Risks automakers face as they reimagine their business

The automotive industry is undergoing immense change. As more consumers and governments demand eco-friendly modes of transportation, manufacturers are shifting their investments from traditional internal combustion engines to electric vehicles (EVs).

“Innovations in electric vehicles are not only reshaping the manufacturing landscape, but also significantly impacting the risks they face,” says Dennis Froneberg, who leads AIG’s business across Germany, Austria and Switzerland as Managing Director of the global insurance organization’s DACH region.

During the transition, companies need to think strategically and plan ahead to manage the various risks EVs pose to the auto industry.

The risks auto manufacturers should consider 

For one, critical choices that manufacturers make—such as investments in research and development, adjustments in supply chains, and marketing decisions—could potentially expose executives to financial and legal risks from shareholders.

“Collaboration is key to mitigate risks as they develop,” Dennis says. “We invest a lot of time with our clients discussing challenges they are facing, exchanging information, and brainstorming solutions, while keeping a close eye on market trends and regulatory developments.”

Another area of concern is cyber risk, Dennis adds. As EVs become more interconnected and reliant on digital technologies, they also become more vulnerable to cyberattacks. For instance, in the past, hackers have breached EV charging networks or manufacturers’ remote maintenance programs to gain unauthorized access of individual vehicles’ operational, control and safety functions.

“We partner with our clients to keep each other updated on new developments in the technology,” Dennis says. “For AIG, it helps us understand the changes being made, assess potential risks and underwrite the coverage properly.”

Other technological advancements in the automotive industry, such as autonomous driving and advanced driver-assistance systems, have their own sets of risks. For example, product liability and casualty exposure arises if software-driven vehicles malfunction and put the driver and others at risk.

To help clients identify and manage such challenges, Dennis and his team draw on insights from AIG’s risk engineers, who are able to help detect a client’s vulnerabilities based on AIG’s history of claims handling.

“Helping clients prevent loss decreases downtime and costs not covered by insurance,” Dennis says. “It also benefits AIG as a carrier because it helps lower the cost of claims.”

Transitioning risks during spinoffs

As the auto industry invests more in EVs, some firms are likely to consider spinning off units they no longer view as core to their business. Since these units become independent companies after they are spun off, it’s more important for dealmakers to think ahead about their insurance needs going forward.

“We have to decide if the risk can be separated or needs to remain as one policy,” says Dennis, who started his career in investment banking before entering the insurance industry. “It can get complicated if both companies continue to use the same building or manufacturing plant.”

In addition to tangible items, computer networks also need to be separated in a spinoff. The process can leave the network vulnerable to hackers and introduce various cybersecurity risks, including unauthorized access to systems and data. As companies move toward splitting into two networks, AIG can help them mitigate risk during the separation process, and potentially provide cyber insurance solutions to both companies.

“With expertise in cyber liability, we help clients identify vulnerabilities, so the transition goes more smoothly, and their data is protected,” Dennis says.

“As clients look toward their new business models, AIG’s expertise and risk mitigation is the backbone to their future,” Dennis adds. “We do our best to help auto manufacturers take the industry to the next level, while still being diligent in our risk election.” 

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