Using Innovation, Understanding the Risks

Innovation in technology helps make doing business more efficient and can help create new industries. Although consumers and companies might get lost in the excitement of potential, experts at RiskSOURCE Clark-Theders keep an eye on the downside of innovative technology.

"Good businesses are dynamic and change," says Jonathan Theders, CEO of the company. "And with all of this updating, lots of businesses face new, modern risks but haven’t yet addressed them."

RiskSOURCE has been dealing with insurance coverage and risk management for more than 60 years and takes a different approach to liability than traditional insurance agents. Theders and his team provide consultation and ongoing advice 365 days a year to clients to help them reduce risk.

"The insurance industry relies on in-depth analysis of history and statistics when assessing risk," says Theders. "With emerging technologies and the new set of risks that come along with them, there really is no history to work with. This throws the insurance industry for a loop."

Theders lists 3-D printing, drones and cyber security as examples of emerging technologies that need to be addressed.

"As the business changes, we help our clients make sure that these great and innovative changes are covered from liability," he says.

Recent cyber attacks make for headlines when credit card and customer information is hacked from national companies like Target, Home Depot and Anthem, but Theders explains that it isn’t limited to large businesses.

"Insurance coverage for cyber liability is often perceived to be expensive and people think it will never happen to me," says Theders, "But today, it happens to everybody.

"People think that moving their information to a cloud computing service or a third-party credit card processor will limit their liability because they’re not the ones storing the information, but they’re wrong. Most, if not all, of the contracts with these parties have very specific language saying that their only duty is to notify their client if a breach occurs.

"The government is clear that whomever owns the data, the burden of protecting it falls on them.  So when a security breach occurs, it’s the company’s responsibility to notify their customers and then provide follow-up monitoring of their credit and deal with the breach – not the third-party credit card processor’s.  Understanding the potential impacts of this and then addressing the risks is very important."

More and more companies – big and small – are using drones. Services like structural safety inspections, search and rescue operations and agriculture use the aircraft to provide a point of view that was impossible in the past.

"Drones aren’t just for the 13-year-old boy to fly in his backyard anymore," says Theders. "Construction companies can save lots of money on scaffolding and putting their workers at risk by flying a drone up 20 stories to do an inspection instead.

"We knew that as drones were being used more and more, that they would come under much stricter  regulation."

Theders was right. The Federal Aviation Administration now classifies drones as "unmanned aerial vehicles" and has introduced a number of requirements to operate them. If those regulations are ignored, punishment ranges from hefty fines to imprisonment.

"Because the FAA considers drones as aircraft, you need to become a certified FAA pilot to legally operate one," says Theders. "Many companies don’t realize the process involved to fly drones. After certification and flight classes, you have to be approved by the federal government, receive an exception, apply for a waiver and jump through a number of other hoops just to use one. I would guess that less than 5 percent of people know this and are doing it right.

"Then, for most insurance companies, there is an exclusion for "aircraft" under a general liability policy.  And because the FAA now classifies drones as aircraft, they won’t be covered. A quick search of the word ‘drone’ on Google or YouTube will show you that these things are pretty easy to crash."

One of RiskSOURCE’s first clients to use drones was Ian Murray, president of SpotOn Productions.

"Ian is an award-winning videographer and photographer and found out that he could do these really cool and unique shots using drones," says Theders. "He was able to get a jump on the regulation early and took the necessary steps to get everything completed before anyone else.

"It was amazing to me that he was up flying airplanes to get his license just to operate what is essentially a remote-controlled aircraft to take pictures and corporate video."

Despite the year-long process of paperwork, acting quickly paid off for Murray.

"Other companies don’t want to take the time to get approved to use drones," says Theders. "So these other companies, who are Ian’s competitors, now hire him when they need work done involving drones.

"This is a perfect example of approaching risk in a smart way. At times it’s appropriate to reduce risk, but more often it’s better to leverage it. If we can understand the risk so well that we can put our capital on risky endeavors, we will be rewarded with huge yields. Lots of times, emerging markets have low competition." 

Theders is often asked for advice when new technologies are introduced.

"When it comes to advice, I strongly encourage companies to get together as a team and meet with multiple departments," says Theders. "Invite the head of purchasing and the head of marketing and the head of manufacturing along with your insurance agent to have conservations around what unique risks are in your business and field. Be sure that the conversation goes past questions like ‘What if there’s a fire?’ and really examine what unique circumstances you have little control over.

"I think it’s great when one department asks questions to another department. Sometimes when you’re down in the weeds in your own department, it can take a different department’s clear perspective to see things differently. Have cross-departmental meetings often."

For different perspectives, Theders also recommends participating in industry association meetings.

"This is especially beneficial for an emerging type of business," says Theders. "If you are investing in 3-D printing, join a 3-D printing association or push your industry association to add programming about it. Get involved by asking questions to the other members about insurance coverage and how they manage risk."

Finally, Theders urges businesses to use their insurance provider as a valuable resource.

"Your insurance company should be providing you with ways to implement plans, protocols, policies and procedures," he says. "For us, we need to be in regular communication with our clients so we know when they begin using new technologies or methods that bring on a new set of risks. Once we assess a new situation, we can then adapt and be sure our clients are covered."

RiskSOURCE Clark-Theders is located at 9938 Crescent Park Drive, West Chester, OH 45069. For more information, call 513.779.2800, email info@risksource.com or visit www.risksource.com.