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Technical report - Emerging perils: seven things you should be worried about.
(Reinsurance Via Thomson Dialog NewsEdge)Scientists often get very excited about new discoveries and inventions. Words like 'miracle' and 'ground-breaking' tend to be flung about with abandon. (Re)insurers tend to hear this, sigh a great deal and wait for the bad news that lurks behind nearly every new scientific development. At the back of people's minds is often the unspoken question: "Will this be the next asbestos?"
Emerging risks is one of the areas of the market that is the most difficult to predict. Being able to assess the threat level of a new substance or a new product is never easy, especially as it often takes time to gauge the long-term effects that it might incur. However, this needs to be done. The (re)insurance industry has grim experience about the necessity of predicting such risks, as it is still dealing with the horrendous damage done by asbestos.
The asbestos experience
Looking back at the sorry tale that was the asbestos crisis, it's easy to forget that it all started out so promisingly. Asbestos was the new wonder mineral of its day. Blessed with excellent, heat-resistant and insulating properties, and able to be turned into everything from building panels to fire blankets, it seemed as if it was the perfect substance. It was used in ships, airports, airplanes, cars, office buildings and houses. It's now been estimated that up to one in four houses in Australia have some form of asbestos somewhere on the premises.
Sadly, the dark side of this wonder mineral was revealed when it became clear that asbestos fibres - finer than dust and about as easy to breathe in - caused a wide swathe of complaints, ranging from the relatively benign pleural plaques to the far more serious asbestosis, and then to the rapid and lethal membranal cancer, mesothelioma.
The effect on the (re)insurance industry was long term and cataclysmic, as a slow, upwards trend of asbestos-related claims suddenly exploded upward, and the industry started leaking money. The situation became so bad that at one point, it was feared that Lloyd's of London would fall victim to the constant stream of money flowing out to pay the claims. The situation was eventually resolved, with the bulk of the asbestos business being hived off under a new company, Equitas, where they would be wound up. The crisis led to a long-term change in the financial make-up of Lloyd's, as many of the old Names were effectively driven into bankruptcy, forcing the industry to turn to the private financial sector.
The biggest issue concerning asbestos is that it's a continuing problem with no end in sight, which led to Brian Duperreault of ACE making his famous quip that the next asbestos is asbestos. Vast amounts of the substance were used over a long period of time until it was finally banned - and even so, the ban is still fairly recent, and is also rather patchy.
The US has restricted but never banned asbestos, despite repeated efforts, and the European Union only finally banned it at the start of 2005. Despite this, the mineral is still being mined in countries like Canada, and is exported for use by construction companies in India and China, leading to a potential future problem in those countries as well since awareness of the potential dangers is at best low. The nascent insurance industry in these countries may well see the shadow of asbestos litigation falling over it in time to come.
However, one recent development in the UK does mean that there is a good chance that the amount of money being lost might start to diminish slightly. In a highly controversial decision, the UK Court of Appeal has overturned a ruling that thousands of people suffering from pleural plaques should receive compensation. The decision goes against 20 years of court practice, and has been greeted with a great deal of criticism (see box). However, in the US, the latest asbestos compensation act is mired in legislative Congressional mud.
Lucas Beckmann, European casualty manager at GE Insurance Solutions (GEIS), told Reinsurance that: "The US is now dealing with its third wave of asbestos claims, and with the future of the FAIR (Fairness in Asbestos Injury Resolution) Act still unsure, I think it is probably too early to draw a line under asbestos litigation. In Europe, we might just start to see asbestos claims coming up over the next decade. However, it is unlikely we will share the US' experience, because in most European countries, some portion of the effects of asbestos will be borne by the national health system rather than private industry."
Silica - the new asbestos?
One substance that was supposed to be the next asbestos is silica, or silicon dioxide. This is found in several natural products, such as quartz and certain types of sand and rock, and it can also be found in glass and concrete, while silica gel is used as a desiccant in brand-new clothes and leather goods. Unfortunately, crystalline silica dust - which can be formed by processes such as cutting, drilling or crushing any of the above products - can lead to silicosis if inhaled.
Silicosis is a condition caused by particles that create scarring in the form of nodular lesions in the upper lungs, which can lead to shortness of breath and cyanosis (where the skin turns blue due to lack of oxygen). The condition is irreversible.
Silicosis cases have been around for some time, but the biggest threat to the (re)insurance industry from this condition comes from the large numbers of compensation cases, which now mirror the asbestos situation. However, a recent court case in the US (see box above) has decreased the potential damage that it might cause, for the time being at least.
Toxic mould
Another area that has seen growth in claims is that of toxic mould. This has been primarily a US threat so far, with claims rising steadily. Mould, as any homeowner can tell you, is an ever-present threat; however, it has been getting worse in recent years. One reason for this has been improvements in building standards, as homes become more energy-efficient and are able to retain heat better. Unfortunately, that also means they are able to retain moisture better, and it is this combination of moisture and heat that can lead to mould growing on materials such as plasterboard, wallpaper, ceiling tiles and wood.
Breathing in mould spores can give rise to a number of allergic effects in humans, including headaches, respiratory problems and skin irritation. It can also give rise to lung and topical infections, and in the case of people with weak immune systems, it can lead to bacterial infections. The more mould, the more spores, and the greater the chances of an allergic reaction.
Mould is currently in the headlines because it has become the latest woe to hit New Orleans, as if the city needed another health hazard. The widespread flooding from Hurricane Katrina, combined with the temperate climate in Louisiana, means that the perfect conditions exist for the growth of toxic mould.
Health organisations have warned residents that simply scrubbing the mould off is not sufficient, and that it should be taken extremely seriously as some homes have levels of airbourne mould that might trigger allergic reactions in people. In fact, according to the Natural Resources Defence Council, one property in New Orleans after the flood had airbourne mould levels of 645,000 spores per square metre, which is far above safe levels. The US National Allergy Bureau considers outdoor mould levels of above 50,000 spores per square metre as being "very high".
So far, there have been few claims for New Orleans, largely because the city is in the middle of a major rebuilding and reconstruction project, with a large proportion of the population still away in evacuation centres. However, the trend for mould cases in the US has been steadily rising. In 2002, a jury awarded a Texas homeowner $32.1m for mould damage to her home, while in 1997, a mould case in Florida saw an award of $11m.
Viruses
Even smaller than spores are viruses, and this is another area that has hit the headlines in 2005. The emergence of bird flu has resulted in thousands of column inches and much hyperbole. The biggest possible impact it might have is on the life industry (see our article on life reinsurance on page 29), due to its potential to jump species. Put briefly, the current strain of bird flu, H5N1, is from the same family of viruses that crossed the species barrier in 1918, which led to a global flu pandemic (the Spanish influenza epidemic) that killed an estimated 100 million people worldwide.
So far, bird flu has resulted in the mass culling of birds and the deaths of around 100 people. It has also spread from Central Asia to Slovenia and Italy, following bird migration patterns. What it so far has not done is to jump the species barrier properly. The risk is so far unknown, since it is very difficult to estimate if the virus will mutate; what it will mutate into; if the new virus will be treatable with drugs; and so on. Worst-case scenarios are evolving already, with studies carried out just to be on the safe side.
According to Risk Management Solutions (RMS), an avian flu pandemic in Japan might infect 24 million people, and could kill up to 500,000. Since Japan has the largest life insurance industry in the world, a death toll on this scale would leave massive economic scars - RMS estimates that the bill for group and individual life insurance payouts would total $58bn.
Obesity and diabetes: the US
While the prognosis for bird flu's impact as a potential pandemic is still somewhat hazy, there are other potential threats that can be more accurately assessed. One is a national joke that is threatening to become a national disaster - the US is becoming an increasingly obese nation.
Over the past 20 years, trends toward obesity have been rapidly increasing in the US. A combination of rich food, sedentary lifestyles and what has been described as an increasingly car-orientated society has led to rapidly expanding waistlines - and equally rapidly expanding health problems.
The US Centers for Disease Control (CDC - see map below) measures obesity using body mass index (BMI) statistics, which are calculated by looking at a person's height and weight. An individual with a BMI level of less than 18.5 is underweight; between 18.5 and 24.9 is at a healthy weight; between 25.0 and 29.9 is overweight; and 30 or more is obese. In 1991, the CDC estimated that 15-19% of the population in four states had BMI levels of more than 30, with statistics for the rest of the country recording levels between 10-14%.
By the time of its most recent survey (2004), the map had changed dramatically. Nine states were showing dangerously high levels of obesity, and more than 25% of the population had a BMI of 30. Another 34 states recorded obesity levels of between 20-25% of the population, and just six states recorded obesity levels of 15-19% (no data was available for Hawaii).
Hand in hand with this rise have come healthcare problems that are adding to the strain on the already creaking healthcare system. According to CDC, around $78.5bn was spent on medical expenses for overweight and obese people in the US in 2003, with around half of these costs being paid for by Medicare and Medicaid. There is a wide range of conditions that go with obesity, ranging from high blood pressure, strokes and possible heart disease to diabetes.
Joanne McMahon, assistant general counsel for government relations at GEIS, commented: "We are keeping a close eye on the issue of obesity litigation, both general allegations of obesityallegedly associated with fast food consumption, and allegations of childhood obesity associated withthe beverage industry for manufacturing and marketinghigh-sugar soft drinks, sports drinks and juice. "There has been some publicity surrounding the fact that some of the sameplaintiffs, lawyers and experts who worked on tobacco litigation across the country are also working on obesity, but this litigation has not yet become well developed."
Diabetes is one problem that is starting to grow rapidly. In New York City, approximately 800,000 people have diabetes - this equals more than one in every eight persons. The percentage of diabetes there is nearly a third higher than in the US as a whole, and it is rising fast, further taxing healthcare services.
The side-effects of diabetes can be devastating, ranging from blindness and kidney failure to limb amputations due to skin infections caused by poor circulation. However, public awareness of the disease and its possible toll remains relatively low, as does the ability to identify the primary cause of this wave of diabetes - which equates, frankly and simply, to too much rich food coupled with too little exercise. The higher the level of obesity, the higher the level of diabetes. And, according to the American Diabetes Association, the growth in the condition might lead to the average life expectancy of Americans being lowered for the first time in a century.
According to the CDC, nearly 21 million Americans are now diabetic, and a further 41 million are pre-diabetic, meaning that unless they change their lifestyles, they will likely develop the condition. What this will do to the insurance industry in the US is therefore anyone's guess.
'Frankenfoods'
Over-eating is one thing, but the exact make-up of what you are eating is something that many people ignore. If something looks good and tastes good, then it should be perfectly good to eat, runs the theory.
Unfortunately, the rising use of genetic engineering in crops to produce genetically modified (GM) foods over the past decade means that these days, in order to be sure of what you are really eating, you will need to inspect your food with an electron microscope.
The debate over changing food at the genetic level so that it is easier to grow, or can be packed in a more convenient way, or is hardier to frost damage has been a lively and at times acrimonious one, especially in Europe. There are two main problems with the introduction of these so-called 'Frankenfoods' (named after Frankenstein's monster, who was scientifically created out of a mix of dead people) that have specific repercussions for the (re)insurance industry, as follow.
The first involves Mother Nature - any GM crop planted in an open field is therefore exposed to the open elements, as the wind can waft GM pollen into the air and into surrounding fields. The result has been uncontrolled cross-pollination that has spread GM genes across very large areas. This problem becomes far more serious for some variants, where GM crops are designed to be sterile in the second generation of a crop. As a result of these concerns, farms that sow GM products are finding it increasingly hard to insure such crops - and in places like New Zealand, the insurance industry now openly refuses to touch such crops, even with a GM bargepole.
The second problem is more nebulous. GM foods have only been around for less than a decade, and as a result, there has been no proper research on their long-term effects. Given that at present, 68% of US soya beans are genetically modified, and the current global figure for the same produce is around 50%, the spread of GM foods is continuing rapidly. However, what the impact on human physiology will be in the long term remains uncertain.
Nanoparticles
Another area where we know little, if anything, about the long-term effects, and where we need an electron microscope to see things, is in nanotechnology. In this, microscopically small (nano) particles are being used in a wide range of new products, from self-cleaning window panes to cosmetics, household goods and electronic products. Their small size often means that material made from nanoparticles behaves in a different manner than it would normally. For example, some change colour or become transparent, some become insoluble, others become conductive and so on.
Like GM foods, however, the long-term effect of these particles on human physiology remains unknown. Their size - with many measured in nanometres, a unit of size where one millimetre equals a million nanometres (or 10-9 of a metre) - means that most water-filtering procedures would be completely ineffective and possibly could not be ingested. It is also unknown what kind of effect they would have if they were inhaled into the lungs or absorbed into the bloodstream.
One of the most comprehensive reports on the implications of the effects of nanotech- nology for the reinsurance industry was written by Swiss Re in 2004. The report, entitled 'Nanotechnology: Small matter, many unknowns', is available on the internet at www.swissre.com. It highlights many of the concerns listed above, adding that: "In the assessment of nanotechnology, scientists have been unable to draw upon toxicological studies or long-term experience. The studies needed for purposes of risk assessment have often failed to materialise because of a lack of research funding. It is not easy to obtain financing for toxicological studies; sponsors are primarily interested in scientific progress or valuable patents. An agreed-upon framework, within which publicly financed projects on the one hand and the industry's risk analyses on the other, is sorely needed."
Scientists are at present unable to tell how long such particles would remain in the human body, whether or not they would be ejected, and if they would be able to make into the brain. As we have no idea at present if some parts of the body might develop a build-up of nanoparticles due to internal factors, the future effects of nanotechnology join a rather long and disturbing list of 'don't knows' we should be worried about.
The future: some bad news, some good
Going from the very small to the very large, one emerging risk facing the entire globe is the related effects of global warming. Although global warming itself would generally come under the category of natural catastrophes as detailed in the February issue, its subsidiary aspects fall under the category of emerging risks.
As the world warms up, temperate and tropical regions will move into currently cooler areas - bringing with it unwelcome guests such as mosquitoes, termites and scorpions, and a corollary increase in diseases such as the West Nile virus and malaria. There will also be an increased risk of food poisoning, as food left out in warm temperatures is affected by the change in climate, which will be further exacerbated by an increase of flies. Also, with more heat and humidity, toxic mould may become more prevalent around the world, and increasingly severe in the US.
Among all this bad news, there is also a shot of good news: the largest study so far on the effects of mobile phone use has shown that there is no link between long-term usage and brain tumours. The study, which was carried out by scientists from Leeds University, the Institute of Cancer Research and the University of Nottingham in the UK, looked at 2782 people and their history with mobile phones, and concluded that there was no link between the mobile phones and the risk of glioma, the most common type of brain tumour.
However, the team still stressed that their findings just meant that there was no raised risk of glioma - and that the ordinary common risk of cancer still existed. But, after all, we wouldn't want to end this article on an overly cheerful note, would we?
ASBESTOS: THE UK HIGH COURT RULING
The UK asbestos litigation industry has been thrown into a state of confusion by a ruling of the UK Court of Appeal at the end of January this year.
Insurance companies who were facing a potential bill of up to GBP1bn were appealing a High Court judgment in February 2005 stating that pleural plaques often result in more serious injury. The High Court ruling was in line with similar cases dating back to the start of the 1980s.
A panel of three judges on the Court of Appeal, headed by Lord Chief Justice Lord Phillips, issued a majority ruling reversing the previous decision, and declared that the presence of pleural plaques did not mean that a person was suffering from any particular disease, and therefore could not make a claim. Two judges agreed and one disagreed.
The companies involved, which included Norwich Union, announced that they were pleased with the ruling, while the Association of British Insurers said that it appreciated the 'clarity' of the ruling.
However, the Court of Appeal's decision was then attacked by lawyers representing the UK trade union Amicus, who said that the decision was not unanimous, and it would deprive thousands of people of their right to compensation.
The case will now go to the House of Lords.
SILICOSIS: WHO'S SCAMMING WHO?
In June 2005, US Federal Judge Janice Graham Jack delivered a stunning judgment on the silicosis compensation case that she was presiding over.
The case was a multi-district litigation in Texas, in which claims are consolidated for pre-trial purposes. Judge Jack was looking at a grand total of around 10,000 claims for compensation.
As the annual death toll for silicosis in the US is around 250, the high number of cases puzzled her, and she took the somewhat unusual step of deciding to look at all the claims in detail, a process that took six months. Previous cases have looked at silicosis claims en masse.
According to her scathing 249-page court order that quashed all but one of the cases, the lawsuits were not about justice or medicine, but were "manufactured for money". She found that 99% of the cases had been diagnosed by just six doctors via a system of mass screenings that were medically dubious at best. She also discovered that 65% of the cases involved people who had also claimed for asbestosis.
As it is almost impossible for someone to contract both of these complaints at the same time, the case has prompted allegations of legal fraud.
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