It’s probably way too soon to start dreaming up insurance products that will respond to the risk that robots are going to rise up and annihilate humankind. And good luck finding the market capacity for it anyway.
However, robots and robotics are fast becoming a fixture of our reality, and the industry is poised for rapid expansion.
Robots, in some form or another, have been present in the manufacturing sector since 1962, when a New Jersey General Motors factory began using a robot to do spot welding and extract die castings. By the ’70s, increasingly sophisticated machines, operated by minicomputers, were being widely used for small parts assembly.
Robotics have long since moved away from the assembly line. Robots are present everywhere from warehouses to hospitals, from farms to laboratories, and from the military to mines and more.
One of the latest robotic forays into the workplace is at the Aloft hotel in Cupertino, Calif., where “The Botlr” — a service robot that looks like a distant cousin of R2-D2 — is being used to make small deliveries to guests’ rooms. Robots may soon be flipping your burgers or picking the grapes that make your favorite wine.
Video: The Botlr, a robotic bellhop built for Aloft Hotels, delivers an item to a guest in his room.
But the application of robotics is going ever deeper.
The development of robots connected to the Internet, big data, the cloud and advanced computing technology such as artificial intelligence (AI) algorithms are bringing a new class of robots into the workplace — those that can sense, think and act based on specific data and sensory input, and make routine decisions.
In June, the Associated Press began experimenting with having machines write short business stories. The news organization said that eventually, the majority of its U.S. corporate earnings stories would be produced using automation. (As of press time, Risk & Insurance® is not yet employing robotic journalists.)
There are obvious positives to the growth of robotics in the workplace. It makes sense to give robots the high-turnover jobs that are mind-numbingly rote, as well as those jobs and tasks considered extremely dangerous.
But the change that is coming may be far more profound. Garry Mathiason, co-chair of the Robotics, Artificial Intelligence and Automation practice group at Littler Mendelson in San Francisco, cited a 2013 study published by the Oxford Martin School, examining automation potential across the U.S. labor market.
According to the study, said Mathiason, “47 percent of jobs currently done by people in the United States will be done by machines and software within one to two decades. That doesn’t mean there’s going to be 50 percent unemployment; it does mean there’s going to be that much change taking place.”
(For the record, the Oxford Martin study said that insurance underwriters are in the highest risk category for being taken over by automation, just ahead of claims and policy processing personnel, claims adjusters, examiners and investigators.)
“2010 was a turning point in terms of the acceleration of the technology and its implications,” said Mathiason. “There is a change taking place that will be the equivalent of the Internet in terms of what it will do to the workplace.”
Video: At the fulfillment center of North Reading, Mass.-based Kiva Systems, 100 robots work alongside 300 fulfillment associates.
So far though, companies that employ robots see the importance of having human checks and balances on the robots’ work. Many companies are actually increasing staffing levels to support their robotic equipment.
That raises concerns about whether employees are at increased risk of harm by robotic equipment, or may inadvertently interfere with safe robotic operations. A fair number of workplace fatalities related to robotics have occurred in the last decade or two.
As it stands, employers are covered by existing workers’ comp statutes if a robot were to cause a workplace injury or fatality, the same as they would be in the event of an injury or death caused by any other piece of equipment.
The same would not be true, however, if a robot were to injure a customer, a vendor or any other visitor to a facility. In those cases, who can expect to face a lawsuit? The answer, for now, is: It depends.
Liability issues get sketchy when you factor in the element of closed versus open robotics.
In a closed robotics system, a robot is designed and manufactured for one specific purpose. (iRobot’s Roomba, for instance, is a vacuum — period — no matter how many YouTubers use it as an amusement park ride for their cats.)
But with an open robotic system, independent developers would be able to create programs, or apps, to allow the system to accomplish different user-defined tasks, adding more potential culprits in the event of a claim.
“This is going to be a big issue,” said Stephen Wu, an attorney who is of counsel to Silicon Valley Law Group based in San Jose, Calif.
“[In the event of a robot-related accident], I’m going to be doing an investigation and using experts to determine the root cause. Was it my own environment? Was it the hardware manufacturer? Was it the firmware manufacturer? Was it the application software? Was it the operating system manufacturer? Or was it some subcomponents thereof? Or else … was it a data service provider [such as one providing mapping data]?”
These questions will grow still more complicated with the growth of adaptive technology — meaning when robots make decisions on their own based on the data and sensory input they receive.
“Increasingly, adaptive intelligence is being built in where the robot is going to be changing what it does based on external stimuli,” said Drew Haaser, U.S. technology practice leader for Marsh.
“Let’s say it’s putting welds on an auto and it’s been programmed to sense the properties of the materials it’s welding and adapt … . If it makes the wrong decision — what are going to be the legal implications to that?”
That question reaches a whole other level when the consequence is a loss of life.
“What if you have a robot that is … facing the decision to either run over your daughter or hit a school bus full of kids, what is the right thing to do in that situation?” asked David Beyer, managing member of Digital Risk Resources.
“I think that it’s a very complex issue. … They try to think through a lot of these situational risks but you can’t predict all the risks all the time.”
“I think what we’re going to see is that all parties are going to be drawn into these lawsuits. They’re all going to have their feet put to the fire and they’re all going to point at each other. Unfortunately, a jury is going to have to decide these things.” — David Beyer, managing member, Digital Risk Resources
It’s crucial, said Guy Fraker, that we remember robotics is not synonymous with infallible.
“You can say, ‘We can fix that with an algorithm.’ But can you program for that kind of variability in advance? No,” said Fraker, former director of business trends and foresight for State Farm and co-founder and CEO of consultancy Autonomous Stuff.
“We’re learning new things about the technology every day.”
“These are not dumb devices anymore,” said Haaser, “and when they make mistakes in how they interpret stimuli, is it a professional liability error in the design of the product or in the software as opposed to a straightforward bodily injury/property damage claim?”
As more businesses incorporate adaptive technology into the workplace and robotics follow cues based on what they’re learning in their environments, the more that risk management will be expected to have thought through all of the implications of how the robot or robotic systems might respond.
Eventually, there will be cases where robots make “correct” decisions that result in tragic outcomes.
Several experts cited the example of a driverless car faced with a choice of hitting a tractor trailer or hitting an occupied baby stroller. Most assume that the car would attempt to minimize damage by hitting the stroller.
In a case like that, “Was it a mistake? Well, no,” said Haaser.
“Was it what a human with a duty to care would have done? No! And how will the courts treat that? Unfortunately, there are a whole lot of questions and not a whole lot of answers yet as to how the courts will treat that.”
“I think what we’re going to see,” said Beyer, “is that all parties are going to be drawn into these lawsuits.
“They’re all going to have their feet put to the fire and they’re all going to point at each other. Unfortunately, a jury is going to have to decide these things.”
The extremely good robotics news is that a great many of the developments coming out of the industry have the potential to decrease employer exposure rather than increase it.
In particular, advances in exoskeleton technology are moving to the forefront, even gaining a global stage during the 2014 World Cup, when a young paraplegic man made the first official kick of the event, wearing a mind-controlled robotic exoskeleton.
Video: Juliano Pinto, 29-year-old paraplegic man, successfully made the first kick of the 2014 World Cup in Sao Paulo, wearing a full body robotic suit.
In South Korea last year, employees of Daewoo Shipbuilding and Marine Engineering helped test a prototype of a full-body exoskeleton that will enable them to lift large hunks of metal, pipes and other objects without excess exertion or risk of strain or injury.
“In basic safety and loss control, the first line of defense is to engineer the risk out; robotics is one of the purest forms of ‘engineering out’ a risk,” said Bill Spiers, vice president and risk consulting manager, Lockton Cos.
“You have eliminated the human interaction around a task that’s going to create soft tissue strains that are very costly.”
Industry leaders such as Ekso Bionics and Cyberdyne are actively producing exoskeletons that have a broad range of applications. Robotic suits could dramatically reduce injury risk for workers with physically intensive jobs, potentially enhancing productivity at the same time.
“Wearable technology has the potential for ameliorating some [health and safety] concerns,” said Littler Mendelson’s Mathiason. “You can see it someday becoming as common as safety shoes.”
Mathiason said this may eventually be of equal importance as applied to Americans with Disabilities Act accommodation issues.
“You have people who couldn’t perform the essential functions of the job. Then seven million paraplegics can suddenly walk and do things nobody thought they would ever do again,” he said.
For workers who’ve already suffered temporary or permanent disabling injuries, exoskeletons could eventually open the doors for new means to keep injured workers on the job. Even severely disabled employees could potentially be returned to productive and essential work, increasing quality of life for injured workers while saving employers millions in partial and total disability payments.
“You have people who couldn’t perform the essential functions of the job. Then seven million paraplegics can suddenly walk and do things nobody thought they would ever do again.” — Garry Mathiason, co-chair of the Robotics, Artificial Intelligence and Automation practice group, Littler Mendelson
Currently, 330 of Cyberdyne’s HAL-5 full-body exoskeletons have been leased to hospitals across Japan, where they assist patients with muscle weakness or disabilities due to stroke and spinal cord injuries. In some industries, this area of robotics could virtually eliminate obstacles to accommodating injured or disabled workers.
As companies make critical decisions about incorporating robotics into their operations, it’s important to bring risk management into the loop early on.
While companies increasingly transition processes to robotics for the sake of cost savings, said Haasen, “the challenge for the risk manager will be to see that some of those savings are being reinvested back into risk management.”
But the most urgent piece is getting risk management involved in decisions about capital expenditures like robotics from the get-go.
John Abbott, an account executive at Arthur J. Gallagher & Co., said there are a host of questions that risk managers need to think through in advance.
“Are you going to be using it to do something that’s never been done before? Do you want to go into an area where there’s a potential environmental issue that may impair the robot’s performance? Robots are mechanical and electrical systems — any robotic system is prone to wear and tear and failure to some degree.”
Wu of the Silicon Valley Law Group added that due diligence is of utmost importance when selecting vendors for robotic system components, including whether there are any kinds of certifications that apply to the machines.
“Is there a UL-type seal of approval that we could look for that can be had?” Wu asked. “And what kind of testing went into the robots in the first place?”
Issues such as hackers and the potential for fraud must also be given consideration, said Fraker. “For every great capability that’s ever been developed … there’s an opposing potential dark side,” he cautioned.
Vocal Rehabilitation Success
Growing a business, of course, is a good thing. But as Patricia Hostine, workers’ compensation manager at Cooper Standard Automotive, learned the hard way, it’s possible to have too much of a good thing — at least when it happens fast.
When one factory’s operations were relocated and absorbed into a Kentucky facility, that location’s staffing level tripled practically overnight, with many new employees lacking experience.
“If you’re launching a big program, it comes with a lot of confusion, a lot of overtime, a lot of new people coming in doing jobs they’ve never done before,” said Gerry King, former global vice president of health, safety and environment for the company.
“It’s a great recipe for workers’ comp issues.”
Claims costs skyrocketed. Within three years, that facility — one of the company’s 16 — was responsible for 50 percent of the company’s claims costs. Lost-time days there shot up by 46 percent.
Hostine said her company’s plight was keeping her awake at night … quite literally. During one of many sleepless nights, Hostine finally had a 4 a.m. epiphany: What are we waiting for? Why can’t we start vocational rehab on the front end?
“I’m a firm believer that if you have 12 weeks of lost time, you’ve already closed the window for vocational rehab,” said Hostine, who spent more than a decade as a vocational case manager before joining Cooper Standard.
“I think a lot of professionals miss that window and then don’t understand why vocational rehab doesn’t work.”
Hostine contracted with a part-time in-house case manager to work with injured employees and place them in appropriate positions. Job evaluations were conducted for every key position in the plant to ensure proper placement of recovering workers.
The company’s other key cost driver was that supervisors were being put in the position of making medical decisions. More often than not, nearly every minor injury wound up in the ER.
Hostine implemented a 24/7 telephonic nurse triage program. Nurses evaluated every injured worker and determined which issues could be handled in-house with first aid, and which required immediate attention or follow-up care.
Together, these programs have made a world of difference for Cooper Standard.
The company has seen a 50 percent decrease in the number of incidents that become claims. And lost time didn’t simply drop — it is now a mere 6 percent of the pre-expansion baseline for that facility. Workers’ comp wage loss payments have decreased 63 percent from 2010 to 2012. The 24/7 nurse triage program has now been implemented companywide.
Colleagues say that Hostine was unquestionably the right person to drive this level of change at Cooper Standard.
“[Patty] has an MBA. …. She is able to put workers’ comp in the context of the business and make people understand that you have to look at these as business decisions,” said King.
Patty is also being recognized as a 2014 Responsibility Leader.
Champion for Change
Workers’ Compensation Manager Patty Hostine created dramatic gains for Cooper Standard Automotive by championing a fundamental change in the way both management and employees perceived the company’s approach to injury treatment and recovery.
“When she came on board we had all kinds of new management — nobody was on board with our thought process,” said Gerry King, who hired Hostine to manage workers’ compensation at Cooper Standard.That kind of transformation is never an easy sell. But Hostine’s ability to clearly communicate the benefits of the change to people at every level of the organization is the hallmark of a Responsibility Leader®.
“So it was taking them and making them see the business side of workers’ compensation that a lot of people don’t look at,” King said.
Hostine is also committed the members of her team, and to making sure that everyone involved has the tools and knowledge they need to excel.
“Her ethics are above reproach,” said Mick Altherr, coordinator of health, safety and environment, and workers’ compensation at Cooper Standard Automotive, “and that drives her theme of being fair, firm and friendly. … She’s an amazing talent with her drive for knowledge. She shares her thought process to educate the people who work with her.”
Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, perseverance and/or passion.
Responsibility Leaders overcome obstacles by doing the right thing over the easy thing to find practical solutions that benefit their co-workers and community.
Sub-Zero Sucker Punch
During the cold weeks that follow the winter holidays, a low-pressure warm front moves quickly into the New England region, along with a high-pressure Arctic cold front. The two masses collide, causing heavy rains that turn to ice by the time they reach the ground.
Layers of ice blanket an area from Maine to Maryland and as far west as Ohio, making it look like a world made of pure crystal.
Northeasterners shrug and hunker down for a few days of wild weather. A thinner layer of ice reaches west to St. Louis and south to Charlotte. Southeasterners grumble about the polar vortex interfering with their routine.
By the second day, trees fall and rooftops groan under the weight of nearly 3 inches of ice. Dozens of transmission towers buckle and collapse. Local power lines fall, pulling utility poles down across roadways.
Utility companies shift into crisis mode to assess the damage, which has plunged some homes and businesses into darkness. Utility crews from Georgia and Tennessee are dispatched to help get repair work underway, which is slowed by treacherous road conditions.
The worst, though, is yet to come.
Three days after the first storm hits, a second storm arrives, about 500 miles south. It wallops the Southeast and moves on up the Eastern seaboard, dropping another 2-plus inches of ice over two days. Heavy ice puts a death grip on everything from Memphis to Atlanta and on up through Washington, D.C.
The aging utility infrastructure can’t withstand the ice and winds. The fact that at least half of the Southeast’s utility workers had been deployed north makes matters worse — far worse. Four million customers in Georgia and Alabama alone are without power.
Hartsfield-Jackson International Airport in Atlanta is virtually paralyzed, stranding travelers and causing massive delays across the country. Gas stations shut down because pumps are inoperable.
Retailers with backup generators press on as long as they can, but shelves empty quickly of food and other essential goods. Some stores operate on a cash-only basis because payment systems are down.
On the East Coast, more than 50 million people and 3 million businesses are without power. More than 200 transmission towers are badly damaged. Water supply across the entire East Coast is at risk, as treatment plants and pumping stations begin to lose backup power. Cell network circuits become congested, causing delays and weak signals. Some networks fail altogether.
Despite icy roads, millions leave their homes, seeking warmth and shelter. Some die from carbon monoxide poisoning or from blazes caused by open fires in their homes, attempting to keep warm. Many fires burn unchecked, resulting in widespread property damage.
States of emergency are declared for affected major cities. The National Guard is brought in to help clear roads, escort people to emergency shelters, and help maintain civil order among the increasingly frightened and desperate public.
Trees continue to fall for weeks, making power recovery achingly slow. It takes three to four weeks to get to 90 percent recovery for urban centers. Some outlying areas go without power for as long as three months.
Businesses struggle to reopen due to damage and lack of workers, as many have not returned to the area from wherever they sought shelter, or can’t get through to certain areas due to safety hazards.
Hundreds die from hypothermia, starvation, fires, auto accidents and small, localized riots. Tens of thousands more suffer injuries or become seriously ill. The very young, elderly and the poor are hardest hit.
National Geographic’s harrowing docudrama American Blackout depicts the catastrophic repercussions of a 10-day blackout affecting the entire country.
No Escaping Loss
This scenario was created using the Blackout Risk Model, developed through a partnership of Hartford Steam Boiler and Verisk Climate, led by Robin Luo, vice president at HSB; Clifton Lancaster, senior risk analyst at HSB; and Kyle Beatty, president of Verisk Climate.
HSB and Verisk estimate that the frequency of each individual ice storm would be one in 150 years to 200 years. The two storms combined represent a frequency of one in 1,000 years or more.
This scenario loosely resembles a juxtaposition of two historic North American blackout events.
In January 1998, ice pummeled Ontario, Quebec and New Brunswick for six straight days, destroying 130 transmission towers and leaving more than 4 million people without power — some for up to a month.
The insured losses from that storm totaled $1.6 billion, according to the Insurance Bureau of Canada. The total economic costs were estimated between $5 billion and $7 billion.
The second event occurred in August 2013, when a simple circuit overload led to cascading blackouts throughout North America, leaving 50 million people in the United States and Canada without power for up to six days. The estimated total economic cost of the outage was between $6 billion and $8 billion.
Combining the duration, ice load and frigid temperatures of the 1998 event with the coverage footprint of the 2013 event would result in a catastrophe exponentially more devastating than any blackout in North American history.
Some experts downplay the amount of property damage typical for an ice storm, but others say the level of property damage wouldn’t be far behind Hurricane Katrina or Superstorm Sandy.
Because of the duration of the power outage and the extreme volume of ice involved, homes and businesses left abandoned would likely succumb to frozen and bursting pipes. Collapsing roofs would lead to additional damage.
Overtaxed emergency responders likely wouldn’t be able to prevent damage caused by the inevitable looting and civil unrest. Fires started by those desperate for warmth could easily burn out of control, consuming neighboring properties in the process, especially in urban centers.
Contaminated water supplies would cause lasting problems that would take months to remedy. Lack of running water would create sanitation hazards.
Industries needing refrigeration, such as restaurants, supermarkets and pharmaceutical companies would suffer heavy losses. Manufacturing would also suffer due to a dependence on power and the difficulty and expense of temporarily relocating equipment.
Of course, that only scratches the surface of business income losses for companies up and down the East Coast, as well as key suppliers and customers across the country.
“Whether you’re impacted directly from the weather or indirectly, I don’t know how anyone escapes some sort of tragedy or economic loss from this,” said Wes Dupont, executive vice president and general counsel of Allied World Assurance Co. Holdings.
Even with power mostly restored in three to four weeks, there would be several more months of clean-up before normal operations resume. Some companies would have difficulty luring back clients that had switched suppliers in the interim.
Small businesses would no doubt be hard hit.
“Small to midsize companies, those that are not able to invest [in a standby power system] … they’re going to struggle,” said Mark Madar, director of risk management and regulatory compliance at CBIZ Risk & Advisory Services. “The companies that do not have a multi-location presence, especially your mom-and-pop types of businesses, they’re the ones who are going to take the hit here.”
But Lou Gritzo, FM Global’s vice president and research manager, said it would be a mistake to downplay the vulnerability of larger companies in this scenario.
“It’s the weakest link scenario,” said Gritzo. “The bigger effects are going to be these cascading failures where one or two pieces of the operation can’t recover and then the entire company experiences the consequences.
“That in turn affects other companies all over the country and all over the world. I think that’s where the biggest impact is going to be,” he said.
Mind the Gaps
For many companies, having a solid business interruption plan will make the difference in whether they make it through such a crisis. More than two in five (43 percent) businesses that experience a disaster and have no emergency plan don’t reopen, according to The Hartford. Of those that do reopen, only 29 percent are still operating two years later.
Even the most sophisticated disaster plan, however, will not shield companies from some degree of loss in an event of this magnitude. Unfortunately for some, the claims process is unlikely to be straightforward.
“The bigger effects are going to be these cascading failures where one or two pieces of the operation can’t recover and then the entire company experiences the consequences. That in turn affects other companies all over the country and all over the world.” —Lou Gritzo, vice president and research manager, FM Global
Blackouts can be a monkey wrench in the works. Companies may assume they’re covered for business losses in the event of a power outage because they have business interruption (BI) coverage — or time element coverage — on their property policies.
But in most cases, BI must be tied to physical damage to an insured’s assets. Several commercial property policies specifically exclude coverage resulting from a utility service interruption that originates away from the insured’s premises.
Standard BI coverage won’t be triggered for businesses that don’t suffer direct physical damage but were forced to close or relocate because of lack of employees or power, or orders from civil authorities to stay away due to safety hazards.
Some larger, sophisticated insurance buyers will have policies that include the necessary extensions needed to trigger the cover, but smaller firms may be left unprotected.
“I think [utility service interruption coverage] is spotty when it comes to small commercial businesses, who would need to ask for those extensions, as well as clients who are on standard boilerplate preprinted forms as opposed to a manuscripted form,” said Duncan Ellis, U.S. property practice leader for Marsh.
Another wording nuance to be aware of, he said, is that some language may provide for damage caused by a power outage, as in the case of a critical manufacturing load destroyed by loss of power in the middle of the process. But the BI side of the policy still may not have an extension for loss of income incurred after the outage.
Even for companies with the right coverage extensions, time durations vary. Some policies may not cover losses related to a service interruption that goes beyond a week or two. In general, many companies could find that their BI losses far exceed limits.
Insurers would see a high volume of contingent business interruption claims from those whose key customers or suppliers were compromised by the event. But the wording of CBI policies is similar to BI policies, and many insureds will find their coverage declaimed.
Companies with a regional base also may face push back from carriers on business income claims, said Mike LoGiudice, managing director of insurance and litigation support for CBIZ Valuation Group. “I might say, ‘I should have done [this amount of business] but for the property loss.’ ”
But the carriers may argue that regardless of damage, your customers would still be out of business themselves, so you wouldn’t have had any income. “They would take into effect the negative impact on your customers,” he said. “It would be a battle.”
Additional 2014 black swan stories:
When the 8.5 magnitude earthquake hits, sea water will devastate much of Los Angeles and San Francisco, and a million destroyed homes will create a failed mortgage and public sector revenue tsunami.
When a nuclear reactor melts down due to a powerful tornado, deadly contamination rains down on a metropolitan area.