February 24, 2020
by Charlie Kingdollar
Emerging issues occur far more frequently than “black swans”
and include more than just “casualty catastrophes.”
Still, such issues have, and will continue to, cost the property/casualty
insurance industry billions of dollars in unexpected claims.
Executive Summary
The data-driven property/casualty insurance industry is often slow
to react to emerging issues until potential costs start showing up in loss
data. That means they may not be considered when underwriting or pricing risk,
observes veteran risk watcher Charlie Kingdollar. Here, he provides examples of
emerging issues arising from new products, law changes and advances in
technology.
Insurers and reinsurers face numerous emerging issues arising
from: the rapid pace of scientific, technological and medical advances; new
products; changing social mores; court decisions abrogating various insurance
policy defenses; as well as new and amended laws and regulations. The industry,
which is so heavily data driven, is often slow to react to emerging issues
because the potential costs have yet to show up in loss data. That means they
may not be considered when underwriting or pricing risk.
Some emerging issues involve the potential for latent illness
that may take decades to develop. Given that most insurance policies are
written on an occurrence basis, there is a potential for limits stacking over
policy years in several jurisdictions.
Over the past few years we’ve seen several emerging issues,
well, emerge. These include the herbicide glyphosate, opioids and talc (sometimes
together referred to as GOT). All have been in use for decades. Thousands of
plaintiffs have filed lawsuits. In the case of opioids, cities, states and
healthcare systems have also filed suits. Litigation has already begun for
these issues and several multimillion-dollar verdicts have been handed down.
Each of these emerging issues could result in billions of dollars in defense
and indemnity costs. It seems doubtful that even a few years ago, let alone
decades ago, underwriters providing coverage for the defendants involved would
have priced for such potential claims activity.
Of course, these three aren’t the only potentially significant
emerging issues facing insurers and reinsurers.
Retailers at Risk: Hidden Vaping Exposures for Insurers
Several emerging issues have come from new products.
E-cigarettes are one example.
E-cigarettes were invented in China in 2003 and hit the U.S.
marketplace three or four years later. In 2015, an American e-cigarette maker,
Juul, began operations and subsequently captured roughly 70 percent of the U.S.
e-cigarette marketplace. Millions of adults as well as millions of high school
and middle school children currently use e-cigarettes.
In August 2019, the U.S. Centers for Disease Control and Prevention (CDC) recognized
a new vaping-related illness, called EVALI (E-cigarette or Vaping Product
Use-Associated Lung Injury), which has, as of Dec. 31, 2019, killed 55 and
hospitalized over 2,500 others nationwide. Many of those sickened have been
hospitalized more than once and may face a lifetime of serious respiratory
effects. Many of the victims had vaped THC (tetrahydrocannabinol, a
high-inducing chemical derived from marijuana), but some 13 percent of those
who contracted EVALI reportedly only vaped tobacco products. The CDC has yet to
determine what ingredient or ingredients may be causing the respiratory
illness. One suspected ingredient is vitamin E oil, but the CDC has stressed
that there could be multiple vaping ingredients involved.
Charlie Kingdollar is now retired, but for nearly 40 years he
built his career as the Vice President & Emerging Issues Officer at Gen Re,
becoming the go-to futurist for the insurance industry.
He is a celebrated keynote speaker and has spoken at almost all
major insurance industry conferences in the U.S. and many abroad. In the U.S.
these included: CPCU annual and chapter meetings; NAMIC, PAMIC, VAMIC &
WVAMIC meetings and conventions; various state I-Days; PCIAA annual meetings;
Casualty Actuarial Society conventions; APIW meetings; NYIA annual meetings;
Emerging and Environmental Claims Managers Association (EECMA) annual meetings;
Property & Liability Resource Bureau annual meetings; ISO, MSO, RAA and
WCRI meetings; universities; various state Independent Insurance Agents annual
meetings; and hundreds of individual insurance company presentations.
Outside of the U.S., Kingdollar has given various emerging issues
presentations in 14 countries.
While at Gen Re, he authored hundreds of client publications and
blogs on a wide variety of emerging issues, many translated into multiple
languages for the international market. He has had articles published by, and
has been quoted in, various insurance industry publications.
Kingdollar continues to post emerging issues information regularly
on LinkedIn.
While EVALI manifested relatively quickly, perhaps more worrying
is that use of e-cigarettes and vaping fluids may also result in latent
illnesses that could affect far more people than EVALI and take decades more to
manifest.
Recently, another illness has been linked to e-cigarettes: a
form of lung scarring called hard-metal
pneumoconiosis, which is usually associated with people who work
with hard metals. Researchers believe the metals are coming from the heating
coils found in vaping devices. Hard-metal pneumoconiosis causes irreparable
damage, lung scarring, persistent coughing and breathing issues.
In addition, researchers from Harvard T.H. Chan School of Public
Health have found that 46 percent of Juul products were contaminated with a
microbial toxin, glucan, that can cause long-term lung damage. Two flavors in
particular—tobacco and menthol—were much more contaminated with glucan than
other flavors. Researchers noted that the glucan found in Juul pods is not
related to EVALI. (Source: “Glucan, a microbial toxin, found in Juul’s nicotine
vaping liquids,” hsph.harvard.edu,
Jan. 2, 2020) Glucan poses more of a latent illness exposure.
Juul is already being sued by families of those who contracted
EVALI and has also been sued by several states including California, Illinois,
Massachusetts, Minnesota, New York, North Carolina and Washington for deceptive
marketing, creating a public nuisance and for injuries to people.
Any U.S. tort litigation may not be able to reach foreign
manufacturers of e-cigarettes and vaping fluids. Litigation may force U.S.
makers into bankruptcy. If so, which U.S. entities will be left in the
liability chain? Distributors and retailers.
Estimates of the number of vape shops in the U.S. vary,
with some coming in as high as
35,000 five years ago, although the current count has come down to
around 12,000-15,000 (according to the executive director of the Smoke Free
Alternatives Trade Association contacted by CM). But e-cigarettes and vaping
fluids are sold by many other types of retailers. I’ve even seen them for sale
in car washes. I doubt many insurers even ask an application question
addressing whether a retail risk sells e-cigarettes or vaping fluids.
Consider the following: millions of possible plaintiffs,
including millions of children; serious, even fatal illnesses being linked to
product use; thousands of potential defendants; and the potential for limits
stacking over years of exposure possible in multiple jurisdictions. Throw in
ongoing social inflation of verdicts and settlements (which will impact many
emerging issues), and you certainly have the making of a potentially
significant emerging issue.
Lawsuit Lookback Windows for Abuse
Emerging issues can also arise out of new or changing laws or
regulations. States that are extending or suspending their statutes of
limitations or creating “lookback laws” for sexual abuse and molestation
lawsuits are one example.
I have yet to see an estimate of what sexual molestation claims
have cost insurers and reinsurers. According to one recent Associated Press
article, $4 billion has been paid
out since the clergy sex abuse first came to light in the
1980s. It is unclear how much of that $4 billion was paid by insurers and
reinsurers. That $4 billion figure also does not include other entities that
have been named as defendants in sexual molestation litigation (i.e., public
schools, colleges and universities, the Boy Scouts of America).
One thing is certain, as states move to amend their statutes of
limitations to allow more time for victims of sexual molestation to file
lawsuits, the costs to insureds, insurers and reinsurers will likely increase
substantially. As of early December last year, seven states—Alabama,
Connecticut, Michigan, Pennsylvania, Rhode Island, Tennessee and Texas—and the
District of Columbia have amended their statutes of limitations to give alleged victims
more time to sue. Eight others—Arizona, California, Hawaii, Montana,
New Jersey, New York, North Carolina and Vermont—have created even more broad
“lookback windows,” which allow alleged victims to file suit no matter how long
ago the alleged abuse took place. (See “How Sex Abuse Claims Laws
Have Changed in 15 States,” Insurance Journal/Associated
Press, for details.)
According to the Associated Press, the wave of new “suits could
surpass anything the nation’s clergy sexual abuse crisis has seen before, with
potentially more than 5,000 new cases” and verdicts and settlements totaling
more than another $4 billion. (“Surge of new abuse claims
threatens church like never before,” AP
News, Dec. 1, 2019)
Obviously, any impact on the P/C industry could be multiplied
should additional states similarly amend their laws. I suspect at least some
will.
Like with e-cigarettes and vaping, there could be the potential
for limits stacking in some jurisdictions. However, unlike e-cigarettes and
vaping, this emerging issue could impact policies that go back much further
than just the past 12 years.
Some more recent, but not all, CGL policies contain abuse
molestation exclusions—and the language used in these exclusions may vary. Some
insurers may be relying on their policy’s intentional acts exclusion as a
defense against molestation claims. Insurers will have to monitor how the
defense holds up in these jurisdictions.
Advancing Tech Fuels Emerging Issues
Advances in technology also can create emerging issues—and
there’s no better example than autonomous vehicles.
While the previous two emerging issues discussed involve
litigation for injuries sustained, autonomous vehicles hold the promise to
reduce accidents, injuries and deaths—so possibly resulting in far less claims
activity. But let’s start with this: Personal and commercial auto liability
premium makes up nearly half of the U.S. P/C industry’s premium. Throw in
personal umbrella premium, which is largely driven by auto claims, and you’re
right about at half.
According to the National Highway Traffic Safety Administration
(NHTSA), 94 percent of vehicle
accidents are caused by human error. (Source: “The National Motor
Vehicle Crash Causation Survey” conducted 2005-2007, NHTSA
Safety Facts, February 2015) Of course, accidents drive rate. Autonomous
vehicles will not eliminate all accidents, but it seems reasonable to assume
that at some point they will cause fewer accidents than humans—perhaps much
fewer.
In addition, some believe autonomous vehicles will dramatically
reduce the costs of ridesharing and as such will reduce the need to own a
personal vehicle. This would seem more likely to happen in cities but keep in
mind that more people are moving to cities—a trend some believe will continue.
Companies like Uber, Lyft and even traditional car manufacturers—who now, in
some cases, want to be called “transportation companies”—are working to develop
autonomous taxis.
Autonomous trucks, including tractor-trailers, may make inroads
before autonomous taxis or autonomous private passenger cars. This makes some
sense given the year-after-year shortage of qualified truck drivers.
There are those who believe that any impact from autonomous
vehicles is still far in the future, and certainly some predictions of their
early arrival have missed the mark, but let’s examine just a few examples of
where we are as of today:
·
In October 2019, Waymo began offering
fully automated rides, without human attendants in the vehicle, to
hundreds of users of its robo-taxi service in Phoenix, Ariz. (Source: “Autonomous Deliveries
Will Likely Catch on Before Taxis, Says Waymo CEO,” IJ/Reuters, Oct.
29, 2019) The driverless service now has over 1,500 monthly active
riders. (Source: Waymo press release, “Waymo One: A year of
firsts,” Dec. 5, 2019)
·
On Dec. 11, 2019, Plus.ai announced that its autonomous
semi-truck successfully delivered 40,000 pounds of butter, driving over 2,800 miles
in three days from Tulare, Calif. to Quakertown, Pa. (Source:
Plus.ai press release, “Plus.ai Completes First
Cross-Country Commercial Freight Run by a Self-Driving Truck in Record Three
Days“) “While there was a safety driver and engineer on board to
observe the truck’s behavior and intervene if necessary, the truck made its
trip with zero disengagements,
meaning that a human never took over for safety purposes.” Perhaps more
importantly, the company states that “it has been running freight trips every
week for about a year now, though the cross-country mission is the first
instance that it has publicized.” (Source: “Self-driving truck
completes first cross-country freight delivery,” mic.com, Dec. 11,
2019)
·
In December 2019, Walmart announced it has
partnered with Nuro to start testing Nuro’s self-driving grocery delivery
vehicles in Houston, Texas. (Source: Walmart press release,
“Walmart to Test-Drive Autonomous Grocery Deliveries with Nuro, Dec. 10, 2019;
“Why Nuro and Walmart Have
Teamed Up: Bringing Autonomous Grocery Delivery Into 2020,” medium.
com) Nuro has previously partnered with other companies to also provide
driverless grocery deliveries.
·
On Dec. 17, 2019 California took a major step toward the
commercialization of autonomous vehicles by approving them for light-duty use
on public roads. This will pave the way for companies to use autonomous
vehicles to deliver goods. The California Department of Motor Vehicles will set
up a permitting process for companies wishing to deploy light-duty autonomous
vehicles. In addition to specialized light autonomous delivery vehicles, the
ruling would also allow use of autonomous small to midsize trucks and vans.
(Source: Press release, California DMV, “California Authorizes
Light-Duty Autonomous Delivery Vehicles,” Dec. 17, 2019)
It may still be some time before autonomous vehicles reach the
Society of Automotive Engineers Level 5 (a Level 5 vehicle is capable of
complete hands-off, driverless operation under all circumstances, where there
are no provisions for human control). However, as you can see by the few
examples listed above, considerable progress is being made and our autonomous
future may be coming faster than some in the industry believe.
Insurers face an autonomous vehicle future, with possibly far
fewer accidents and likely fewer owned personal vehicles, that will have a
significant downward impact on auto premium.
There’s More Out There
There are numerous other emerging issues that could
substantially impact the P/C insurance industry, including exposure to
nanomaterials; the 4th industrial revolution (i.e., artificial intelligence,
robotics and automation); occupational and consumer exposure to numerous toxic
substances; mass shootings, including school shootings; student athlete
traumatic brain injuries; climate change; and perhaps the most recently
discovered potential emerging issue: exposure to airborne liquid crystal
monomers emanating from device screens.
“With potentially hundreds of billions of dollars at risk from
unexpected claims, one might wonder why so few companies have full-time
emerging-issues positions.”
Monitoring emerging issues gives an insurer time to determine the
best course of action for its book of business given its risk appetite. This
could include creation of new products, development of new application
questions and underwriting guidelines to help determine best risks in class,
possibly limiting capacity and monitoring aggregates. In some cases, new
exclusions may be appropriate.
Given the hundreds of emerging issues currently facing the P/C
insurance industry, is it reasonable to expect underwriters, underwriting
managers and claims personnel—all with full-time positions and the pressures
that come with those positions—to be able to adequately monitor so many
potentially significant emerging issues?
With potentially hundreds of billions of dollars at risk from
unexpected claims, one might wonder why so few companies have full-time
emerging-issues positions.
(This article is published in the March-April 2020
edition of Carrier Management magazine. Other articles about
emerging issues include: “12 Emerging Risks: Latest Risks Reveal Privacy,
Liability Threats,” page 19; “Could Decreasing Fertility Lead to Public Health
Litigation?” on page 23. To request a magazine, click on the
image of the magazine on our homepage.)
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