The top risks facing the technology sector in 2021

A new report from Willis Towers Watson warns that the move towards economic nationalism, provoked by the COVID-19 pandemic and the European Union’s technology regulation, is causing “increasing concern” to the technology sector and may result in lasting impacts on supply chains and IP.

The report sourced country and sector analysts from Oxford Analytica in drawing its conclusions and outlines some of the key factors that are creating growth in technology companies seeking political risk insurance.

Based on this data and interviews conducted by Willis Towers Watson researchers with a panel of external affairs and risk management professionals at the world’s, the report outlines the top geopolitical threats facing technology companies in 2021.

Commenting on the top risks, Laura Burns, U.S. political risk product leader, financial solutions, Willis Towers Watson, said, “If ‘data is the new oil,’ as the saying goes, might Big Tech be the new Big Oil?”

“Today, it appears that competition for dominance in high technology may become central to geostrategic competition, just as oil did from the 1850s to present,” Burns said in the whitepaper. “And as these Big Tech companies operate, increasingly they may collide with the geopolitical objectives of host countries and home countries. The technology sector will continue to develop and adapt, but its ability to work in a volatile business environment is critical.”

Technology is a driving force in insurance M&A

“In 40 years of practice, I have never seen a period of time when changes have happened so quickly,” Ross said. “We have some catching up to do in terms of what this all really means. But for insurance M&A it is accelerating these trends; putting them on a rocket booster in some cases.”

Mergers and acquisitions (M&A) in the insurance space are expected to surpass 220 worldwide during the first half of 2021, according to Clyde & Co., which noted the need to scale technology to fully leverage digital investments is a big driver of the sector’s transactions.

If the 2021 projections hit the mark or surpass them, it would be the first time since 2019 that level of transactional volume was reached, Clyde & Co. reported. The second half of 2021 is anticipated to see even more closings.

“From the perspective of smaller companies, many are waking up to the reality that they can’t afford to keep up with the technology that is going to be required to remain competitive in the future,” Anne Ross, a partner with Foley & Lardner LLP, told PropertyCasualty360.com. “They simply don’t have the scale needed to absorb the cost of the data analytics, artificial intelligence and other technologies that are improving expense ratios of their larger competitors.”

For companies that can afford to invest in the bleeding-edge, the question is, “should we build or buy?”

“Most companies do some of each, but we are seeing a lot of M&A activity driven by targeted acquisitions of companies that already have the technology as well as the expertise in-house to develop it further,” Ross said.

Propelling the pressure to deploy the latest technology is demand from consumers as well as producers, she explained. For consumers, the expectations of access to products and services online and through mobile devices were derived from their experience with retail and financial institutions.

“They want to comparison shop and purchase insurance online, file a claim through a mobile device and pay their premiums the same way,” Ross said. “Those carriers that work with independent agent producers are hearing from those agents ‘we need you to keep up with these developments.’”

Tech evolving M&A landscape ‘end-to-end’

Technology providers attracting the attention of potential buyers are not just working on consumer-facing products, Ross noted, explaining they run through the insurance chain from intelligent pricing and underwriting to risk mitigation and loss prevention.

“Some of the less obvious ones are more efficient claims handling and fraud detection, and data analytics, AI and telematics can all feed into that,” she said. “A lot of the technology that is less evident to consumers will be the most powerful for insurers.”

She said the most remarkable thing is how all these digitization trends have been accelerated by the pandemic.

“In 40 years of practice, I have never seen a period of time when changes have happened so quickly,” Ross said. “We have some catching up to do in terms of what this all really means. But for insurance M&A it is accelerating these trends, putting them on a rocket booster in some cases.”

Specific Technologies Driving Insurtech Investment in 2024

Understanding the Funding Decline The decrease in funding does not necessarily spell trouble for the insurance sector but instead highlights a strategic shift, the report suggests. “The insurance industry, like many sectors, is focusing on the most promising ventures with substantial insurance potential,” the report explains. “Insurers are directing their investments toward key areas and current trends such as embedded insurance, employee benefits, and cyber risk management. This strategic investment approach signals a forward-looking mindset within the industry.” Three Key Insurtech Trends for 2024 The report identifies three major trends shaping insurtech investments in 2024: Public Insurtech Companies: Financial and Growth Strategies The report also notes that public insurtech companies are prioritizing revenue growth as their main goal. These firms are restructuring their financial strategies to boost cash flow and capitalize on rising revenue streams. Their growth prospects are supported by expanding asset portfolios and strong market demand. “Public insurtech companies are focusing on revenue growth and optimizing their financial frameworks to increase cash flow,” the report states. “The growth potential for these companies is driven by increasing revenue opportunities, broadening asset bases, and a robust market for their services.” In summary, while global insurtech funding saw a decline in 2023, the industry’s focus on GenAI, digital process management, and connected insurance technologies is setting the stage for a dynamic and forward-looking 2024.

Business

Insurer Secures Unanimous Supreme Court Victory in New York Choice of Law Dispute

In the world of sports, a clean sweep, a shutout, or a perfect game is the ultimate achievement. In the legal arena, a unanimous decision from the U.S. Supreme Court is equally rare and significant. In a notable legal triumph, Great Lakes Insurance SE achieved a unanimous 9-0 victory in the Supreme Court on February 21, 2024. This victory follows a protracted legal battle that began in the District Court of Pennsylvania, advanced to the U.S. Court of Appeals for the Third Circuit, and culminated in the Supreme Court’s decisive ruling. Background of the Case: Great Lakes Insurance SE v. Raiders Retreat Realty Company The heart of the dispute was the insurance contract’s clause selecting New York law to govern any future legal conflicts. Although the financial implications of this case were relatively minor compared to the broader marine insurance industry, the insurer’s determination to uphold a crucial maritime legal principle has significant long-term implications for marine insurance. Faced with the insured’s counterclaims—including allegations of breach of fiduciary duty, insurance bad faith, and violations of Pennsylvania’s Unfair Trade Practices Law—the insurer was confronted with serious risks. Such claims could lead to the shifting of attorney’s fees, treble damages, and more, which might normally encourage insurers to settle rather than risk pursuing justice. However, Great Lakes Insurance, supported by The Goldman Maritime Law Group, opted to challenge the Third Circuit’s decision and seek clarity from the Supreme Court. Supreme Court Ruling: A Landmark Decision In a landmark ruling, Justice Brett Kavanaugh affirmed that choice of law provisions in maritime contracts should be upheld by default. This ruling is a major victory for establishing a consistent federal standard in maritime law and avoiding a patchwork of state laws that could complicate marine insurance disputes. The Supreme Court’s decision overturned the Third Circuit’s earlier judgment, which had questioned whether Pennsylvania’s public policy concerns might override the insurance contract’s choice of New York law. By upholding the New York choice of law clause, the Supreme Court eliminated the extra-contractual bad faith claims under Pennsylvania law, thereby ensuring that the dispute could be resolved based on the merits of the insurance claim itself. Significance of the Supreme Court’s Decision This ruling represents a significant advancement in maritime law, affirming that choice of law clauses in maritime contracts are generally enforceable. The decision establishes a clear, uniform legal framework for resolving maritime contract disputes, which will streamline the process and ensure fair adjudication of future insurance claims. Justice Clarence Thomas’s concurring opinion was particularly notable for its criticism of the 1955 Wilburn Boat v. Fireman’s Fund Insurance decision, which had previously influenced maritime insurance law. Thomas argued that Wilburn Boat was incorrectly decided and stressed that a uniform and enforceable set of rules is essential for the development of maritime law. Impact on the Marine Insurance Industry The Supreme Court’s decision sets a “bright-line” rule affirming that choice of law clauses are valid unless there is a strong argument against the selected jurisdiction. By endorsing New York’s insurance laws as a reasonable choice, the ruling supports a more consistent and predictable legal environment for marine insurers. This decision represents a major step forward in maritime law, helping insurers better assess risks, determine premiums, and ensure fair and efficient resolution of maritime insurance disputes.

The top risks facing the technology sector in 2021