside of that body of knowledge, the algorithm may suggest the wrong course of action with costly results.
Indeed, even with plenty of data, algorithms will reflect any biases the data set contains. We’re seeing this with some legal sentencing algorithms where there is evidence that they are treating disadvantaged people more harshly. Getting the answers to why and how far we should trust our algorithms should therefore become an everyday part of any job affected by AI.
Rather than depending entirely on AI for all decisions, workers should be taking all these new, AI-generated insights and using them to complement the human decision-making process. No manager of a complex business ever has enough time to sieve through all the analysis available, but with AI driven algorithms able to flag up any issues and indicate where action needs to be taken, we may find that we have some AI ’colleagues’ who will cover our backs and suggest innovative options. Yes, there will be times when the algorithms get it wrong, but as long as we’re watching out for those, the future is bright.
HOW TECHNOLOGY IS FUTUREPROOFING STOCK MARKET TRADING
Tony Shaw, Executive Director, London Office and Head Sales UK & Ireland at the Swiss Stock Exchange
Markets are shifting, there’s no doubt. Amid all the disruption and volatility from the past year, the Swiss Stock Exchange asked traders about what they expected in 2020 and beyond in our industry survey. The findings point to a rise in digital to help traders content with external forces.
First and foremost, traders are enthusiastic about what digital assets can offer.
Two thirds of traders polled said they’d had a marked rise in interest from their clients for digital assets and crypto-products. Given the interest, traders are increasingly bullish about the potential of these products – so much so that 80% have predicted an increase in overall demand in the long term. Market users believe these assets will help generate cost synergies and streamlining trading and settlement processes by creating efficiencies and ultimately reducing costs.
Our 2019 results reflect what traders have told us when it comes to digital assets and products. Last year, we saw significantly higher trading volumes from products with crypto currencies as underlyings. Overall volumes grew by +8.5% over 2018, but the increase in crypto products alone was +17%, reaching CHF 518.2 million ($534.54 m). There was a year-on-year increase in the number of transactions, as well (+21%): 19,636 trades in total.
The potential digital assets hold is clear – evidenced by the building of the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets.
According to traders, artificial intelligence (AI) is expected to bring further benefits to market operations.
Two thirds of our survey respondents anticipate AI will create more opportunities for the traditional equities business, while a similar number expect it to reduce the cost of trading. Innovation in AI is already – and will continue to be – a key driver in making our industry more effective at withstanding future risks and challenges both within and beyond the market itself.
In Europe, there is growing momentum behind calls for shorter trading hours – this trend was reflected in our survey as well.
Industry groups such as the Investment Association are advocating for stock market trading hours to be cut from 8.5 to 6.5 hours to open the industry to working parents and women who cannot commit to such long workdays. We found traders were largely supportive of this, with many saying that it could even facilitate operational benefits. The roll of AI is clear here in improving efficiency while minimising time wastage: 36% of traders said the introduction of shorter trading hours would prompt greater market liquidity.
Beyond the market itself, geopolitics continue to shape wider market sentiment.
It comes as no surprise that four fifths of traders said their strategies have been – to some extent – influenced by Donald Trump’s tweets. Interestingly, only 39% of those polled viewed Brexit as an influencing factor in trading activity, while three quarters believe the US election will drive trading activity in 2020 and 65% acknowledged trade wars would also have an impact.
More broadly, traders are split on the state of the global economy – 58% are bracing for a global recession while 42% predict stable macro-economic conditions over the next three years. What seems clear is that whatever happens in the wider economy, traders are making headway with new technologies that can improve their strategy, efficiency, and overall market health.
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