BY Dwaipayan Regmi

In the evolving landscape of insurance, the determination of liability is undergoing a transformation due to technological advancements. While traditional personal auto coverage applies when the vehicle is within the driver's control, the increasing prevalence of automated vehicles shifts liability towards manufacturers. As automation becomes more prevalent, it raises questions about the continued liability of insurance companies in the face of these changes. Similarly, there are different risks in space travel. Will the insurance companies still cover those risks? The emergence of gene editing adds another layer of complexity, questioning whether insurance companies are prepared to adapt to and cover the risks associated with this advancing field.

Insurance fraud has been a persistent issue, such as instances in Nepal where vehicles are intentionally pushed into rivers or godowns are deliberately burned for fraudulent claims. Some would bring their expensive insured gadgets to Nepal, gift them to their relatives here, and claim their insurance amount back claiming it loss or theft. Those were the traditional risks that insurance companies have to deal with. But with growing technological advancements, there are technology-driven aspects that insurance companies should be worried about.

The term "emerging risks'' encapsulates new and future dangers that are challenging to assess and whose potential harm is not yet fully understood. These risks may evolve from subtle indicators to distinct patterns with significant implications. Insurance companies are already grappling with various challenges, including data security, competition, staff retention, cyber threats, political instability and technological disruptions. The landscape has further been shaped by economic downturns and supply chain disruptions, where normal product prices inflate beyond reach.

The current global challenge extends beyond mere unemployment; it is intricately tied to the consequences of AI. With AI's ability to generate content and produce images, traditional roles such as content writers and artists face potential obsolescence. The question arises: are insurance companies equipped to address these evolving risks? The credibility of insurance companies came under scrutiny in recent years, particularly during the global pandemic, when they struggled to provide adequate coverage. This loss of confidence was felt worldwide, including in Nepal.

Nepali farmers had to dump tons of oranges this year due to Huanglongbing (HLB) or 'yellow shoot disease'. Yellow shoot disease has been damaging orange crops for the past few years. Farmers engaged in cardamom farming in Ramechhap are facing losses due to an unidentified crop disease. There are similar stories of farmers suffering heavy losses. This highlights the need for insurance companies to shift their focus towards addressing such tangible and pressing issues affecting various sectors.

The year 2022 and beyond ushered in a new era with the advent of Artificial Intelligence. Insurance businesses, as promisors, must view commitment not merely as a word but as a substantive action. According to the AXA Future Risk Report of 2022, climate change takes a prominent position among the top 10 emerging risks. The report estimates an expected annual loss of around $20 trillion due to the consequences of rising temperatures, emphasising the need for insurance companies to earnestly consider and address environmental risks.

Healthcare expenditures have experienced a significant surge in recent years driven by the prevalence of chronic diseases like Parkinson's, cardiovascular disease, and metabolic syndrome or through healthcare staff expenses, the development of new drugs, and innovative approaches in the genetic medical world. It is imperative for insurance companies to thoroughly examine and address these escalating healthcare expenses. An essential consideration is whether insurance companies can effectively provide coverage for expenditures within the realms of Health 4.0. 

In addition to the healthcare landscape, there are subjective issues that demand concurrent attention in the insurance sector. These include climate-related disasters, cyber risks, endocrine disruptors, and disruptions of critical infrastructure. These factors must be carefully considered and integrated into the insurance sector's strategies. The challenge extends beyond the uncertainty posed by these new issues; it also involves the absence of past records to guide responses to the complexities and interconnected risks they bring. The rapid pace of technological advancements has been a key factor contributing to these risks, raising ethical and societal concerns. This leaves insurers and the insured in a state of uncertainty regarding how to react, address the situation, and allocate resources effectively.

Nepal is already confronting several challenges such as the low insurance penetration rate, regulatory issues, and trust-related concerns. The emergence of additional risks compound things for the insurance sector. Amidst these challenges, there are also opportunities that insurance companies can seize. Insurance companies can introduce diversified insurance products that specifically address emerging risks and offer comprehensive coverage. Emphasising risk-based capital and employing cost models can prove advantageous, given the success of digital-led insurance or InsurTech companies, which have witnessed a fivefold increase in revenues across Asia. The Asian market, recognised as a growth hub for insurance, presents opportunities for international collaborations, particularly in healthcare and the broader value chain.

Positive indicators, such as the rise in consumption, tourism, and investment, offer hope for the insurance sector. Nepal's insurance market remains undercovered, presenting an opportunity for thoughtful consideration to transform these challenges into opportunities rather than viewing them solely as threats. Sustaining through difficult times is the only way through which the insurance industry can retain the trust level. 

Regmi is deputy manager at Rastriya Banijya Bank Ltd.