Rise of the robots brings huge benefits for businesses
… but also creates new loss and liability scenarios
Chatbots, autonomous vehicles, and connected machines in digital factories foreshadow what the future will look like: The widespread implementation of Artificial Intelligence (AI) applications brings many advantages for businesses such as increased efficiencies, fewer repetitive tasks and better customer experiences. However, in the wrong hands, the potential threats could easily counterbalance the huge benefits.
Vulnerability to malicious cyber-attacks or technical failure will increase, as will the potential for larger-scale disruptions and extraordinary financial losses as societies and economies become increasingly interconnected. Companies will also face new liability scenarios as responsibility for decision-making shifts from human to machine and manufacturer.
In the new report “The Rise of Artificial Intelligence: Future Outlook and Emerging Risks”, insurer Allianz Global Corporate & Specialty (AGCS) identifies both the benefits and emerging risk concerns around the growing implementation of AI in society and industry, including in the insurance sector. AI, also referred to as machine learning, is essentially software that is able to think and learn like a human.
“AI comes with potential benefits and risks in many areas: economic, political, mobility, healthcare, defense and the environment. Active risk management strategies will be needed to maximize the net benefits of a full introduction of advanced AI applications into society,” says Michael Bruch, Head of Emerging Trends at AGCS.
Today, “weak” or basic forms of AI are able to perform specific tasks, but future generations of so-called “strong” AI applications will be capable of solving difficult problems and execute complex transactions. AI is beginning to find users in almost every industry, from chatbots which offer financial advice to helping doctors to diagnose cancer. The technology is used to power driverless cars better predict the weather, process financial transfers or to monitor and operate industrial machines. According to Accenture, AI could double the annual economic growth rate in 12 developed economies by 2035.
But with these potential benefits come risks. Cyber risks, which are one of the biggest risks for businesses according to the Allianz Risk Barometer 2018, illustrate the two different faces of new technologies such as AI: AI-powered software could help to reduce cyber risk for companies by better detecting attacks, but could also increase it if malicious hackers are able to take control of systems, machines or vehicles. AI could enable more serious and more targeted cyber incidents to occur by lowering the cost of devising attacks.
The same hacker attack – or programming error – could be replicated on numerous machines. It is already estimated that a major global cyber-attack has the potential to trigger losses in excess of $50 billion but even a half-day outage at a cloud service provider has the potential to generate losses around $850 million.
Emerging AI risks in five areas
To identify emerging AI risks AGCS has focused on five areas of concerns, namely software accessibility, safety, accountability, liability and ethics. “By addressing each of these areas, responsible development and introduction of AI becomes less hazardous for society. Preventive measures that reduce risks from unintended consequences are essential,” Bruch says. In terms of safety, for example, the race for bringing AI systems to the market could lead to insufficient or negligent validation activities, which are necessary to guarantee the deployment of safe, functional and cyber-secure AI agents. This, in turn, could lead to an increase in defective products and recalls.
With regard to liability, AI agents may take over many decisions from humans in future, but they cannot legally be held liable for those decisions. In general, the manufacturer or software programmer of AI agents is liable for defects that cause damages to users. However, AI decisions that are not directly related to design or manufacturing, but are taken by an AI agent because of its interpretation of reality, would have no explicit liable party, according to current law. “Leaving the decisions to courts may be expensive and inefficient if the number of AI-generated damages start increasing,” Bruch says. “A solution to the lack of legal lability would be to establish expert agencies or authorities to develop a liability framework under which designers, manufacturers or sellers of AI products would be subject to limited tort liability.”
Meanwhile, insurers will have a crucial role to play in helping to minimize, manage and transfer emerging risks from AI applications. Traditional coverages will need to be adapted to protect consumers and businesses alike. Insurance will need to better address certain exposures to businesses such as cyber-attacks, business interruption, product recall and reputational damage. New liability insurance models will likely be adopted – in areas such as autonomous driving for example – increasing the pressure on manufacturers and software vendors and decreasing the strict liability of consumers.
Insurers are early AI adopters
The insurance industry has been an early adopter of machine learning as it deals with lots of data and repetitive processes. “There is huge potential for AI to improve the insurance value chain. Initially, it will help automate insurance processes to enable better delivery to our customers. Policies can be issued, and claims processed, faster and more efficiently,” Bruch explains.
By boosting data analytics AI will also give insurers and their customers a much better understanding of their risks so that they can be more effectively reduced, while new insurance solutions could also be developed. For example, AI-powered analytics could help companies better understand cyber risks and improve security. At the same time the technology could assist insurers in identifying accumulations of cyber exposure. Last but not least, AI will change the way insurers interact with their customers, enabling 24/7 service.
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.