Microelectronics: small tech, big risk for businesses and insurers

As technology gets smaller, the risks of an equipment breakdown get bigger.

The micro-circuitry in today’s electronics, which is thousands of times smaller than a human hair, makes it difficult or impossible to see the damage when equipment fails.

Because equipment is increasingly interconnected through the Internet, a breakdown can affect operations at multiple locations and result in a costly business interruption.

And technology changes so fast that damaged equipment quickly becomes obsolete, which often requires a replacement instead of repair when components are no longer available.

In order to manage the risk, you must keep up with these evolving equipment exposures. Microelectronics has become the brains behind almost every business and should be a primary focus of your risk management and insurance programs.

100 million transistors on the head of a pin

Think of all the equipment that contains tiny micro-circuitry today. From computers, elevators and heating and cooling equipment to production machinery and retail systems, if it uses electricity it probably contains transistors and microprocessors.

Our insurance claims data shows that equipment with micro-circuitry is likely to break down in new ways that are difficult to diagnose and repair. Microelectronics also makes equipment more portable, increasing the exposure as equipment is used in remote locations.

The technology continues to get smaller, faster and more powerful. Intel Corporation says it could place more than 4,000 of its 22 nanometer transistors across the width of a human hair. More than 100 million would fit on the head of a pin.

How small is small?

Although some experts believe the miniaturization of micro-circuitry is nearing its limits, researchers keep creating even smaller transistors, which are the building blocks of integrated circuits and microprocessors.

Fourteen nanometer transistors are in production and IBM recently announced the first 7 nanometer process, which it claims have at least a 50 percent power performance improvement over the fastest chips previously available.

It’s difficult to comprehend. The U.S. government’s National Nanotechnology Initiative offers this example: if a typical home shrunk as transistors have over the years, you would not be able to see the house without using a microscope.

You can’t see the damage

What does this mean for business, industry and consumers? In the marketplace, new technology isn’t about theory — it’s about comfort, convenience and performance. Equipment is an investment and a breakdown is costly and disruptive.

Yet, while most property insurance and traditional equipment breakdown policies require evidence of physical damage for coverage to apply, increasingly microelectronic damage is not detectable and sometimes it is not even physical.

Equipment may stop functioning for no apparent reason, with no visible damage to hardware. If a wire one micron wide breaks, only time-consuming and costly forensic failure analysis can find the microelectronic impairment.

Cracks in the cloud

Almost all electronic equipment requires firmware, embedded software instructions essential to its operation. When firmware is corrupted, the equipment stops operating. And with cloud computing, a loss may also be virtual.

Since it’s estimated that at least 75 percent of businesses use some type of cloud services, the exposure is significant. A Ponemon Institute survey for HSB found that 48 percent of smaller businesses had experienced a cloud service interruption.

Keep in mind that the cloud actually resides in buildings and operates with equipment, often located far away from client businesses. That equipment can fail to function and cut off access to critical business information and applications.

Insurance coverage for emerging exposures

In response, insurers are changing the products and services they offer to businesses.

Some equipment breakdown insurance will repair or replace microelectronic equipment when it fails, even when there is no evidence of physical damage. In today’s business environment, cloud service can be as essential as electricity and other utilities, so service interruption insurance coverage should include equipment-related cloud outages.

Additional cyber coverage can help a business respond to a data breach or cyber attack. HSB’s survey of small businesses and professionals showed that 53 percent had experienced a data breach. In another HSB poll of risk managers for mostly larger businesses, 69 percent reported a hacking incident in the past year.

The next breakthrough in microelectronics

When will the next breakthrough come in microelectronics? Scientists are experimenting with exotic materials for semiconductors. Some researchers hope that someday quantum mechanics will help build transistors small enough to operate with only one electron.

Imagine trying to troubleshoot an equipment failure at the subatomic level. Electronic micro-circuitry also consumes a tremendous amount of expensive energy. But as technology continues to shrink, it will improve the efficiency and capability of equipment. That will help drive down energy and operating costs, increase productivity, and support innovation.

Technology shakes up the marketplace

It’s hard to anticipate new advances in technology and even more difficult to prepare your business and employees for a future that you can’t always predict. New technologies may shake up business and consumer markets in unexpected ways.

In a digital world, we live and work online. As a result, some of the old concepts of property insurance, developed over a century ago, may no longer serve businesses as well. The insurance industry must change as technology evolves.