Economic subjects | Insurance » Electromagnetism and the Insurance Industry

Source: http://www.doksinet Presentation of Mr. Alastair-Speare-Cole London 16 + 17th May 2002 – London Conference “Electromagnetic Environments and Health in Buildings” Electromagnetism and the Insurance Industry A review of how the industry views potential problems with electromagnetism, the precautions it is taking and what coverage it may offer. In 1996 Swiss Re, a company that ranks amongst the largest risk carriers in the world and a company that regularly publishes discussion papers on academic aspects of insurance, wrote in it’s discussion document. “Electrosmog – a phantom risk?” “a prospective hazard, the magnitude of which cannot be gauged and which perhaps does not even exist but which is nonetheless real – only in that it causes anxiety and provokes legal actions”. The insurance industry today gazes upon a scene which is as uncertain as it was in 1996. Leaving aside the diminution of property values near EMF sources in the USA, there has been no real

red letter day, created by legal case or generally accepted scientific research that has removed the state of the art defence and made its producers liable for damages caused by EMF. Since no one can predict the likely cost, if any, to the industry no one can “price for it”. However the insurance industry is a competitive market place and EMF is just another factor in the daily brawl of short term v long term goals, individual underwriter’s career aspirations, the interface of insurers and reinsurers and the ghosts of other problems such as pollution, asbestos, toxic mould and terrorism Asbestos stands as a convenient model for what could happen with EMF. This is the story in brief. In the 1950’s there was some concern in academic circles about the relationship between blue asbestos and cancer. Asbestos usage had been growing steadily from the early part of the century and suggestions existed that mesothelioma, a range of cancers, scarring of lung tissue (asbestosis) and other

pleural damage might result. The history of the subsequent asbestos litigation on both sides of the Atlantic is complex and fascinating. I have only time to comment here that much of the cost to the manufacturers and their insurers is as much related to the costs of the legal process as it is to the true cost of compensating the victims. The manufacturers lie bankrupt and many insurers would have also failed had they not been able to spread the losses over many years. In short, asbestos has made a lot of US lawyers very rich. In the early 1970’s the first case in the US (The Borel case) found an asbestos manufacturer liable for the bodily injury caused by their product. Usage of asbestos was rapidly curtailed But the  Mr Alastair Speare-Cole Source: http://www.doksinet period between exposure and manifestation ranged from 15 to 40 years and so, whilst the cause of the problem was understood and dealt with, the cost to insurers has not even begun. Thirty years after that first

case the industry has not yet reached the peak point of paying compensation. As an example, the Manville Trust (formed after the bankruptcy of one manufacturer) received 58,600 new claims in 2000, 81% more than the 32,000 it received in the previous year. The jargon for this vast temporal displacement between cause, manifestation and financial compensation is called “latency”. It is something anyone managing anything but the youngest of insurers dreads. Imagine, as a senior manager, you have invested a career in an insurance company and suddenly a problem begins to emerge emanating from a time thirty years before when you were at school! Not only that but the problem is of a size which threatens the existence of the company, the existence of the insured, and of human rather than perhaps commercial concern, the compensation of the victims. Without a solvent insurer and insured there is no compensation for the victim. The failure of Chester Street which was a renamed old industrial

insurer has been in the press recently; the victims of its insureds may get little compensation for their asbestos related injuries. The cost of asbestos to the insurance industry? No one knows exactly but A.M Bests the rating agency calculated the US insurance industry alone would end up paying US$65 billion. The worst case scenario for EMF would be far in excess of this figure and is life threatening to many companies and their insurers. In fact it would be so profound as to require a radical rethink of the use of energy in Western society. The scenario more often examined by insurers is the possibility that specific types of EMF may prove to be harmful. Currently these are the ones which receive the most press speculation such as mobile telephone use or power transmission. So what is the industry doing to protect itself? I could say flippantly that, in many situations, very little. If EMF takes as long from initial exposure to payment of compensation as Asbestos, then claims against

policies written today will occur long after the current underwriters have moved on to managerial roles or have retired. The temptation for insurers is first and foremost to follow their competitors in the market and if this means taking an optimistic approach to EMF which is, after all, still perceived as a “phantom risk”, so be it. For saving the company from a theoretical but highly unlikely oblivion in thirty years time contemporary shareholders are unlikely to be thankful. For missing the next twelve months income and profit projections there are immediate and tangible consequences. If governments have difficulty tackling the problems of an ageing population and inadequate pension funding when it is a known problem it is possible to sympathise with insurers when the problem of EMF may not even materialise. But the insurance industry will tackle and is already tackling EMF in the following ways. Firstly the industry can exclude claims arising from EMF. The diminution of

property values is already a common exclusion. This approach is already to be seen on some original policy forms One problem the industry has is that by putting on an exclusion on today’s policies an insurer lends credence to the assertion that cover was given on policies that have been issued for decade after decade. There are ways to avoid the damned if you do and damned if you don’t situation, but it is difficult problem to solve.  Mr Alastair Speare-Cole Source: http://www.doksinet A second approach is to try to take a selective approach to risk as far as EMF is concerned. Mobile telephone manufacturers and power transmitters may attract a more precautionary approach when compared to small retailers or householders. Since the science is not available for a qualitative approach let alone a quantitative approach to EMF risk there is no other practical solution. Especially since a competitive insurance market will not allow a blanket across all classes solution. Another

approach which is already common is to change the nature of the annual insurance contract to only pay claims that are made against the insurer during the actual year in question. The jargon is “a claims made policy”. Those medical practitioners will be familiar with this approach. It matters not when the error was made It is when the claim is made that counts If you cease to buy the insurance and then a claim from many years before arises you have no cover. It can be contrasted to the “losses occurring policies” typically issued to almost all commercial insureds to this day and is exactly the policy form issued to asbestos manufacturers. In summary, claims made policies deal with the problem of latency for the insurers but leave the insured with the possibility of no ongoing insurance when a problem begins to emerge. The losses occurring policy is great for the insured (provided they buy enough sum insured to cater for a few decades of prospective inflation) but leaves the

insurer carrying the burden of latency. The claims made approach is already common on power generators and power transmission companies and increasingly any heavy users of electricity. Similarly if cover is given to the cell phone industry it is also likely to be on this basis. But these last comments are all concerned with prospective coverage. The real fear of the industry is that, as the film makers used to say, the problem is already “in the can”. For instance the UK’s electricity usage has risen from 50 G (wh) in 1950 to 300,000 G (wh) in the early 1990’s. During this time the insurance industry here, in Europe and in the US has been issuing occurrence based liability policies (the one where the insurer carries the latency) and it has been doing so without any reference to EMF. For the industry the concern is that a health risk or more particularly a liability risk emerges relating to long term exposure to EMF. (Remember that a lot of the cost of asbestos to the industry

was legal costs rather than compensation to the victims.) The defences that the insurance industry has probably fall into the following simplistic statements. • • • • • There is no causal link between the victim’s injury and any EMF received through the actions of the insured. Whilst there is a causal link between the victim’s injury and EMF there is no proof that it was this particular insured’s actions that are to blame Whilst the insured’s EMF may have caused the victim’s injuries it was completely unforeseeable and therefore the insured cannot be held responsible at law. Whether the insured was liable or not the policy gives no coverage for this peril. The exposure was spread out over many years and the insurer only insured the insured for one of those years.  Mr Alastair Speare-Cole Source: http://www.doksinet Some of these defences come through science. Others through the law Was the insured liable under the law of that country for the consequences of

the product. The answer will be different in different countries. In the UK the bulk of any exposure to the industry will have to come through the law of tort. There is no time to get into details here but phrases such as negligence and forseeablity will be at the core of any legal fight. I referred to “red letter days” earlier and one can imagine a plaintiff’s barrister saying something like “ It was common knowledge from the Spring of that year that your product was the causing harm to your clients and you did nothing either to curtail the sale of that product or to try to prevent the use of that which had been already sold.” The defence implicit in this is that until Spring of that year some sort of defence exists although the strength of that defence may be very dependent upon the nature of the product and the circumstances surrounding its sale. In summary there is a long road ahead before Swiss Re’s phantom risk of Electrosmog turns into a serious problem for the

insurance industry if problem there is at all. Insurers monitor the science carefully. Insurers have fought successfully so far the attempts to convince courtrooms of a link between specific victim’s injuries and their exposure to EMF. If there is going to be a problem it remains to be seen if it is going to be on a broad front or a specific area. Different national jurisdictions, and the interplay of the various types of defence outlined above make speculation easy but prediction impossible. The industry, having been badly mauled by asbestos and pollution and with the prospects of tobacco in the wings, wants to take some basic precautions for the future tempered always by short term competitive pressure. What may already been have incurred but the industry does not know about is to some extent the subject of this conference.  Mr Alastair Speare-Cole