Peter Thiel’s Valar Ventures led the round suggesting a vote of confidence from Thiel who was part of Coya’s $10 million seed round in 2017.
Coya announced that this investment would be “the fuel to develop digitally focused insurance solutions that are fairer, faster, and future ready”.
The startup was founded in Berlin, Germany in 2016 by Andrew Shaw, Dr Peter Hagen and Sebastian Villarroel. Each partner brought solid industry and technical knowledge to the firm, Shaw and Villarroel hailing from credit and lending startup Kreditech and Hagan as the former CEO of Vienna Insurance Group. Since their founding, Coya has raised $40 million between its Seed and Series A rounds and has expanded its workforce to 55 employees.
Critical to their strategy, the startup is also reported to be close to securing regulatory approval to operate as an insurer in Germany, a licence which opens up access to the entire insurance market in the European Union. Despite the additional time such regulations required, Coya stresses that becoming a licensed firm allows them to “focus on simpler, more transparent and more flexible products”, in addition to providing better and faster customer experience.
Coya is one of several InsurTech startups looking to dominate the nascent market where technology is being offered as a solution for everything, from doing away with old-fashioned paper policies to improving actuarial services through AI (Artificial Intelligence) and Big Data.
And it seems that consumers are upbeat and ready for it. Ernst and Young (EY) reported double-digit growth in the adoption of fintech products between 2015 and 2017 noting an adoption rate of 33% in 20 key markets surveyed.
Money transfer was the most widely adopted fintech solution with around 50% of respondents saying that they had used this kind of service, but insurtech was also growing rapidly with 24% of respondents reporting use of a fintech insurance service.
Different ways to insurtech
Startups like Coya, their German rivals Wefox and Element and US firm Lemonade are all taking a firmly tech-led approach to clearly differentiate themselves from the traditional firms. However, traditional banks and large insurance organisations are also keen to jump on the insurtech bandwagon, albeit using significantly different approaches.
Some are likely to simply offer an online space to store policy documents. For others, insurtech means a different brokerage platform to sell the same products as illustrated by Deutsche Bank’s partnership with broker Friendsurance.
Meanwhile, others are pushing into new, innovative areas like Munich Re’s Digital Partners (DP) venture which is promising a range of solutions and new tech-led products.
Although the approach of the traditional firms may be more conservative, sheer size and market foothold may still allow them to fight off the challenges from tech-led startups. However, for now, insurtech remains a competitive field with a number of companies offering very different technical solutions to modernize the centuries-old industry.
Whatever their differences, the firms seem to agree on one thing: Berlin is becoming the place to be for insurtech in Europe.
Berlin insurtech hub
Europe saw fintech deals amounting to $2.67 billion in 2017. 27% of these deals were closed in Germany which is a significant increase from the country’s 2013-2017 average of 14%. The UK leads fintech deals with 38% of investment over the same period, but questions over the UK’s post-Brexit relationship with European markets casts doubt on Britain’s ability to maintain this lead.
Berlin east side gallery – by PeterDargatz
In Germany, Berlin remains the fintech capital where insurtech and blockchain firms dominate the scene. 80 fintech deals, or 27% of the total, were Berlin-based in 2017, outstripping the closest rival, the Rhein-Man-Necker (RMN) regional around Frankfurt, which accounted for 25% of deals.
Berlin enjoys the advantage of a concentration of knowledge and expertise which is often critical to success for startups, but the city isn’t just fostering homegrown talent. Berlin is also attracting fintech startups looking for a tech hub in which to base themselves in.
So, while Coya and Element are Berlin ‘natives’, the city’s reputation also attracted Wefox which originated in Switzerland.
Coya’s successful $30 million series A is just another sign that Berlin is cementing its place as Europe’s insurtech hub.
Russia’s largest insurer the Sogaz Group is about to get a lot bigger. VTB Bank sold its insurance subsidiary VTB Insurance to Sogaz on 25 May 2018.
That means Sogaz will control nearly 21% of Russia’s entire insurance market and 45% of the market for medical and property insurance, BNE Intellinewsreported.
The Sogaz Group controlled around 15.9% of Russia’s insurance market in 2016, and VTB Group controlled around 5%. The purchase would give Sogaz a 20.9% share of Russia’s insurance market.
VTB Insurance, or the VTB Group, had an authorized capital of 5.5 billion rubbles (£66 million) and premiums worth 62.1 billion rubbles (£750 million) at the end of 2016. VTB Insurance offers liability, third-party general, compulsory third party motor liability, health and accident insurance, travel insurance, vehicle insurance, voluntary health insurance, civil-engineering insurance, freight insurance, and financial risks insurance in Russia.
VTB Bank was the sole shareholder in VTB Insurance, which means Sogaz is now the sole holder in VTB Insurance.
The Sogaz Group insures more than 18.3 million people and 85,000 companies in the Russian Federation. Sogaz reported assets of around 211 billion rubbles (£2.54 billion) and a capital of 70 billion rubbles (£840 million) on 29 May 2018. The Sogaz Group reportedly pays 175 million rubbles (£2.11 million) in claims each day.
VTB Insurance under US sanctions
Sanctions imposed by the United States might be the cause of Sogaz’s growth spurt. VTB Bank had been under sanction since 2014, but the penalties were increased in December 2017.
A number of VTB subsidiaries including VTB Leasing and VTB Insurance were targeted by the increased sanctions, The Trend News Agency pointed out. December 2017 was the first time that insurance companies were specifically mentioned in the US State Department’s sanction list.
The sanctions were imposed because of popular anger about reputed Russian interference in the 2016 US Presidential election. The VTB Group, has the largest international presence among Russian banks but it is now a pariah in many markets because of the sanctions, The Oligarchs Insiderreported.
The VTB Bank has switched its focus to Asia and heavy industry, and is now trying to acquire Essar Steel. Essar Steel calls itself India’s largest fully-integrated flat steel manufacturer. VTB got the money to buy Essar Steel by selling VTB Insurance to the Sogaz Group.
Russian Insurance market risky but growing
The Russian Insurance Market is one of the world’s fastest growing it is expected to grow by 10.5% in 2018, ACRA Ratings estimated. That growth rate might accelerate by 11% to 14% in the next few years.
Some areas of the Russian insurance market are in steep decline. Life insurance sales in Russia are expected to fall by 29% in coming years by ACRA. Market growth will be driven by sales of corporate property, voluntary health, accident, and other policies.
Both insurance companies and banks in Russia might require a government bailout because of a weak economy, Reuters speculated. Western sanctions and a fall in oil prices have so weakened some Russian banks and insurers that they might not be able to meet obligations.
One Russian insurer Rosgosstrakh had to be bailed out last year. The situation is now so bad that the Russian Parliament, or Duma, is considering creating a Fund for Consolidation of the Insurance Sector to keep insurers from collapsing.
The total value of Russian insurance premiums is valued at 1.024 trillion rubbles (£15 billion) in 2018 by ACRA Ratings. The value of Russian insurance premiums is projected to grow to 2.288 trillion rubbles (£27 billion) by 2022.
Despite its growth the Russian insurance industry is on shaky ground and is heading for a major shake out. The effects of that shakeout should be confined to Russia because of sanctions, and the Russian government’s willingness to bail out insurers.
Alpha Insurance – one of the major home and motor fleet insurance companies in Europe- is bankrupt. The Denmark-based insurer admitted to be struggling financially when the company’s management released an official statement in early March 2018.
In the statement dated 18 March 2018, Alpha insurance highlighted that it would not be underwriting any new policies or renewing any expired policies or covers. Following this announcement, insurance intermediaries have been directed by the Danish Financial Supervisory Authority (DFSA) among other European supervisory authorities to cease marketing any Alpha Insurance products in all its areas of operation.
In addition to this, the company has been compelled by the Danish regulator to provide a recovery strategy that will safeguard the welfare of all its customers.
Alpha Insurance A/S was licensed to carry out business in the EU countries where it provided direct insurance in the form of professional indemnity, motor vehicle, construction, travel and home insurance among others.
The Danish Financial Supervisory Authority has revealed the reason for Alpha’s collapse as poor accounting practices that ended up reflecting a false financial position. This miscalculation arose because the insurer inflated the amount of money owed to it (receivables) in an attempt to balance the books. Without including these ‘receivables’ amounting to DKK 35.6 million (4.78 million Euros) Alpha Insurance will no longer be able to meet the minimum solvency requirements as provided for by the regulator.
On the other hand, Alpha Insurance is placing the blame squarely on its major reinsurers, New Zealand-based CBL insurance. CBL has been under instruction by the Reserve Bank of New Zealand to appoint an interim liquidator following concerns by the regulator about an offshore transfer of NZD $55 million (33 million Euros).
Apparently, this payment ($55M) was in favour of some ‘privileged’ creditors and this placed the rest of the creditors at risk of not being compensated. This once again introduced the solvency issue since the regulator claimed that CBL had not met the minimum requirements. The appointed liquidator has since publicly declared that the reinsurer is not in a position to pay out any claims.
Impact on policyholders
Despite whether or not Alpha’s claims are true this news has brought about huge repercussions across many sectors. Thousands of cab drivers, homeowners and even life insurance policy holders now remain stranded. They were advised by the insurer to reach out to their insurance brokers to find out if they would need to purchase new policies and covers or await further action.
Most drivers were on the job when they received the bad news, they were forced to drive around without insurance as they tried to find means to reach their brokers and ultimately resolve the issue.
Hundreds of unhappy cab drivers showed up outside the insurance broker Protector’s office in London. Calls went unanswered as thousands attempted to reach their brokers to find out their take on the matter. They were hoping to get their money back especially considering that most of them chose to pay their premiums up-front in order to avoid paying extra in interest charges.
Massive Queues outside Protector. We are awaiting responses from the ABI, the Danish FSA ( ALPHA were a Danish Company)
Updates as soon as we have them! pic.twitter.com/TwTipUNXth
Initially, it appeared as if only Danish nationals holding non-life policies would receive compensation from the Danish Guarantee Fund. The cab drivers have since accused the insurer of driving them to bankruptcy and called for the UK government to take stern action against Alpha Insurance.
Many drivers who camped outside the Protector offices seeking assistance claimed that they were losing money by the hour as their main tools of trade were grounded. Furthermore, their monies were also tied up in the annual premiums so it was not as easy as to just move on to a new insurer.
However, UK’s Financial Services Compensation Fund has since been a breath of hope to the afflicted policy holders following a recent development. In the announcement, the FSCS said that those who filed their claims just before Alpha went bust and only up till 5 June 2018 (four weeks after declaring bankruptcy) will be eligible for compensation.
While Alpha Insurance is on its way out, lots of insurance companies stand to benefit from the thousands of customers who have been left ‘exposed’. Two of the companies that have opened their doors to the motor fleet market are Aviva (through Carrot Insurance) and Zego which seem to have appealed to this market niche. The latter, astonishing, managed to launch a new 30-day private hire product within 48 hours of the Danish insurer bankruptcy announcement.
One of the most important things that customers will now seek to ensure is that the insurer is regulated and meets all the requirements stipulated by the regulator.
China’s Banking Insurance Regulatory Commission (CBIRC) recently announced that Willis Towers Watson, the leading global advisory, broking and solutions company, has been granted permission to operate as a fully licensed foreign broker in the country.
Commenting on the announcement, Willis Towers Watson’s Head of Asia, Scott Burnett, said “This latest announcement speaks to the long term commitment of our company to China and the recognition of our reputation and relationships not only in China but across the globe. The expanded license represents a significant vote of confidence by the CBIRC in Willis Towers Watson, our capabilities and our expertise.”
The latest development comes in the heels of Chinese President Xi Jinping’s latest efforts to liberalize China’s markets to foreign operators.
China insurance market
Access to China’s insurance market could provide Willis Towers Watson a strategic advantage given the large addressable market and systemic macro and demographic changes impacting the country.
According to investment bank Credit Suisse, China’s insurance market has seen a rapid expansion in the last decade with annual life insurance premium growing an excess of five times from $10bn in 1999 to a forecasted $50bn in 2018.
Demographic trends have buoyed the market expansion driven predominantly through a mix of factors including: (i) aging population, (ii) wealth portfolio reallocation, (iii) rising demand for healthcare, and (iv) lifestyle upgrades.
China’s rapidly growing aging population is one of the largest in the world, and is projected to be the fastest growing. In 2016, 139 million or 10% of China’s population was over 65 years of age, and by 2050, it is expected to rise 331 million or 25%. Coupled with a rapidly growing dependency ratio that is projected to be the fastest growing by 2050, significant opportunities are evident in life insurance.
Wealth reallocation from non-financials to financials will likely be a driver to insurance premium growth in the next decade. In China, the majority of the High-Net-Worth Individual (HNWI) and affluent classes allocate their wealth in non-financial instruments, namely real assets as well as financing to private companies.
As the Chinese government clamps down on an overheating housing market, portfolios have been seen a moderate re-balancing to tax-efficient asset classes (i.e. insurance).
Insurance and pension allocations stand at 18% in Asia compared to 30% for the developed countries. China, with its current 7% allocations will likely engender significant upside in the foreseeable future.
Such a trend will see additional insurance policies purchased by the new emerging middle class and HNWI. According to Chinese insurance giant Ping An, each affluent middle class individual has approximately 3.3 insurance contracts compared to 10.6 for HNWIs.
China’s brokerage market is heavily concentrated on in-house brokers from State-Owned Enterprises (SOEs). According to Clyde & Co., global law firm with an active insurance practice, Chang’an Insurance, Beijing Union Insurance, and Jiang Tai Insurance controlled nearly a quarter of the market with foreign-funded insurance brokers in China attaining an approximate market share of 15%.
The largest three foreign-invested insurance brokers include AON-COFCO, Willis and March. Their combined market share is approximately 90% of the 15% as delineated earlier.
Better insurance products
With respect to the reforms exclusive to foreign-invested insurance brokers, Chinese regulators have removed limits to their business scope to not just be exclusive to large-scale aviation, maritime, and transportation insurance brokerage and reinsurance.
According to Winston and Strawn, a multinational law firm, the liberalization of this scope allows foreign-funded brokers to play in the rapidly growing and large addressable markets of individuals and medium-sized businesses.
Additionally, it is expected that the liberalization could see these foreign-funded brokerages also be permitted to draft insurance plans for applicants, select as well as process insurance formalities, and provide risk management services to other businesses approved by the CIRC.
The result of the opening-up measures on the Chinese insurance brokerage market will likely result in foreign-invested insurance companies playing a more prominent role in the Chinese insurance brokerage market.
Foreign-funded insurance brokerages generally have a faculty of experience in risk assessment before entering into an insurance agreement as well as loss mitigation post-signing, and settlement of claims post-losses. The lifting of restrictions by the Chinese government will likely spawn increased choice to enterprises and individuals for insurance products going forward.
Turkey’s recent debt rating cuts are stoking fears of the potential for a hard landing due to a depreciating lira, a private credit boom, and rising inflation.
In an exclusive interview with Bloomberg, Turkey’s President Recep Tayyip Erdogan issued an ominous warning by stating that he intends to tighten his grip on the country’s monetary policy, if he were to win the upcoming 24 June snap elections.
“When the people fall into difficulties because of monetary policies, who are they going to hold accountable? They’ll hold the president accountable. Since they’ll ask the president about it, we have to give off the image of a president who is influential on monetary policies. That may make some uncomfortable. But we have to do it” The president said.
The comments sent the country’s embattled currency, the lira, plunging to a record low against the dollar, with bond yields the highest in eight years.
Ever since the country’s failed coup attempt last year, Erdogan has clamped down on state banks, calling them to cut interest rates in an attempt to catalyse the country’s growth.
This push has seen a credit boom with bank loans growing double digits, paired with macro headwinds against the country’s economy such as rising commodity prices and increasing interest rates.
Ratings slashed
In light of a “deteriorating inflation outlook” and “long-term depreciation and volatility” of the country’s exchange rate, Standard & Poor’s slashed its sovereign debt rating on Turkey moving the country’s rating one notch lower to highly speculative territory from “BB/B,” to “BB-/B.”
The downgrade could have a severe impact on Turkey’s ability to raise capital in the markets. Now investors view the country as a riskier play. As the country’s credit rating moves closer to junk territory, countries have fewer options to rescue the economy, and investors demand higher risk premium in return.
This latest surprise ratings cut comes months after rival ratings agency, Fitch shuttered its Istanbul outpost citing a “desire to maintain an optimal office network structure and sufficient level of resources in each geographic location in which it operates.”
But, according to The Hurriyet, the most likely reason behind the shuttering was likely a result of the country quickly pivoting away from EU values of separation of powers and freedom of expression.
A freedom of expression that Fitch deemed necessary to write impartial country reports of which country credit ratings actions are based off of.
In the face of a plummeting lira, inflation has been steadily increasing month-on-month, with April’s inflation rate clocking in at 10.85%. The spike in inflation coincided with significant price hikes in consumer discretionary goods, namely clothing, footwear and household furnishings.
By not increasing rates, whilst clamping down on the country’s inflation, Turkey’s current account losses have widened and thus driving the lira to record lows in recent weeks.
Its central bank is in a difficult position – it needs to tighten, but how can it? With Erdogan holding rallies to celebrate his hawkish position against interest rates, inflation will likely to be a pressing issue going forward.
Alnus Yatirim, Istanbul-based broker, noted in a client briefing: “God help Turkey. We’re faced with a central bank that is watching the market when it needs to lead and direct it.”
Bracing for a hard landing
The inflationary pressures have stoked fears of a hard landing. A hard landing precipitates when a country shifts from growth to slow-growth to flat, right before a recession, likely caused when a government intervenes through monetary policy in an attempt to curb inflation.
Multiple instances of hard landings can be seen in the 20th century, namely in Spain as well as recent fears of such an event occurring in China.
Spain’s economy suffered a hard landing, which proved especially challenging to resuscitate during the European debt crisis that hit the region in late 2009. With rising wages outpacing productivity gains as well as inflation exceeding those of other Eurozone countries, the Spanish economy rapidly contracted.
The Spanish government attempted to clamp down on inflation through austerity measures, widespread worker demonstrations manifested throughout the country.
More recently, China’s slowing growth has driven the government to mitigate the risk for the country to experience a hard landing.
With a highly leveraged property market, inefficient capital allocation in state-owned-enterprises and a recent surge in nonperforming loans, Beijing has recently changed course, focusing now on reining in cheap credit and promoting environmentally beneficial policies.
The government has also assiduously tempered the use of financial leverage and curbed the country’s frothy property markets as of late.
Like Spain and China, Turkey’s rising current account deficit coupled with imbalances in the country’s economy, a result of surging inflation and a frothy credit-fuelled market, puts the country at high risk of a hard landing.
The ongoing losses sustained by the Turkish lira coupled with the country’s permanent state of emergency will likely put downward pressure on the lira as well as the export-oriented economy’s sovereign rating in the foreseeable future.
Munich Re has recently entered into a reinsurance agreement with Iranian insurer Mellat Insurance. The contract which was finalized at the end of April 2018 will see Munich Re underwrite the entirety of Mellat’s life policies.
This deal is a big win for Munich Re since the reinsurer has been looking for opportunities to expand its global footprint. At the same time, the private Iranian insurance firm will also gain tenfold from this partnership as they will benefit from both client and investor confidence.
Insolvency due to the uncertainty of claims in the insurance industry is easily one of the biggest risks that insurance companies face. Proof that an insurance company can maintain financial solvency is therefore an invaluable badge in this industry.
Abdolnaser Hemmati, Chairman of the Central Insurance of the Islamic Republic of Iran said “Although our insurance penetration rate stands higher than the average in the Middle East and North Africa, it is still below global standards,”. He also added that the insurance industry grew by 22% in the last financial year, with the penetration rate currently above 2.1%.
“Although our insurance penetration rate stands higher than the average in the Middle East and North Africa, it is still below global standards,”
Abdolnaser Hemmati
Service providers in the Iranian insurance industry currently consist of one government owned and 26 private insurance companies all providing direct insurance.
In addition to this there are two reinsurance companies that provide both direct insurance and reinsurance services.
All insurance providers in the country are regulated by the Central Insurance of Iran which recently allowed foreign investors to own up to 49% stake in Iranian insurance companies. This move is targeted as stimulating foreign investments in Iranian companies in a bid to help the country’s economy recover from the numerous sanctions they have been subjected to in the past.
Mellat insurance Company which is affiliated with Mellat Bank was one of the first insurance providers in Iran and is currently one of the biggest by market cap. With the recently unveiled banking crisis in Iran, Mellat Bank is hoping that this deal with Munich Re will help their insurance business cover losses that the bank is making.
It is worth noting that Mellat Insurance already had an existing agreement with SCOR – another top-performing global reinsurer from France. This agreement is different from that with Munich Re as it provides Mellat insurance with protection against excess of loss.
This means that Mellat Insurance is protected from insolvency in the event extreme losses brought about by claims due to natural disasters including fires up to a maximum of €200 million ($235 million).
This is the second reinsurance deal that Munich Re has undertaken in Iran within the past one year. The first deal was completed in July 2017 with another local insurance provider Saman Insurance. This happened soon after international sanctions were removed in January 2016 following Iran’s decision to cut down on their nuclear program.
Iranian nuclear deal
According to the nuclear deal framework, Iran was meant to cut down and redesign its nuclear facilities in accordance with the Additional Protocol. This agreement was brought about by the permanent members of the UN Security council (The USA, UK, China, India, Russia and France).
However, things took a turn for the worst with President Donald Trump pulling the United States out of the Iran Nuclear deal. This would clearly be a step in the wrong direction, more so for Iran as they were already beginning to reap the fruits of the recently lifted economic sanctions.
Introduction of new sanctions on Iran will inevitably put pressure on the recent agreements made by international reinsurers.
Companies that will be affected directly include Munich Re (German), GIC Re (India) and SCOR (France). SWIFT, the financial messaging system used to arrange international money transfers between banks, will also play a big role since that without their services, traders will have to carry around hard currency as they navigate through Iranian territory; a highly infeasible proposition.
The ripple effects of this will probably be seen soon not only in the insurance industry but also in the banking and trading sectors. Since the news came out, there has been a lot of debate on how this move will affect trade world trade.
For example according to Reuters, Lloyd’s of London has stated that it was “currently reviewing the implications for the Lloyd’s (Insurance) market”. Considering that they have a lot of business in the US, this ‘consideration’ probably means that Lloyd’s will not cover ships travelling to or any company doing business with Iran.
As a matter of fact, this will not be the first time the US has tried to strong-arm the European Union into siding with them in matters of conflict. Officials from the EU have expressed their disappointment in the move and are keen to retain their interests in upholding the diplomatic agreement.
While the US president cited the Iran deal as “selfish and an embarrassment”, many have in turn labelled the Trump administration selfish due to its failure to consider how other economies will be affected as a result of US abandonment.
SWIFT transfers to and from Iran will definitely be affected by Trump’s decision and this will also limit foreign companies from doing business with the Iranian people and their allies.
Machine Learning, Robotic Process Automation, Neural nets and Cognitive Automation are just some of the buzzwords that are all part of artificial intelligence (AI).
While most associate AI with nefarious science fiction computers, such as HAL from 2001: A Space Odyssey, or Arnold Schwarzenegger’s Terminator, it might surprise some to learn that AI is already widely used within a variety of industries.
Most large corporations already employ AI in one or another way. Nonetheless, even though actual AI is far less malevolent than the AI depicted in Hollywood movies, artificial intelligence still poses a genuine threat – perhaps not to humankind as a whole, but certainly to individuals.
It should be made abundantly clear that this is not the fault of the technology – rather, those using AI for fraudulent activity or evil purposes who are human hackers or thieves.
However, the threat of AI being used in malicious ways is a very real one, and experts ranging from Elon Musk to Stephen Hawking have urged caution when it comes to developing artificial intelligence.
Boston Dynamics latest terrifying self-aware robot, Atlas
The report delves into the issue of artificial intelligence as a whole, and dissects the three significant areas in which AI could cause considerable harm in the coming years. Notably, the report identifies three key areas that could potentially be negatively affected by artificial intelligence. These three areas are Digital Security, Physical Security, and Political Security.
The main reasoning behind the release of this compendium is to highlight the troubling outlook of increased use of AI. Since artificial intelligence systems tend to surpass what humans are capable, some of the authors argue that it is entirely possible that the next few years will see the rise of physical target identification, hacking, surveillance and persuasion that is far beyond that which humans are capable of doing.
The report even goes so far as to indicate that artificial intelligence can arguably be viewed as one of the potentially most destructive forces on the planet. If terrorists, rogue states or even ordinary criminals get their hands on artificial technology, this would allow them to launch massive attacks on civilians.
One of the main dangers of AI is also how easily such technology can scale. This would eventually offset the costs of AI, giving criminals, terrorists, and similar types a rational and fiscally sound reason to adopt the technology.
There is a veritable plethora of different cyberattacks that can scam ordinary people out of their money, blackmail people into releasing funds or information, or merely gather sensitive information. So-called spear-phishing, which gave hackers access to Hillary Clinton’s campaign Chairman John Podesta’s email account, are becoming more common each year.
Moreover, the increasingly common methods of speech synthesis, advanced automated hacking, data poisoning or simulated deepfakes also utilize artificial intelligence to trick or coerce people into giving the hackers what they desire.
Furthermore, this problem will only be exacerbated by the fact that artificial intelligence is becoming more and more common in our society. Our cars, drones, mobile phones, smart watches, tablets, computers and even homes are all seeing new ways to implement AI into them.
As our lives become more connected, they also become more vulnerable to ways in which they can be hacked. Even our social media feeds are dictated by algorithms and artificial intelligence – something which the 2016 US election cast into the spotlight, following the discussion on fake news and Cambridge Analytica’s abuse of personal information.
However, if one were to examine the report produced by the 26 experts and the three main areas that can be negatively affected by AI, the first of these is digital security.
Digital security risks
Digital security relates to how artificial intelligence can hijack online users, their information, and their habits and ultimately use this to perform fraudulent activity. Since artificial intelligence is nearly infinitely scalable, it would be possible to automate acts or criminal cyber-offense, or even use machine learning to prioritize targets for cyberattacks.
AI can imitate human behaviour on the internet if programmed to, thus making it harder for developers to detect that an AI is, in fact, merely a system.
Furthermore, this allows for potential armies of autonomous, AI-controlled users to flood websites, overwhelming them and thereby preventing real human users from accessing it.
Artificial intelligence systems can also scrape the Internet for personal information, to create specially designed links, emails or even websites from fake users that mimic legitimate contacts to those being sent the links. All in all, this muddies the water when it comes to who users can trust or not on the Internet, and more sophisticated AI capable of long, convincing dialogues can trick even alert users.
It is therefore evident that digital security is an area of crucial importance. This being said, the Internet is the home turf for AI and is therefore perhaps the area where users are most aware of suspicious links, and can potentially expect to be faced with malware or other malicious programs.
While AI is definitely smarter than traditional computer viruses, internet users have long known to be on their guard when browsing, or merely using, the Internet.
Physical security risks
An area which is not as readily associated with artificial intelligence, then, is that of physical security. Physical security relates to the well-being of humans in the real world, and can potentially be threatened by hacked AI, or artificial intelligence controlled by a party with detrimental intentions.
The Malicious Use of Artificial Intelligence report outlines a few key areas in which artificial intelligence can potentially be used in a harmful way.
The first of these is the possible terrorist repurposing of commercial AI systems. This would allow terrorists to access commercial drones to spy on or even attack citizens. Moreover, taking control over autonomous vehicles would enable terrorists to guide them into large crowds of people, or even to use them as a delivery system for explosives.
The risk of having drones and cars that can “turn on their creators” due to the actions of a single hacker is a truly chilling prospect.
Also, AI presents the risk of allowing for an increased scale of attacks. Again, this relates to the extreme scalability of AI systems. If one AI system is successfully hacked, it is possible that all similar AI systems might be susceptible to similar exploits and hacks.
Furthermore, the rise of AI gives high-skill attack capabilities to low-skill individuals. This drastically increases the potential mayhem that a normal person could wreck.
The advent of AI also allows the attacker and the attacks to be further removed both spatially and temporally. An attacker can orchestrate an attack from the other side of the world, or even program it before the attack actually takes place and then have plenty of time to disappear, as the autonomous AI system will carry out the attack as instructed.
AI and large distributed networks of drones or autonomous robots also allow for so-called “swarming attacks”, which are rapid, coordinated attacks that can be conducted on a massive scale.
Political security risks
Political security is also an important aspect to safeguard from AI exploits. States can potentially employ AI in order to suppress, monitor, or even crack down on dissidents. Smart, large-scale automated surveillance platforms allow nations to use image and audio processing to identify dissidents or even those that are merely probable to become dissidents.
Chinese government has begun using facial scans to identify pedestrians and jaywalkers
AI can also be used in order to produce convincing propaganda which uses deepfakes to assign comments that were never made to certain people.
Also, individuals may be targeted by AI-driven automated, hyper-personalized disinformation campaigns that are designed to affect voting behaviour. AI-based analysis of social networks can also show which influencers influence which parts of society, and can then be approached – in other words, AI can be used as a sort of twisted segmentation tool.
AI systems can manipulate the availability of information in order to affect their behaviour. All of these ways in which AI can infringe on people’s political security are truly frightening.
However, there are slivers of hope that AI will be used responsibly. The paper undoubtedly shines more light on the potential dangers of AI. This had the effect to push governments around the world to press on with strategies that allows their respective countries to be at forefront of the innovative technology.
The Trump Administration recently announced that it is setting up a new AI Task Force dedicated to US artificial intelligence efforts during a White House event hosting executives from major US technology companies, including Goggle, Amazon and Facebook.
This will monitor and combat fraudulent usage of artificial intelligence and hopes to prevent any infringement on either digital, physical or political security as a result of artificial intelligence.
The UK, one of the European leaders in AI, announced a £1 billion deal to drive AI research and development in the country.
Matt Hancock, Secretary of State for Digital, Culture, Media and Sport, said “The UK must be at the forefront of emerging technologies, pushing boundaries and harnessing innovation to change people’s lives for the better,”
In a press release, the European Union (EU) has presented a series of measures to put AI at the service of Europeans and boost Europe’s competitiveness in the technology. The EU intends to increase investments in AI research and innovation by at least €20 billion ($23.50 billion) between now and the end of 2020.
Whilst this is not a guarantee for increased security, it certainly bodes well for the future of AI.
Politically motivated regulatory action is a growing threat to insurers, particularly in America.
Accusations that “murder insurance” was being sold to gun owners prompted the New York State Department of Financial Services (DFS) to investigate excess-line coverage sold by Chubb, the Lockton Companies, and Lloyd’s of London. The investigation led to fines against Chubb, Lloyd’s, and Lockton, and prompted at least one lawsuit.
The so-called “murder insurance” was actually surplus or excess-line coverage sold to members of the National Rifle Association (NRA), The Wall Street Journalreported. The policies called Cover Guard paid for legal defence and other costs for NRA members involved in shootings. Cover Guard is supposed to protect Americans who have licenses to carry guns from legal actions.
Chubb and Lockton fined
Gun-control activists allege that such excess-line policies encourage reckless behaviour and the use of firearms in public. Lockton violated New York state law by issuing policies that encouraged illegal activities, a DFS press release alleged.
The DFS fined Lockton $7 million (£5.19 million) for selling the policies in New York State. A Chubb subsidiary called Illinois Union was fined $1.3 million (£960,000) for underwriting Cover Guard policies in a separate action, The Insurance Journalreported. Chubb and Lockton agreed to stop underwriting the NRA excess-line coverage in New York State in settlements with the DFS.
Lloyd’s of London directed its syndicates from covering NRA excess-line insurance programs on 9 May 2018, Business Insurancereported. Like Chubb, Lloyd’s paid $1.3 million (£960,000) to settle the DFS charges.
State sued over murder insurance
The DFS action came after a “Stop Murder Insurance” campaign was launched by two groups called “Color of Change” and “Guns Down.” Those organizations claimed that Cover Guard encouraged the shootings of African Americans – who are an important voting bloc in New York State.
“Armed intimidators roam our communities. They wave their guns like children playing dress-up, barking threats and upsetting the peace. They insist they should be allowed to bring their guns everywhere, into our schools, our parks, and even our churches. But their guns are not toys,” Fulton said.
The NRA, a controversial group of gun advocates that opposes gun control is an important voting bloc for the Republican Party and President Donald Trump. The Republicans’ rivals, the Democrats control the state government in New York.
The organization filed a lawsuit against the DFS in which it claimed the agency was “a politically-motivated effort to deprive NRA members of insurance coverage,” The Wall Street Journal reported.
The NRA’s complaint alleged that DFS’s action was sparked by Every Town for Gun Safety, a controversial gun control group bankrolled by former New York City Mayor and media tycoon Michael Bloomberg. Bloomberg is a long-time critic of the NRA and a gun-control advocate.
The experience of Lockton, Lloyd’s, and Chubb demonstrates why insurers need to pay close attention to the political climate. Politicians are increasingly targeting businesses that market unpopular or controversial products for regulatory and other attacks to attract votes.
One such politician is New York State Governor Andrew M. Cuomo, who is up for re-election in November 2018. Cuomo is facing a strong primary challenge from Sex in the City actress Cynthia Nixon, The New York Timesreported. The governor needs to demonstrate his support for left-wing causes like gun-control to fight off the challenge from leftist Nixon.
As governor Cuomo oversees the DFS and has the leverage to force regulatory action against excess-line insurers and the NRA. The NRA is very unpopular with many voters in America and is already a favourite target of Democratic politicians.
Issuers of excess-line policies and other potentially controversial insurance products need to carefully access the political climate, especially in the United States. The risk of politically-motivated regulation and litigation has increased dramatically.
Insurers need to carefully ascertain the risks of products like “murder insurance” in order to avoid such political entanglements.
LIBOR, the London Inter-Bank Offered Rate, is on the verge of being consigned to history – or maybe not!
ICE Benchmark Administration (IBA), the entity that took over administration of LIBOR in 2014 from the British Bankers Association after a major scandal in which bank traders were found to have rigged the LIBOR to benefit their own trading positions, has a plan to strengthen the rate, making it still part of the financial market ecosystem.
Almost 50 years after Greek financier Minos Zombanakis first engineered LIBOR to facilitate an $80 million loan to the Shah of Iran in 1969, the UK and United States have both announced the launch of new localised dollar and sterling derivatives benchmarks.
LIBOR has been a cornerstone of international finance since Zombanakis, the self-made son of a poor Cretan farmer who had also worked on the Marshall plan, was approached by an old friend who by then happened to also be Iran’s central banker, Khodadad Farmanfarmaian.
Farmanfarmaian asked Zombanakis, who had moved to London from the United States to run a newly opened branch of Manufacturers Hanover (subsequently acquired by JPMorgan), if he could facilitate a loan of $80 million as part of Iran’s 5-year plan.
International interbank loans had been left behind with the Wall Street crash of 1929, so fulfilling Farmanfarmaian plea would require some new ground to be broken. The scale of the sum, the equivalent of around $543 million in today’s terms, was too rich a risk for Zombanakis own bank to take on. He did, however, manage to put together a group of banks to syndicate the loan.
The concept Zombanakis came up with to structure the loan, convincing the other banks to come on board, was a floating interest rate updated every few months depending on market conditions. This allowed the banks to fund the loan, including a small spread for profit, in a way that reduced their risk while also providing a competitive rate for the borrower.
It was a win-win scenario, re-launched international finance and the path towards globalisation and one of the most significant milestones in the modern history of the global economy.
The end is nigh
Despite its revolutionary role in the development of international finance, the sun is beginning to set on Libor. On 3 April, the New York Fed launched a benchmark overnight lending rate. The Secured Overnight Financing Rate (SOFR), which is the first milestone of a multi-year plan to transition away from dependence on LIBOR.
SOFR is based on the $800 billion daily overnight Treasury repurchase agreement market. Initially, SOFR will be used as the interest basis for futures trades, with CME Group set to adopt the new benchmark from 7 May. Swaps trading using the SOFR rate will begin later in the year.
In late April, the Bank of England also announced its own LIBOR alternative, the Sterling Overnight Index Average, or SONIA. The new benchmark is based on bank and building societies’ overnight funding rates in the sterling unsecured market.
A ‘working group of major dealers’ chose SONIA over two other alternative systems put to them and their recommendation will go through a market consultation process later in the year. If consensus is reached, the full transition from Libor has been targeted for 2021.
The Eurozone has also been exploring its own LIBOR alternatives but recently abandoned a review of the Euro Overnight Index Average (EONIA). New EU benchmark standards come into force from 2020 which EONIA was considered unlikely to meet. The ECB has gone back to the drawing board.
LIBOR Scandal
LIBOR is based on the average rate a contributor bank would be able to obtain unsecured loans through the London interbank market. This is based on actual interbank loans or, where none exist, an estimate of what rate would be offered for such a loan would.
The average comes from a panel of 11 to 16 banks, which independently provide the rate at which they would lend in GBP, USD, EUR, JPY and CHF over seven maturity dates ranging from overnight to twelve months.
However, since the financial crisis of 2007-08, though the process started several years earlier, interbank lending has fallen dramatically. Andrew Bailly, Chief Executive of the UK financial regulator (FCA) estimates there are now as few as 20 ‘certain’ interbank loan transactions over a year. This means the reality is that for some time now LIBOR has largely been set based on experts estimates rather than actual data.
This new reality of financial markets can also be pinpointed as the indirect cause of the LIBOR rate setting scandal, which has resulted in banks involved, being fined over $9 billion dollars for fraud, collusion and manipulation.
An international investigation launched in 2012 uncovered that several banks on the LIBOR panel, most notably Deutsche Bank, Barclays, UBS, Rabobank, and the Royal Bank of Scotland, had been systematically colluding on the estimated interest rates they provided towards the average daily rate.
They were artificially inflating the LIBOR rate for their own profit. During the financial crisis, banks were also found to be low balling. They were providing artificially low LIBOR estimates to improve the image of their creditworthiness.
“LIBOR is a widely used benchmark for short-term interest rates.”
The LIBOR rate, upon which contracts worth a notional $240 trillion are still based, is now set by independent administrators.
However, with the FCA halting the obligatory publishing of the interbank loans it is theoretically based on as of 2021, it is widely accepted that the most likely scenario is that the 50-year old benchmark will cease to exist.
LIBOR possible revival
ABI recent announcement indicates that the company is willing to take a calculated-risk in trying to rescue the damaged benchmark. Their plan is to strengthen LIBOR by introducing new procedures for how global banks derive and submit the quotes used to generate the benchmark.
In the coming weeks, ABI will begin the process of transitioning Panel Banks from submitting in accordance with the current LIBOR methodology to the Waterfall Methodology, with an expectation to be completed by no later than the first quarter of 2019.
The new methodology is structured in 3 levels: transactions-based data, transaction-derived data, and expert-judgement data.
Tim Bowler, ABI President, said: “We are pleased to publish our report on LIBOR’s continued evolution which summarises the reform efforts by the industry and our strategy for LIBOR. This next stage of enhancing the methodology supports the objective of developing a robust and sustainable LIBOR that can continue on a voluntary basis beyond 2021.”
Telegram, popular messaging app, has been making the rounds following a highly publicized ban of the service in Russia. The official explanation for the blockade of the messaging service is that the Russian Federal Security Service (FSB) is claiming that the application can potentially be used to coordinate and plan acts of terrorism.
In an effort to counteract this, the FSB requested access to view encrypted messages sent using the service – something Telegram has refused to allow.
This all comes following a 4 April deadline implemented by the FSB, which had asked Telegram to hand over decryption keys prior to this date. Telegram’s rise to popularity has partly been due to the service’s encrypted messages, which allow users to send messages privately, without the risk of having any prying eyes view them.
In Russia, Telegram has quickly become a popular alternative for group conversations, and even acts as an unofficial source of information.
However, access to the requested decryption keys would allow the FSB to view any of the messages sent using the service. Some are worried that would give the FSB the means to spy on Russian citizens, and even potentially identify those expressing dissatisfaction with the current Russian government.
It is widely speculated that this, at least in part, was what prompted Telegram to withhold the decryption keys past the 4 April deadline.
As Telegram failed to provide the communications watchdog with the keys, a hearing was scheduled for 13 April, at which a court would examine the issue. Notably, the hearing was scheduled a mere 24 hours before it took place, and the request to block Telegram in Russia was granted after only 18 minutes of consideration by the court.
The issue may have been exacerbated by the fact that Telegram’s lawyers did not attend the court hearing, in an act of protest.
The court ruling did not go into effect until 16 April, however, when local internet service providers in Russia initiated their ban of Telegram through the somewhat blunt effort of blocking nearly 16 million IP addresses on Google and Amazon cloud platforms.
Whilst this was done to prevent Telegram from routing traffic through the aforementioned United States-based cloud service in efforts to bypass the Russian ban, the block did not manage to isolate Telegram accounts.
Russia’s telecommunications regulator, Roskomnadzor, has also urged both Google and Apple to remove the Telegram application from Google Play and the App Store, respectively.
Russia seems to be serious in either making Telegram comply with its demands or drive the application out of the country, as Russia has reportedly urged VPN (Virtual Private Network) providers to assist them in preventing Telegram messages from getting through to Russian users.
It is currently unclear how effective the ban will be since Russian citizens can still access the service using VPNs or proxy services.
However, Russia is not entirely in the wrong. Although it would seem that the Russian efforts to acquire decryption keys mainly have got to do with enabling more extensive oversight of what the general Russian public is discussing on the application, the application is also admittedly popular among terrorist groups.
This has mainly got to do with the fact that the service in end-to-end encrypted and privacy-centered – rendering it ideal for individuals looking to hide their correspondence.
On the other hand, these developments might spell trouble for Telegram. Telegram has recently raised a $1.7 billion in the company so-called Initial Coin Offering (ICO).
This ICO would see Telegram join the growing number of companies that have released a cryptocurrency token, following the notable rise in the price of Bitcoin and its ilk during the last year.
Telegram is also planning the construction of a blockchain – the Telegram Open Network – which will reportedly allow for file-sharing, decentralized privacy, and faster payments.
Telegram’s own tokens are set to be called ”Grams”, and the second private funding round for the tokens closed just weeks before the Russian ban was levied on the company. Both previous funding rounds for the token have been private – and it is now unclear whether Telegram will settle for the already record-breaking amount raised, or if it will pursue a public ICO.
Nonetheless, despite how any potential ICO from Telegram is affected by the ban, it has already attracted sizable investments from the funding rounds, giving Telegram a respectable war chest if the feud with Russian regulators drags on.
Telegram’s founder, Pavel Durov fled Russia in 2014 giving some insight into his standpoint when it comes to Russian authorities. It is also unlikely that Russia will soften its stance on the issue, as Russian president Vladimir Putin heads into his latest six-year term reinvigorated by recent election results. It also seems equally unlikely that Durov will back down, and he recently stated that he and Telegram believes that privacy is not for sale.
Telegram is not the first application to face difficulties from Russian regulators. The social networking site LinkedIn was blocked in Russia in November of 2016 and has had problems being used in Russia ever since.
This was also due to a decision from Roskomnadzor, Russia’s telecommunications regulator, who requested that LinkedIn would store Russian citizens’ data on servers located in Russia
This came following sweeping reforms on how Russia handles internet sites and internet security within the country. This is not entirely unlike the more recent troubles experienced by Telegram, and the Russian telecommunications authority not only completely removed access to the LinkedIn website – it also ordered different app stores to remove all the LinkedIn apps.
However, it is unclear how this situation will be resolved. There has been growing public support for Telegram in Russia, and citizens recently took to throwing colored paper airplanes (the logo of Telegram is a paper airplane) out of the windows of buildings in Moscow.
At the same time, it seems increasingly unlikely that neither Russian authorities nor Telegram will yield. It remains to be seen how the situation unfolds.
