Risk of nanotechnology difficult for insurers to assess: Ernst & Young

Ernst & Young LLP is predicting a rise in demand for certain types of insurance, such as cyber and nanotechnology.

The consulting firm announced Tuesday the release of the EY 2014 US Property-Casualty Insurance Outlook, which recommends that P&C carriers “invest in innovation of product development processes and delivery to meet rising demand for protection.”

For example, according to the report, a lack of “any meaningful history” with nanotechnology indicates that potential risks are not easy to assess.

“The emerging applications of nanotechnology in the manufacture or use of medicine, cosmetics, drug delivery, robotics, materials science and other products and systems create potential liability exposures,” EY noted. “Examples include bodily injury (analogous to asbestos exposure) and environmental damage from nanoparticles escaping uncontrolled into the air or water supply.”

EY also noted that an increase in flood exposure “has spawned a greater demand for contingent business interruption coverage, particularly for supply chain exposures.”

Meanwhile, an increase in hacking incidents and “data privacy liabilities” provides an opportunity for insurance carriers to sell more coverage and loss mitigation services, and carriers can apply “data analytics and other technologies” to clients.

“Successful companies are in various stages of implementing a customer-centric business model that integrates internal technology to reach consumers,” stated David Hollander, principal of Ernst & Young LLP and EY Global Insurance Advisory leader, in a press release. “As closer alignment of technology with commercial objectives becomes a strategic imperative, insurers have an opportunity to invest in cost-effective systems for distribution, underwriting, product development and claims. Such investments can improve profitability in an increasingly price-competitive environment.”

For example, EY states, carriers “have a rare opportunity to broadly transform technology, replace core engines with integrated, cost-effective cloud-based systems.

Meanwhile, alternative capital sources are “reshaping” the insurance market, according to the outlook report.

“The expanded presence of third-party capital and the development of capital market alternatives in the reinsurance marketplace (led by the property catastrophe market) are restructuring the supply and demand relationships,” EY states.

“The increase in capital has already pushed reinsurance rates lower, and it may put downward pressure on primary pricing for property coverage, as well. Although alternative capital has been largely confined to catastrophic property risks, additional products and applications for third-party capital are possible.”