PSI current research

INsurance, TEchnological Risk and Emerging Science and Technology policies (INTEREST)

Project Leader: Jim Skea

Sponsor: EU DG-Research
Period: September 2001 - November 2002

Background and aims
The project examined the role which the insurance sector and insurance-based mechanisms can play in relation to innovation which promotes, or challenges, sustainable development.

The new technological frontiers and sustainable development together will place new demands on the insurance sector. The insurance sector and insurance-based mechanisms may have a greater role to play in managing the risks associated with innovation, either by shifting the boundaries between private sector and public sector management of risk, or by developing new innovative arrangements in which insurance and regulatory mechanisms play complementary roles.

The specific objectives of the project were:

• to identify opportunities for promoting sustainable development through innovation by adjusting responsibility patterns vis-à-vis risk between private sector actors and policymakers.
• to establish how sustainable development innovation can be promoted using risk management mechanisms from insurance in other domains.
  
• to establish how sustainable development innovation can be promoted by the insurance sector using a wider set of tools to improve its capacity to manage novel risks.
  
• to explore policy options for promoting sustainable development through technological innovation through the complementary use of insurance-related and other risk management mechanisms.

Project Design
The project objectives were pursued through a series of structured workshop activities involving actors from each of the key sectors concerned - science and technology policymakers; the insurance sector; industry more generally; policymakers; and members of the scientific community concerned with risk management and technology assessment. These were drawn from both EU and national institutions. The workshop activities were led by the consortium which included representatives of academia, the insurance sector and independent technology consultants from different EU Member States.

The main events were:

· Geneva Association's 16th MORE (Management of Risks in Engineering) Seminar (Mogliano, 29 October 2001) available as a Word document
· Workshop 1, Insurance and Regulatory Approaches to Risk, London, 28 February - 1 March 2002 available as a Word document
· Workshop 2, Innovation Processes and Insurance Thinking, Paris, 17-18 June 2002 available as a Word document
· Workshop 3, Innovation, Insurability and Sustainable Development: Opportunities for Policy and Research, Brussels, 27 September 2002 available as a Word document (5.68MB)

Project Findings

There are three main roles for insurance in linking innovation and sustainability:

• underpinning the development and deployment of technologies which promote sustainability by helping to manage technological risks and to provide a more secure financial framework for innovation;
• regulating the rate and direction of innovation associated with radical technologies which have potential impacts on the environment or third parties and whose sustainability is contested; and
• promoting innovative solutions for managing the risks associated with natural hazards.

The State has a key role to play in defining the role which insurance plays in managing risk. In setting the framework for insurance, policymakers can

• encourage insurance companies into the "risk market" so that the State, organisations and individuals do not bear all the risks of the innovative activity;
  
• reduce barriers to innovation by transferring risks, without compensation, to third parties;
  
• encourage responsible behaviour on the part of technology developers;
  
• encourage precautionary patterns of behaviour by assigning all risk to technology developers;
  
• encourage loss prevention activities; and/or
• promote equity between different types of organisation or groups of citizens.

Further scientific activity in this field, which must link technical expertise with social science, could address: risk assessment and uncertainty assessment; the insurability of innovation;
foresight/horizon scanning; human factors in insurance/innovation; steering the direction of innovation.

There are opportunities to exploit synergies between insurance and policymaking by:

• mobilising existing actuarial data;
  
• earlier engagemnt in the the innovation process on the part of insurers;
  greater insurance sector participation in stakeholder activities

Click here for a final project report

Exploitation/dissemination

The findings of the project will be reported in a special edition of the 'Geneva Papers on Risk and Insurance: Issues and Practice' in July 2003 published by the Geneva Association (The International Association for the Study of Insurance Economics).