If Data Is the New Oil, Why Do We Insure So Little of It?

Organizations only insure about 19% of their information assets, vs. 60% of physical assets -- even though losses are far more likely on information assets.

Gas pumps in a row

We've all seen the claim that "data is the new oil," and a recent global survey by Aon found that, in fact, information assets are 14% greater than property, plant and equipment assets (PP&E) at major organizations. But Aon also reports that organizations only insure about 19% of their information assets, vs. 60% of their physical assets -- despite believing that they have at least 2 1/2 times the likelihood of a loss on their information assets.

That sounds to me like a need for customers and an opportunity for insurers. 

So let's have a look at that report, along with some other items of interest that caught my eye over the holiday weekend:

  • A pretty thorough argument that climate change is NOT increasing the number of Atlantic hurricanes (even though it appears to be raising their intensity and causing other sorts of storms).
  • A move by Google that may radically change search and, thus, render obsolete many of the social marketing tactics used by agents and insurers.
  • A really bad sign for commercial real estate, which insurers not only provide coverage for but invest in. 
  • And, for fun, the latest high-profile glitches by generative AI. (Hint: Don't use Elmer's glue to keep the cheese from sliding off your pizza.) 

The Aon report says a major reason for the discrepancy between tangible and intangible assets is that intangible assets are too new and too volatile for insurers to be comfortable with them. 

"The insurance industry typically builds actuarial loss models based on decades of data," the report says. "However, due to the dynamic and fluid nature of intangible assets, we will never have decades worth of static intangible assets and risks data. Therefore, 'retain risk' versus 'transfer risk' decisions require fresh thinking."

How do we achieve that fresh thinking? The short answer in the report is: "Risk management typically considers frequency and severity of perils. With respect to intangible assets (especially artificial intelligence and cyber), we should add velocity of evolving risk profiles."

The long answer requires some serious engagement with the report. Here, I'll just cite a few more of the stats that show the serious underinsurance of intangible assets:

  • "70 percent of respondents say their organizations are still not purchasing standalone cyber insurance coverage. The average limit for those organizations purchasing cyber insurance is $17 million." 
  • "Only 35 percent of respondents say they have a trade secret theft insurance policy, and a similar percentage of respondents (34 percent) have an intellectual property liability policy."
  • "Business disruption has a greater impact on information assets ($324 million) than on PP&E ($144 million)."

So, while the issue of information assets is truly tricky, the need is huge.

An article in Forbes, "Climate Change, Though Quite Real, Isn't Spawning More Hurricanes," says: "A search for answers about climate and hurricane connections reveals little or no evidence that major landfalling hurricanes in the Eastern United States have increased in frequency since data collection started around 1850."

The author says the data most commonly used suggest otherwise but says that we are simply better at detecting storms in the Atlantic and that they have become more memorable in the decades during which they've been named. He also acknowledges what is obvious to the insurance industry: that damages from hurricanes have soared, because at-risk areas are being built up and more people are moving into them. 

He adds that "there is some recent evidence that storms may be intensifying (i.e., increasing in severity) faster and traveling slower, which are subjects of active research."

The article challenged some of my assumptions and is an interesting read.

An article in Platformer describes the vast implications of an announcement Google made last week on providing more AI capabilities to search.  

"Google’s idea for the future of search," the articles says, "is to deliver ever more answers within its walled garden, collapsing projects that would once have required a host of visits to individual web pages into a single answer delivered within Google itself. The company’s AI-powered search results, which it calls Search Generative Experience, are coming to all users in the United States soon, Google announced.... By the end of 2024, they will appear at the top of results for 1 billion users." 

We've all seen this trend developing for some time. If you Google a matchup in the NBA playoffs, you get all the relevant information in a box: the time of the game, the win-loss record in the series, where it's broadcast, what the in-game score is if one is in progress and so on. No visit necessary to any other site. But Google is planning to go much further -- a slogan that appeared frequently at the announcement was, "Let Google do the Googling for you."  

That will be great for Google and often for the user, but all those sites that people used to click through to visit will be starved of traffic. Gartner Group predicts that traffic to the web from search engines will fall 25% by 2026.

That will mostly hit the publishing business, but it will also affect anyone -- including many carriers and agents -- that provide information online in the hope that people will click through to their sites to learn more. Why click through if Google's AI already tells you everything you want to know?

You've been warned.

An article in Bloomberg reports the sort of warning sign I've worried about and have been watching for in commercial real estate: 

"For the first time since the financial crisis, investors in top-rated bonds backed by commercial real estate debt are getting hit with losses. Buyers of the AAA portion of a $308 million note backed by the mortgage on a building in midtown Manhattan got back less than three-quarters of their original investment after the loan was sold at a steep discount. It’s the first such loss of the post-crisis era, says Barclays."

The five groups of lower-ranking creditors were wiped out, but what concerned Bloomberg most was that "the pain is reaching all the way up to top-ranked holders, overwhelming safeguards put in place to ensure their full repayment." Those losses are "a testament to how deeply distressed pockets of the US commercial real estate market have become. 'These losses,' warns Barclays strategist Lea Overby, 'may be a sign that the commercial real estate market is starting to hit rock bottom.'"

That is a concern for insurers on multiple levels. The most straightforward issue is for those that have invested in commercial real estate. But there will be ripple effects in other areas, too, for instance as workers' comp carriers have to adjust to the new world of hybrid work and as P&C carriers support construction companies as they turn many office buildings into apartments.

Finally, an article in the Washington Post documents a series of embarrassing errors by generative AI. The article says: 

"In search results, Google’s AI recently suggested mixing glue into pizza ingredients so the cheese doesn’t slide off. (Don’t do this.) It has previously said drinking plenty of urine can help you pass a kidney stone. (Don’t do this. And Google said it fixed this one.)

"Google’s AI said John F. Kennedy graduated from the University of Wisconsin at Madison in six different years, including 1993. It said no African countries start with the letter “K.” (Nope. Kenya.)"

The article explains at length where these stupid answers come from. For instance, the glue suggestion somehow came from a joking Reddit post from 11 years ago. Google's AI missed the joke part. 

But I mostly read the article to have a chuckle about that stupid AI... while it lets me.