Public infrastructure and military projects played a critical role in socio-economic stability in the 20th century. Insurers could expand that role to new requirements for monitoring, measuring, and mitigating risk for new assets in the 21st century.
Infrastructure was a lifeline in the 20th century
Growing up in the US in the 1950s and 1960s was a heady time. Peace (mostly) reigned following the Second World War and the Great Depression was well out of sight.
But neither were out of mind. Regardless of one’s political party, race, creed, ethnic origin, or economic class, the vast majority agreed that substantial investment in public infrastructure projects kept literally millions of citizens from starving to death on the streets.
And the results of infrastructure projects in the US were (and still are) beautiful and useful. Cases in point are: The Hoover Dam in Nevada. The Triborough Bridge in New York. The Overseas Highway running over the ocean from Miami to Key West. And many more.
These projects were catalysts for greater prosperity in North America as well as elsewhere. Invention and innovation exploded as companies used surplus to invest in R&D. The next generation went further in schooling.
But nothing lasts forever …
…especially when upkeep is neglected (and it was). And while we do not have all of the pressures from the ‘dirty thirties,’ we are facing economic, social, cultural, and, in some cases, existential challenges.
In the recent US elections, there were few points of agreement, but infrastructure investment was one. The only point of disagreement was how much should be spent. The winner of the election had the highest bid … just shy of US$1 trillion.
The fall 2016 Economic statement from the Canadian Government was entitled “A Transformational Infrastructure Plan”. The summary statement says it all:
The time to invest in Canada’s infrastructure is now—to bring Canadians good jobs, a cleaner environment and thriving communities for years to come. Infrastructure is a key component of strengthening the middle class and having great communities to live in, clean drinking water and clean air to breathe.
What are the impacts for insurance?
Some are obvious, others less (but with bigger repercussions long term).
More Economic Activity. Obviously, with more engineers creating blueprints and plans, more trucks carrying more components for infrastructure, more offices (temporary and permanent ), and more contractors bidding on sub projects, there will be more elements of insurable interest.
More Investment Opportunities. In a Public Private Partnership (P3), Governments and suppliers can underwrite the cost of developing infrastructure by tapping insurers for long term financing. The value of the loan then serves the insurer to assume the risk.
Strategic Alignment of Infrastructure with Emerging Insurance Risks and Models. The Internet of Things (IoT) will be a cornerstone for new infrastructure designs to allow monitoring and control of smart assets great and small. Insurers can use the BigData produced by the IoT to better model risk using sophisticated analytics and AI. Partnership between the infrastructure owners and the insurers will add greater understanding, control, and mitigation of cyber risk.
A big problem seeking a big solution…
This last element is the most dynamic component. With this level of complexity, how can we have any assurance of security? There is no final answer, but here is an interesting example.
Writing in the Internet of Business, Alexandra Foster, head of insurance and strategy, global banking & financial markets, at BT, poses the question: “how can insurers manage and analyse the huge amount of data the IoT generates, while exploiting the flexibility of on-demand services, without compromising security?”
Her answer is a ‘cloud of clouds’ approach that “combines public, private and hybrid services into one single cloud that insurance companies can manage centrally.“
The result? “This ‘cloud of clouds’ approach allows large organizations around the world to connect easily and securely to the data centers, applications and data they need.” Extrapolating further, Foster says that this approach builds security into the entire cloud environment,.
This is a big vision. However, as we come to rely on digital services, security is increasingly critical and needs to be baked into the new infrascture. (We provided an example in a recent post on Cyberrisk and Self-Driving Cars.)
Insurers are in an interesting position: providing risk management services, indemnifying companies developing the new infrastructure, and offering financing for development.