For every new benefit, a new risk faces us, too. Faulty sensors or hardware meltdowns, crashed software, incomplete data, and corrupt analytics. All of these could prevent us from reaching emergency services or other authorities. Undetected data leaks, a system crash, or hacking could invade citizen privacy, expose sensitive government data, or result in a city cyber siege, and even physical destruction.
Privacy will be an ongoing concern. The “Right to be Forgotten” may be only the first of a series of explicit cyber privacy laws. However, while technology is still far ahead of legislation, the EU principle that cyberspace rights are the same as rights in the physical world will be a general guide. Sensor, camera, tech, and surveillance companies will be subject to complaints, and even lawsuits. Connecting the public and private spheres in smart cities will create complex risk which demands much greater cyber insurance capacity, and more detailed coverage.
Smart-city connectivity could result in titanic property and liability losses. In the event of a malfunction, or a full system crash, how easy will it be to discover the device, algorithm, component, or person who caused the problem? Robust tracking systems need to be developed to help pinpoint the source of error. Insurers and brokers offer discounts to car drivers with black boxes. A similar type of information collection system for smart-city service providers could help reduce their policy premiums, and help them better cover their risks.
Making aggregated smart-city data available and comprehensible to the public will accelerate innovation. This will be vital to inventing solutions to issues like our aging population. This data goldmine will also benefit businesses looking for risk advice and insurance. It will make it easier for insurers to understand new physical and digital structures, and place them in a broad data framework. Assessing risk, advising on loss prevention, and pricing capacity could be done with much greater precision. In Glasgow, smart-city information has already enabled certain residents to obtain flood insurance at lower prices.
The unparalleled rewards of smart cities will propel us forward, despite the equally great risks. We at XL are planning, analyzing and acting now, to make risk engineering and insurance as smart as our cities.