From nanotechnology to rehabilitation, Mark Hynes continues his review of emerging risks threatening the insurance industry
NanotechnologyWith a nano denoting one billionth of a metre, nanotechnology is the term used to describe processes that take place on a molecular level. Only developed in 1990, two main types of nanotechnology have been identified - passive and active. Passive nanotechnology is used to modify surfaces or prepare materials and surfaces with new/novel properties. Active denotes the possible use of nanotechnology to 'manufacture' sub-atomic sized 'machines' that could be used in medicine or to manufacture materials or even other machines.Potential applications could be in the fields of medicine, electronics or energy storage and use. To date, three possible applications involving the modification of surfaces have been identified:
Potential impact: By 2011, the large-scale production of machines able to manipulate or position atoms with great accuracy and products that involve nanotechnology in their manufacture might be commonplace and in widespread use. Insurers will need to pay particular attention to potential product applications and the possible associated risks. Realisation rating: 8/10
Obesity/heart disease and fast foodsThe ubiquitous hamburgers and fries could prove to be as addictive as heroin, claim some scientists. Research has found evidence to suggest people can become overly addicted to the fat and sugar in fast food and may explain the rising rates of obesity in the western world. A study in the US reports that a link had been established between the brain's pleasure chemicals and a craving for fatty foods. It also concluded that there was a long-lasting change in the brain chemistry and gene expression.
Potential impact: A group of US teenagers sued McDonalds in 2002 claiming that the fast food chain was responsible for their obesity, diabetes and high blood pressure. In this, the first obesity-related claim to reach a courtroom, the ruling went against the claimants and has for the time being put rest to the fears that it could open up the floodgates for further claims similar to those in the tobacco industry. But the debate continues. Should fast food suppliers be forced to issue health warnings? Can we draw any similarities between fast food and tobacco? Are class actions likely? Is it irresponsible of advertisers to target the young so persistently? It is estimated that about 24% of the UK population is overweight - to what extent could fast food suppliers be considered responsible? This is an area where insurers can expect frivolous, "try on" claims and, while these may be capable of being successfully defended, costs will be incurred.Realisation rating: 6/10
Potentially harmful substances in the indoor environment:There is an increasing use of 'manufactured' raw materials in building and household products such as carpets, wallpaper or particleboard, which may contain potentially harmful substances. It has been found that substances can leach from such materials, for example formaldehyde from adhesives used in chipboard and MDF. But there is little scientific evidence linking exposure to possible health effects. The asbestosis crisis has taught us that long-term effects may take time to develop and there may be long latent periods before the appearance of a disease.
Potential impact: There could be an increase in liability claims (from allegations of disease), for property classes (from business interruption claims during restoration or replacement of materials) and for professional indemnity (from allegations of lack of professional expertise when materials are specified). Realisation rating: 5/10
Reform of the Rehabilitation of Offenders Act 1974 The government recently commissioned a review of the Rehabilitation of Offenders Act . The subsequent list of proposals will form the basis of legislative reform, likely to be implemented at the end of 2004. The rationale behind the review was that people with convictions could get caught in a 'vicious circle' because of the length of time for which they are obliged to disclose their conviction to a potential employer. With many unable to find work, the inevitable consequence is re-offending.
Potential impact: Disclosure of a criminal conviction is considered a material fact and may have an impact on insurers' acceptance of the risk, or the terms that they are prepared to offer.Notification of a conviction for arson, fraud or a prosecution under the Health and Safety at Work Act is likely to lead to an offer of insurance being declined. If the new legislation goes ahead, we may be facing an increase in the number of proposals from people who would previously have had to disclose their conviction, but no longer need to.Realisation rating: 3/10
Registration, Evaluation and Authorisation of Chemicals Directive (REACH)The REACH Directive seeks to fundamentally change the way in which the safety of chemicals is assessed and judged. While some chemicals are currently subjected to extensive testing, other older products are not scrutinized to the same extent as they were already in use before current controls and testing.The directive aims to remove this distinction, forcing all substances to pass through the same testing process. Registration and an initial evaluation would determine whether there was sufficient concern to require authorisation, which would be necessary for approval.Manufacturers would be required to make a case for why they wish to market a particular substance. Currently, control of the hazard rests with the regulator who takes the necessary steps to reduce any hazard to acceptable levels.
Potential impact: There is concern in the chemical industry about possible adverse effects, additional work on testing and costs. There is little doubt that the legislation will have a significant effect on the chemical industry and all users of chemical and manufactured substances. However, the impact is mainly beneficial in the longer term and little or no short impact is expected for the insurance industry Realisation rating: 2/10
RehabilitationThe UK has a relatively poor performance at getting employees back to work following workplace injury. In addition, there is little or no intervention to provide preventive treatment for workers who are complaining of pain to avoid absence and any subsequent claim. The number of people claiming invalidity benefit has trebled in the last 20 years with 50% having been on benefit for five years or more. Currently, only 10% of employees who have suffered a serious injury return to work. While there are a clear moral and financial drivers, there is as yet insufficient evidence to support the economic case for rehabilitation and a positive cost benefit case for insurers or employers has yet to be established.
Potential impact: Rehabilitation remains on the government radar and has been the subject of joint discussions between the ABI, TUC and CBI for several years. Insurers are urging the government to become more involved, but given the lack of hard evidence on anticipated cost savings to date, slow development is predicted.Realisation rating: 6/10 (NB: Realisation ratings are defined as the likelihood of a risk occurring and its potential impact on the insurance industry) it' Mark Hynes is head of casualty underwriting at Norwich UnionRestriction of Certain Hazardous Substances in Electronic and Electrical Equipment Directive (RoHS)The RoHS Directive will ban the use of certain substances in electrical and electronic equipment including lead, cadmium and mercury from July 2006. There are exemptions where suitable substances are not available or might introduce greater hazards, including for example the use of lead in the glass of cathode ray tubes and some forms of cadmium plating. The list of banned substances will be reviewed at four-yearly intervals with a view to adding further substances.
Potential Impact: The new requirements will undoubtedly improve health and safety but more importantly deliver significant environmental benefits. However, the effect on the insurance industry is accepted to be slight and in the longer term.Realisation rating: 2/10