Think small

Insurance and nanotechnology—welcome to the future

By Thomas H. Wetzel

Producers looking for the next new business opportunity may choose to look no further than the surging field of nanotechnology. Nanotechnology is not an industry unto itself—it is an interdisciplinary field in which the objective is to manipulate matter on the “nano” scale, (down to 1/100,000 of an inch, the width of a human hair) in order to create new and unique materials and products.

A number of major insurers have created units to write the business, so it stands to reason that producers should jump on the bandwagon. Right? The answer is yes and no. There is no question that nanotechnology is “hot” and the market for coverage is growing rapidly. However, as in any new field, there are dangers for the uninitiated.

The National Nanotechnology Initiative (NNI), a federal program of individual and cooperative nanotechnology-related activities of 25 federal agencies, calls it the “science of small.”

In his 2005 book, “Nanofuture,” Dr. J. Storrs Hall of the Institute for Molecular Manufacturing writes: “Nanotechnology has the potential for increasing our physical capabilities more than did the industrial revolution, expanding our ability to learn and communicate more than did the printing press, accelerating our ability to travel more than did the boat or the wheel, and enlarging the range of places we can live more than did clothing. It could induce greater biological changes in the human organism than the difference between humans and chimpanzees, indeed, greater than the difference between humans and horseshoe crabs. It is coming, possibly in the next decade, probably in the next 25 years, almost certainly in the 21st century.”

The NNI has identified a number of products and processes already created through nanotechnology, including stronger, lighter, more durable materials; low-cost filters for drinking water; medical devices and drugs to detect and treat diseases more effectively with fewer side effects; energy-saving lighting; sensors to detect and identify harmful chemical or biological agents; and techniques to clean up hazardous chemicals.

Lux Research, a New York-based international research firm on emerging technologies, cited key statistics on just how rapidly nanotechnology is spreading.

• More than $50 billion in nanotechnology-enabled products were sold worldwide in 2006, and $12.4 billion was invested in nanotech R&D.

• That same year, venture capital investments flowing toward nanotechnology were expected to reach $650 million.

• As of early March the United States held approximately 6,800 nanotechnology-related patents.

Chubb, St. Paul Travelers, CNA and The Hartford have developed units dedicated to nanotechnology-related business and insure many of the research facilities and technology firms engaged in it. Up to now, most of the business has been written by a handful of brokers. That will undoubtedly change, as more producers become familiar with nanotechnology and how clients are using it.

“Awareness about nanotechnology-related risks will continue to increase amongst agents as more information and direction on the risks and protective measures becomes available,” says Todd A. Macumber, vice president/risk consulting practice leader for HUB International.

“Our insurers are scared to death of the risks, particularly for the potential for significant BI claims,” says Scott Schleicher of Maryland-based CCBSure. “They are scared because nanotechnology is so new and some of the products produced with it pose obvious risks, such as ultra-thin body armor and other breakthroughs in weaponry and medicine. From a coverage standpoint, we have not yet seen any new policy language or endorsements, though there needs to be some.”

“We view nanotechnology as an evolution of existing processes,” says Louise Vallee, vice president of loss control for Chubb. “Its promise, though, is exciting. We look at each type of operation individually—how it’s used in electronics, pharmaceuticals and the like.”

Anthony Bernato, vice president of life sciences for HUB International, questions some naysayers.

“Just because a new drug is delivered in nano-particles, does it mean the adverse reaction will be more severe? Or in a technology E&O application, will it be harder to control an environment that manufactures computer chips or instruments that are measured in nanometers? Certainly, there are a number of concerns, such as the high values for small quantities, high values for the equipment, biostorage and loss control issues, not to mention identifying the potential exposure and pricing correctly for it.

“Exposures include various health hazards due to inhalation, absorption through dermal exposure, and ingestion of nanoparticles, as well as the potential for fire/explosion and other physical hazards,” Bernato continues. “Many concerns surround working with nanomaterials in liquid media, including mixing/pouring operations; servicing of equipment, processes, and systems (such as dust collection systems) where nanomaterials are being used; generating nanoparticles in the gas phases (with unenclosed systems) and any other general disruption of the material (in an uncontrolled/unprotected setting).”

Chubb’s Vallee says much of the exposure relates to worker safety and health—such as proper respiratory protection and ventilation for inhalation exposures.

Despite the risks, Harry Oellrich, managing director of Guy Carpenter, says it would be a mistake to exclude it. “Right now, the market is like the Wild, Wild West,” he says. “It is an emerging exposure and the potential is analogous to asbestos. However, if I have a plea, it is this—be proactive, don’t have a knee-jerk reaction or keep your head in the sand.”

What scares companies, agents and brokers, of course, is the prospect of litigation or claims disputes. Matthew J. Schlesinger, a partner with Reed Smith LLP in the giant law firm’s Washington, D.C. office, says his firm has not yet seen any litigation or coverage disputes connected with nanotechnology.

“There will be disputes,” he says, “but at this point we don’t believe nano materials will be treated any differently than other new products. Risks are uncertain but there is always uncertainty with respect to new products. For example, I do not believe a nano claim is a pollution issue—it will be either a product liability or bodily injury claim.”

Evidence of causation and bad conduct are what drive lawsuits, says Tony Klapper, Reed Smith partner.

Klapper, who is widely quoted and published on nanotechnology issues and who headed Reed Smith’s nanotechnology initiative, says insurers and producers can evaluate a prospect’s exposure in specific ways.

“First, avoid ostrich-like behavior,” he says. “Some studies show that some nanomaterials behave like asbestos. Does a company dismiss them or ignore them? Have they considered the need to do their own studies? Do the studies make pronouncements that are inconsistent with the company?”

Klapper continues: “How well do they monitor and track the science? How diligent are they in monitoring regulatory actions and advisories and making changes in their operations when warranted? Do they understand the exposures? What programs do they have in place in industrial hygiene, engineering, and reporting? Lastly, are the products designed with safety in mind? Does the company comply with existing regulations? There is such a swirl of questions surrounding nanomaterials.”

Says Bernato, “The insurance industry recognizes it must support the new technology as it becomes an increasing part of the new economy. If a carrier has an appetite for life science and technology, then the underwriting team well understands that these are industries which are in an evolutionary period of dramatic speed. The evolution is smaller and smaller, but does smaller and smaller increase exposure? Sometimes yes and sometimes no. The insurance industry has demonstrated it is ready, willing and able to support the new science. Welcome to the future.” *

The author
Tom Wetzel is a seasoned public relations counselor and principal of Thomas H. Wetzel & Associates, Inc. He has nearly 30 years of insurance communications experience. Prior to forming his marketing communications firm, he held positions with the Michigan Association of Insurance Companies and the Insurance Information Institute.