Internet of things - new vision, new risks

Consultant company Gartner defines Internet of Things (IoT) as "the network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment."

There could be up to 80 billion devices connected to the internet and each other by 2025. The prevalence of wireless connection makes it attractive to connect to the internet all manner of devices, ranging from industrial processes to home appliances like webcams, refrigerators and smart TVs. This leads to unprecedented automatization and improved efficiency and also new business models and opportunities through enormous amounts of data created and collected from all these sources.

This is part of the revolution in digitalized information and network-based computing. The connectivity will enable mobility, remote control and information flow paving the way to new
applications like autonomous vehicles.

The connected devices form new risks

There is a price to these visions. The connected devices form new risks from the individual gadgets to cloud services. In 2016 there were several denial-of-service attacks conducted also by hacking IoT devices, affecting the availability of several large service providers like Amazon, Netflix and Spotify.

This shows that devices with communication capabilities may have security vulnerabilities
that could be misused and cause serious harm. Besides the manufacturers, also the regulators are working on the cyber risks of IoT, but the standards are still undeveloped. It has been said that IoT will stand or fall depending on cyber security.

The traditional liability regimes are also trembling. Of course tort law on compensations due to injury or damage caused to others is valid, but the causal links may be difficult to establish. Currently product liability is the responsibility of the manufacturer of the physical product. But there is no systematic way of handling damage caused in the net through other mechanisms. The risks increasingly involve financial losses, which makes it even more difficult.

EU is working on several levels

The EU is working on these themes on several levels. The Commission arranged a study on
whether the current Product Liability Directive is sufficient in terms of new technological developments, such as the Internet of things and autonomous systems. The European Parliament is conducting a study on European civil law rules on robotics.

The manufacturing industries or the insurance industry have not been so enthusiastic of new regulations or liabilities because of the complexity of the issues and uncertainties of the developments. But somehow we must go forward and try to sort out the new risks and their prevention.

Article by
Picture of Matti Sjögren

Matti Sjögren

Nordic Liability Risk Management Specialist, If