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The disaster latent threat for insurers


Frédérique De Simone

18 June 2019 11:30

Photo : Freepik

Hard to predict, anticipate and prepare, the risks are among the worst enemies of the insurers. This kind of risks, and even disasters, are hidden, unpredictable, and make it nearly impossible to assess the frequency of claims, the amount of losses and the time that they occur. At least that is what brings the firm’s rating S&P Global Ratings in its most recent report on the cost of unexpected disasters, latent, released June 3.

“The complexity of this kind of event could expose insurers unsuspecting in the disproportionate losses resulting from a build-up of risks casual “, specifies the report by S&P.

Risk weakly discernible

The links between human behavior and economic variables, legal and environmental are weakly discernible in advance. The observations of the past are not generally reliable indicators of future losses. And the time between the policy inception and the claim can be lengthy. They can be spread out sometimes over several decades and occur retroactively so that a coverage has expired.

The historical data on the losses caused by disasters latent are rare and non-structured, and the modeling of this type of event still in its embryonic stages, plus the specialists of the S&P. It is this which gives it its hazardous nature. The inability of insurers to understand the exposure and latent to encrypt, aggregate, or distribute the potential risks adequately could, according to experts, lead to losses disproportionate comparable to those related to the asbestos crisis.

An unprecedented crisis

Damage linked to asbestos represent, to this day, the disaster, latent, having had the consequences of mass the more expensive. It is also the greatest disaster with which it has had to combine the insurance industry, in the entire history of the United States, reports S&P.

Regarded as the “ore magic” at the beginning of the last century, asbestos brings wealth and prosperity in the United States, but over 70 years later, cause nearly 100,000 deaths each year and millions of dollars of loss to the insurers, in particular because of the insurance that covers the liability of the manufacturer and legal aid.

In total, the net losses incurred by us insurers have exceeded the us $ 50 billion (US$ millions) from 1998 to 2017, according to S&P. For the period from 2008 to 2017, for each $ 100 in policy underwritten, insurers have paid out the equivalent of 38.1 $ in responsibility of the manufacturer.

“The challenge posed by these losses and the high risk of a disaster latent associated with the liability of the manufacturer, make insurers reluctant to provide coverage for this liability, leaving many manufacturers, distributors, and producers of consumer products to self-insurance,” explain the experts of S&P.

In 2018, the direct written premiums of the market risks in the United States represent 342,1 G US$. The self-insurance accounted for 52 % of this market, with the assurance of the manufacturer is only 1 %. In 1998, it is the same observation. The liability of the manufacturer is 1 %, but self-insurance is 58 % of all direct premiums written in the United States. At the time, the market amounted to 147,3 billion US dollars.

The firm rating is estimated that the amount of claims related to asbestos is expected to exceed US$ 250b. She says by the very fact that BPA, phthalates and formaldehyde, chemicals now used in cleaning products and personal hygiene, such as toothpaste and shampoo, could result in economic losses greater, or of more than 300 billion US dollars in the near future. The fight to counter the use of these processes has already begun, but the consequences are not all revealed.

Raise awareness of the environmental issue

The firm S&P says that insurance companies can reduce claims and help reduce the risk of new disasters unrealised thanks to the awareness of their clients on the environmental issue.

“We are convinced that the insurers who adopt sustainable solutions, mindful of the protection of the environment and security, will improve the reputation of their brand while making the world healthier, cleaner and safer. In addition, we consider that the due diligence is just as fundamental as pricing to ensure the risks related to the liability of the manufacturer, enterprise and consumer, ” she said.

Strengthen citizens ‘ awareness of environmental issues, social and about the risk management would also protect the insurers.

“The idea would be to use verifiable indicators to ensure that the products are manufactured and delivered safely, equitably, and do not contribute to a risk to human health or the environment, at the time of underwriting of the insured,” adds the company in its report.

The worst disasters in unrealized

Effective insulator, asbestos was mixed with clothing, paper and building materials to make them more solid. The asbestos fibres are microscopic and volatile, can easily be inhaled or swallowed by humans without them noticing. Once asbestos fibers accumulate in the human body, they do not dissolve ever and can cause various diseases that may occur after several decades.

A number of class action lawsuits against companies in various sectors, such as manufacturers of fibers, of asbestos-containing products and distributors, began in the 1970s, and continued for tens of years, because new cases of mesothelioma and lung cancer emerged, notably due to the duration of incubation and development of these diseases, which can be long.

Last year, the company Johnson and Johnson has recorded in the heart of the controversy. Its talcum powder, commonly known as baby powder, was found to be contaminated with asbestos, and this, since at least 1971. The american company has been ordered to pay 4,14 G US$ in punitive damages and $ 550 million u.s. (US$ M) in damages to 22 women, which alleged that the asbestos contained in the talcum powder was the cause of their ovarian cancer.

Not to forget Monsanto, the us subsidiary of the German company Bayer AG, which has also been taking part in this plague. In 1973, a glyphosate is discovered by the company. It is a chemical product used to destroy weeds. Marketed in 1974 under the name of Roundup, the farmers of the world the employment in the fight against weeds. The product is widely used in the cultivation of corn, cotton, soybeans and lentils, as well as by homes and schools.

Since the patent expiration of glyphosate from Monsanto in 2000, more than 750 different products containing glyphosate are currently being sold on the market. Although the health studies linking glyphosate to non-hodgkin’s lymphoma have not been conclusive, a jury of a court of the State of California has recently sentenced the company to pay US$ 2 billion in punitive damages, following the proof beyond all doubt that long-term exposure to Roundup, Monsanto had caused a number of cancers.

The report of S&P mentions that as judicial procedures are still underway in the case of Johnson & Johnson and Monsanto, even if no compensation was paid, the only defense costs associated with litigation regarding the talc and the glyphosate could amount to hundreds of millions of us dollars, which may even exceed a billion dollars.

Learn from the crisis

While the stories of disasters latent costing several billion dollars are quite rare, according to experts of the firm S&P, once the damage occurred, the insurers and the manufacturers must take account of the costs of ultimate for years to come. The report mentions that as many manufacturers as consumers need to be sensitized to this type of risk.

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