The fast-changing world is fuelling new perils to underwrite. But with opportunity comes risk, warns Drinker Biddle partner Andrea Best
In today’s market, insurers and reinsurers must always be looking for ways to adapt and change, in order to add value and stay relevant to existing clients while identifying new potential clients. Luckily, for those who know where to look, there is no shortage of new opportunities.
All these new business opportunities present unique considerations – namely, what are the legal and regulatory implications that might apply to these new sources of business?
Let’s take for example drones. Drone usage is soaring (pun intended), and with it the need for insurance. But do insurers know what they are insuring? Do you know how drones are regulated in the country (or countries) where you might want to sell insurance? Are there mandatory minimum insurance requirements? Who are your customers – are they licensed to operate drones and do they have to be? Is short duration “on demand” coverage even permitted?
Another area with significant opportunities is the rise of autonomous vehicles, but the regulation around this burgeoning technology is varied. What if you want to offer coverage to participants in the autonomous vehicle industry in the US, are you aware of both state and federal regulation on the use and testing of such vehicles? It is important to know who will truly be liable for a loss – the manufacturer of the vehicle, the software developer, or the human driver who might be testing the vehicle, for example. Given how new this field is, close monitoring of legal (and technological) developments is key.
What about insuring participants in the fast expanding US (and Canadian) cannabis industry? Some states, such as California, have been welcoming insurers to provide such capacity – indeed, insurers have been invited with open arms by the Commissioner.
However, there is of course a conflict between state and federal law since the use and sale of cannabis remains largely (but not entirely) illegal at the federal level. The US political landscape plays a role here too, leading to much uncertainty about the future of cannabis regulation in the United States. Before entering this market, it is important to undertake a very careful legal analysis as to what exactly you intend to insure and what are the risks that the policy would be insuring an illegal act—today, as well as in the future.
Parametric property cover is another popular (if not entirely new) source of business, but do insurers know if the policies they have drafted are actually regulated as insurance? Is it enough to include a dual trigger, or could the policy be regulated as a swap? If the policy is a swap, what implications does that have? Examples such as these and more abound.
The common thread is that insurers and reinsurers should not just jump into these uncharted waters without a guide. Careful legal and regulatory analysis is required in order to ensure that a new business opportunity does not turn into a significant new liabi