On Robots and Insurance

In order for innovation to reach the market, a laboratory prototype needs to be transformed into a product.

This entails a relevant technological effort in order to ensure the effectiveness of the device, its reliability, its appeal to the public as a tool that responds to existing and perceived needs, as well as an attentive study of the market where it is intended to be distributed, and the development of an adequate business strategy for the purpose.

However, at least as relevant is the issue of risk management, in particular of the legal risks associated to the distribution of the device.

When a product of whichever nature, hence both robotic and not is sold and then used, the issue of whom is going to be held liable for the negative consequences arising from its functioning, is most certainly of the greatest relevance.

Indeed, the legal risk of being held liable, and hence called on to compensate damages, needs to be managed too, and this is commonly done through insurance contracts that, in an economic perspective, transform ex post uncertainty into an ex ante known, thence manageable-cost.

Existing literature has already extensively discussed the issue of who shall be held liable when damage arises from the use of a robot.

Despite the problem not having been solved yet for it is not even plausible to conceive a onefits-all solution this is but one of the relevant aspects that needs to be addressed in order to be able to elaborate a risk management strategy.

Precisely identifying such risks, and their possible economic and legal consequences, as well as the likelihood of them materializing is at least as essential. Insurance contracts are in fact elaborated pursuant to that information.

In this article, we therefore intend to cast some light on the issue of robots and insurance, firstly by identifying the reasons why existing insurance products may be inadequate in managing the specific risks posed by robotic technologies, secondly by specifying the issues that lawyers, economists and engineers need to address in order to overcome those hindrances.

Delay in filling this gap in the insurance industry may overall result in a technology-chilling effect, delaying the emergence of new, desirable robotic applications onto the market, ultimately impairing the formation of a strong robotic industry.

The social desirability of a robotic application may also derive from the impact it has on fostering human beings’ relevant constitutional rights. Robotics prostheses, for instance, allow people with disabilities to recover a lost function, increasing their quality of life.

As pointed out by with respect to microprocessor controlled lower-limb prosthetics: ‘the prosthetics industry suffers from a slow billing code application process, Medicare1-imposed fitness restrictions (on amputees that are likely to suffer from diabetes or obesity), insurance contracts that hurt prosthetist office profits, and private health insurance plans that restrict patients’ options.’

Notwithstanding the advantages brought about by robotics prostheses and the improvement in the amputees’ quality of life, many patients are still excluded from enjoying the benefits of this technology due to financial reasons (i.e. private health insurance not covering the price of robotic prostheses).

The development of such devices has therefore not just a mere economic and industrial relevance which is still very relevant and shall not be underestimated but also a characterizing social value.

The issue of risk management is therefore to be understood as more broadly encompassing also ethical and social implications of advanced technologies.

The paper is organised as follows: Sect. 1 provides some preliminary notions on insurance contracts; Sect. 2 depicts a broad overview of the current market for robots and insurance contracts in use, if any; Sect. 3 discusses some aspects of the management of risks posed by robots, namely the type of negative consequences that may materialize and the assessment of the likelihood of them materializing.

Preliminary Remarks on Insurance Contracts

Insurance is a contract aimed at shielding the insured party from the adverse economic consequences of a future and possible risk, should that risk materialize.

The risk can be of any type, depending on a negligent behaviour of the insured, or of third parties, causing harm to the same party entering the contract (first party insurance) or to others (third party insurance).

The losses due to its materialization instead, may pertain both to the health and estate of the contracting party.

Pursuant to art. 1882 of the Italian civil code (henceforth c.c.), insurance is defined as: The contract whereby the insurer, against payment of a premium, undertakes to retaliate the insured, within the agreed limits, the damage caused by an accident.

According to the definition above, the prerequisites of this contract are:

an agreement between the parties,
the existence of a risk to the insured party or potential third parties,
the payment of a premium.

The latter is a function of the risk; hence it varies according to both the likelihood of its occurrence, and the severity of the consequences that may arise once it materializes. Therefore, the very possibility to enter such a contract rests on the availability of data related to those parameters.

In the absence of adequate statistical information, the insurance company will not be able to determine the premium and most likely will refuse to contract for the specific risk.

Insurance is one of the possible legal tools that parties can resort to in order to manage the risks they face with their activities, both professional and not (e.g.: driving).

The contract will thence be entered into in order to avoid (shift) the negative economic consequences the party would otherwise face because of the application of liabilities rules set forth by existing legislation that for the issue here addressed may range from professional to enterprise liability as well as product liability.

Normally, the parties are left free to decide whether to enter an insurance contract or not, in order to manage a risk they are exposed to.

Their personal preferences, their risk aversion and ultimately their utility functions will determine whether a contract will be signed, and at which conditions, as for any other asset-management-related choice.

However, in some cases, the legislator deeming that the risk associated to a certain activity is too high, or that moral hazardous behaviour and adverse selection may negatively affect the pooling and spreading of the damages that arise, may legislatively impose a duty to purchase insurance (normally third party insurance).

This is the case with compulsory traffic insurance as well as with professional liability insurance (typically medical doctors and lawyers), and more recently also with drones. So briefly sketched the notion of insurance, and its purpose, we can attempt to address the questions of whether

robotic applications do pose novel issues in this perspective,
whether the risks they pose can be insured, and
who eventually is better suited to bear the burden associated therewith, hence to purchase coverage.

Given the variety of applications (from surgery to domestic chores) and the differences in national legislation, in this paper we will refer mainly to Italian and European law, when applicable. The considerations drawn are however of a general nature and can be extended to other legal systems.

Location: Indonesia