Identifying the next asbestos case

The insurance sector takes great pains to spot the next major loss event for the industry. Identifying trends in politics and society turns out to be essential to predict such emerging risks.

An example of what can happen when an emerging risk takes a long time to be identified is asbestos, a mineral that has been widely used in construction in the past to strengthen and fireproof materials.

Asbestos-related diseases include lung cancer, ovarian cancer and cancer of the voice box. Asbestos claims almost caused the collapse of Lloyd’s of London in the 1990s. The estimated net ultimate asbestos loss for the US property/casualty (P&C) industry is estimated at around $100 billion.

Emerging Risks

An emerging risk can be defined as a risk that is perceived as potentially significant but which may not be fully understood and assessed, thus not allowing risk management options to be developed with confidence.

An example of an emerging risk may be the herbicide glyphosate which ratings agency AM Best warned could easily lead to tomorrow’s public health crisis. Hundreds of lawsuits are pending against Bayer-owned Monsanto Co. in Federal court (San Francisco), filed by people alleging that exposure to its product Roundup (glyphosate) resulted in their developing non-Hodgkin’ lymphoma. Glyphosate is one of the most popular pesticides in the world.

“Concerns are growing that long-term exposure to the chemical glyphosate may be carcinogenic to humans and could represent the next asbestos-level threat to public health if not proactively managed safely and effectively,” the ratings agency warned in a Nov. 28, 2018 report.

Another risk that some believe could develop into a major threat is the rollout of the 5G telecommunications network. While allowing a faster data transmission, the new technology requires phone tower equipment to be denser and some claim that the radiation emitted by the equipment causes cancer. So far, research on its health impact has been inconsistent. Other potential meaningful threats may include climate change, genetically modified organisms (GMOs) or even obesity.

The phases of emerging risks

The process through which an emerging risk matures can be divided in different phases. One can become aware of a risk like climate change without having a real understanding of the consequences and therefore it may be of little relevance. In a second phase, society may start accepting the consequences that are linked to climate change. This is when concerns start to spread in society but it may still happen without the ability to quantify the scale and likelihood.

During this phase, uncertainty allows for people to challenge each other and nobody can win the discussion outright. It may be important to many, but not to some. The last stage is where the risk is quantified and no longer classified as emerging, but as an emerged risk.

Spotting emerging risks

The feeling that something will be important coupled with a fear factor is a good indicator for an emerging risk. Fear is a social amplification factor. Water can kill you if it hits you at high pressure, but because we understand water and can see it and touch it, we are not that worried when we see a powerful water jet. Radiation kills and the average person does not understand it. Perhaps also because it cannot be identified without a Geiger counter, it triggers fear which may amplify the risk so that even very low levels of radiation can make people believe it is very risky.

Two conditions may be necessary to make an emerging risk take off from a liability perspective. One is a narrative including a victim and an offender as well as a causality link between the two however tenuous.

The findings of a division of the World Health Organisation in 2015 suggested that glyphosate is “probably carcinogenic”. However, the study is controversial among scientists.

While the challenge for claimants often revolves around establishing causality between the risk and the damage, in the glyphosate case a California jury recently awarded a couple $55m in compensatory damages and a record $1bn each in punitive damages despite unresolved uncertainties in the scientific evidence. It is, therefore, essential to understand common law to assess the potential financial impact of a casualty case.

The second condition that needs to be met is that such a situation is acknowledged at a time when the topic is on people’s minds as it then creates an opportunity for potential victims. Acknowledging the zeitgeist is arguably essential to detect an emerging risk early. A major factor that is driving the current zeitgeist may be that people expect their lives to be perfectly healthy and safe. Anything that damages that is increasingly seen as unacceptable, creating a new expectation companies and insurers may need to adapt to.

Nevertheless, the insurance industry often misses identifying emerging risks. Lawsuits triggered by sports-related concussions as well as opioids jumped recently, potentially signalling a shift in responsibility and attitude which experts failed to notice.

Life cycles

Furthermore, emerging risks are subject to life cycles. While power transmission lines were perceived as an emerging risk in 1987, mobile phones were feared in 2001. In 2013 campaigners warned of the danger of radiation emitted by smart meters.

Some topics quietly disappear from the public agenda, as the ISO Emerging Issues Panel 2005 shows, perhaps because there have not been any major incidents for a while. There is barely any talk about Anthrax or SARS contamination nowadays, for example. At the same time, some topics reappear such as ground water contamination. Risks can also re-emerge such as in the case of a drop in vaccination levels which many countries are currently experiencing.

A major factor affecting the impact of emerging risks is the current political landscape and the fact that groups sympathise more with some interests than others. To deepen the understanding of a particular risk and assess its potential impact, it is therefore essential to interact with external stakeholders, including discussions with clients, political authorities and non-governmental bodies.

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