Teaching an old dog new tricks - digital tech meets legacy hardware

Digital solutions and old hardware donʼt always harmonise. A prime and real example happened on 13 July 2017 when thousands of commuters were stranded during peak rush hour as the metro network in Melbourne went into meltdown.1 The reason was that a 40-year-old interface board being used to connect to the new digitised software was not able to handle the input to the systemʼs tracks and signals, which themselves were also outdated.

This example illustrates the existing challenge. Standard procedure is to seek to improve the operational efficiency of old assets with software enhancements. Technological improvements on software are made on an ongoing basis to keep pace with increasing capacity and complexity of demands. Much hardware, though, is still of yesteryear.

We see an increasing dovetailing of old and new structures, often in areas of critical infrastructure, including smart electric power grids or pipelines, hospitals or cash points. New technology as part of industry 4.0 – a term used to describe technologies like artificial intelligence, quantum computing, 3D printing and IoT in eg production processes – applied to legacy solutions changes the existing risk landscape. While it reduces some old exposures, it also gives rise to new risks. To this end, insurers need to continuously re-evaluate their risks assessments and adapt their underwriting approach to technological innovation as applied in complex, multi-stage, multi-party and sometimes multinational nature construction projects, as well as in legacy infrastructure.2

Potential impacts:

  • Large infrastructure breakdowns or accidents triggered by new software not working with old hardware can lead to property damage, bodily injury and business interruption claims. There are also new forms of cyber risks to date not priced for.
  • Large failures of key infrastructure like power or communications can also impact operations of the insurance industry.
  • As technology increases connectivity, insurers face higher risk accumulation and unexpected losses potential from the combination of new software with old hardware.
  • While technological innovation can lead to reduced claims frequency in certain areas (eg, advanced driver-assistance systems for vehicles), it may also increase claims severity by introducing new exposures to an existing risk landscape. 

 

[1] Andie Noonan, Melbourne suffers peak-hour train delays after computer fault
[2] sigma 2/2018 – Constructing the future: recent developments in engineering insurance, Swiss Re Institute

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