Home / Analysis / Why 5G spells danger for insurers
27 May 2019
Swiss Re’s annual analysis of emerging risks with the potential to have major impacts on insurers includes some of the usual suspects – climate change and the state of the global economy among them.
But the list also contains a new entrant currently at the centre of a US-China struggle for tech supremacy: 5G.
Rarely has a new technology been greeted with so much hype while raising such concerns, particularly in the US, over national security.
And it turns out Washington’s fears around 5G may not be unfounded.
As the world prepares to roll out fifth-generation mobile communications infrastructure, Swiss Re’s Sonar report cautions that the super-fast cellular technology brings pitfalls with implications for the industry.
“Increased complexity of new systems such as 5G, coupled with a perceived urgency of introduction into markets, brings enhanced difficulties for users to thoroughly test the systems against both flaws and maliciously introduced weaknesses,” Group Underwriting Head of Cyber Centre of Competence Eric Durand told insuranceNEWS.com.au.
“In addition to this, the increased bandwidth of new and more decentralised systems may offer more entry points for bad actors and permit faster exfiltration of data than before.
“While the risk of cyber espionage and spying is normally not covered in insurance policies, it may negatively influence single corporates or even the whole economy of a market, hence also influencing the insurance industry.”
Privacy issues, security breaches and espionage are the key fears as 4G, the current cellular standard, makes way.
“The focus is not only on hacking by third parties, but also potential breaches from built-in hard or software ‘back doors’,” Swiss Re says. “In addition, the market for 5G infrastructure is currently focused on a couple of firms, and that raises the spectre of concentration risk.”
The potential impacts of 5G mobile networks include:
Swiss Re has rarely been wrong since the first Sonar report was published in 2013.
Past threats the reinsurer has identified via its Observation of Notions Associated with Risk tool, such as giant natural catastrophes, climate change and a backlash against globalisation, have materialised. And the toll on the insurance industry and global economy is still playing out.
Here are the other key emerging risk themes and trend spotlights for general insurers in this year’s report:
Climate change: Agriculture is not the only casualty as greenhouse gas emissions intensify. Sea levels are projected to rise, meaning storm surges may reach further inland. With increased value concentration in megacities exposed to storm surges, economic and insured losses are likely to increase.
Digital technology versus legacy hardware: Increasing dovetailing of old and new structures, often in areas of critical infrastructure, will give rise to new risks. As artificial intelligence and quantum computing go mainstream, insurers need to continuously re-evaluate their risk assessments and adapt their underwriting approach.
The surveillance economy: There is no such thing as a free lunch. Our data, mined principally from our online activity, is being used to analyse patterns and predict our behaviour. Some insurers now base motor premiums on a consumer’s driving data. The benefits of this are obvious: it encourages safer driving and lowers claims costs for the insurer. But what happens if the insurer also uses data from music streaming companies to predict potential depression? Inadequate conclusion from correlations could be drawn, which would be detrimental to consumers.
Shifting litigation regimes: Litigation funding and class actions, long prevalent in the US, are increasingly the go-to option for those seeking justice in Australia and elsewhere. For the insurance industry, the mechanism is a double-edged sword. On one hand, it boosts opportunities to provide products and services to clients facing a growing need for liability and legal expenses covers. On the other hand, the increased use of third-party funding can result in claims proliferation, longer litigation, more exposure for insurers defending such claims, and higher settlement costs. Another worrying trend is the potential for governments to privatise their law enforcement authorities.
For more on the report, click here.