Article - Issue 22, March 2005

Small Matter, Many Unknowns

Annabelle Hett

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An insurer’s look at the risk implications of nanotechnology

The public debate surrounding nanotechnology points to the degree of uncertainty around this major new approach to industrial production. Annabelle Hett argues that the insurance industry must work with its clients to identify, analyse and quantify the potential risks of nanotechnology.

Nanotechnology is a major new approach to materials science which allows the controlled manufacture of structures and tailor-made particles a few millionths of a millimetre in size. Nanotechnology could play a part in producing, for example, faster computer chips, more efficient batteries,‘ carriers’ for medicines or ultra-thin coatings with multiple properties.

Until recently, the phrase ‘technology cuts both ways’ was rarely associated with nanotechnology. However, its commercial utilisation has triggered controversy. The term itself is rapidly becoming a buzzword in the media and the public at large. Questions abound regarding the opportunities and – from an insurance perspective – the hazards of nanotechnology. Are the invisible particles emitted by air fresheners dangerous to our breathing? What happens when products manufactured using nanotechnology end up on waste disposal sites and their particles are released into the environment? Can nanoparticles in suntan lotions find their way into the body via the skin and produce harmful effects?

To date, not enough is known about the implications of this novel discipline. The paucity of data in this field invites a host of fears and alarmist scenarios. Since the use of nanotechnology in commercial production is set to spread rapidly, the insurance industry should waste no time in assessing the potential risks and benefits both for itself and for society in general.

Implications for insurance

The introduction of nanotechnology involves a paradigm shift – both in industrial applications and in the exposure mechanisms. How likely is it that a relationship will be established between cause and effect for potential claims produced by nanoparticles? In view of the results that are familiar to us from, for example, exposure to diesel exhaust fumes, a causal connection would appear to be perfectly possible. Presumably, one would not just identify another substance in the long list of co-carcinogens, which confront people daily. It is more likely that, for certain products, proving exactly where they come from, who manufactured them and what harm they have done to the claimant could be possible.

Revolutionary risk trend

The insurance industry is concerned, not because experience shows that new technological developments tend to give rise to new loss scenarios, but because the extent of these potential claims can be difficult or impossible to assess definitively. In terms of risk and underwriting, there have been technological leaps in the past. For example riveting was succeeded by welding, natural fibres by artificial fibres, metal by plastic, amplifier tubes by transistors, the piston by the turbine, the horse-drawn carriage by the automobile, and the electric conductor by optical cable.

All these technological changes were readily accepted by insurers, as little in the way of unforeseeable problems was to be feared. As far as risk was concerned, those tended to be evolutionary developments, with which insurance companies can generally cope – even if they do so reactively. However, the risk landscape never saw a categorically drastic change; there were no uncertainties that defied assessment, nor any real threat to risk bearers.

The situation is different in relation to developments that are revolutionary in risk terms and whose potential for damage we cannot assess. Such developments come in two different forms: firstly, potential risks related to events attributable to a cause; and secondly, those whose causality merely cannot be excluded, i.e. the so-called phantom risks.

Some nanotechnologically-enhanced products or applications may well belong to the category of revolutionary risks that can be shown to have harmful consequences. At the same time, the assessment of potential losses must be assumed to be either impossible, or at least very difficult, with regard to their scale, location and time of occurrence.

What makes nanotechnology new in insurance terms is the unforeseeable nature of the risks it entails and the recurrent and cumulative losses it could lead to, given the new properties – hence different behaviour – of nanotechnologically manufactured products.

Asbestos – lessons from the past

One example of a product which did not develop positively was asbestos. Years ago, asbestos enjoyed great popularity and was widely used as one of the most fire-resistant and durable substances available. Much like certain nanotechnologically manufactured products today, products containing asbestos were used in innovative ways and in many beneficial applications. What is more, asbestos fibres were not in any real sense toxic or chemically suspect. Yet their fibres could, merely on account of their form and size, cause grave harm to lung tissue – a consequence discovered only years later.

This late discovery saw regulations and protective measures being introduced only after people all over the world had fallen incurably ill. While isolated studies had indicated potential risks earlier, the true extent of the damage could not be foreseen in the absence of long-term usage and experience.

Now society and the insurance industry face the question: what effects will nanotechnology and its

products have on human beings and the environment? Most nanoparticles are presumably non-toxic in the strictest sense. In view of their diminutive size, however, they have special properties with a potential that remains largely unknown.

Bearing in mind that – despite early warnings about the effects of asbestos on health – it took some 100 years to introduce internationally accepted asbestos standards, it would certainly be advisable to find a consensus much faster this time.

Nanotubes – a viable comparison?

The comparison of nanotubes with asbestos fibres has caused quite a stir. Articles point out that certain nanotubes are similar in form and size to asbestos fibres. The supposition that the potential for harm could be similar would appear to be obvious and is subject to discussion in expert circles. Nanotubes, however, account for only a small part of the nanomaterials currently produced. Even if this proportion grows, it is the much larger proportion of non-tube-shaped nanoparticles that we should subject to minute scrutiny. The insurance industry would be well advised to follow these developments closely and to familiarise itself with as many applications of nanoparticles as possible.

Nanoparticles are already contained in numerous products worldwide and occur in various applications. There are indications that certain nanomaterials are potential health hazards. The danger is most probably not of an acute but of a chronic nature, and it could be some time before it manifests itself. This is where the real risk for insurers lies, and the comparison with asbestos should be seen in this light.

Risk assessment

Risks arising out of the introduction of new products or innovative technologies may become evident after some years. Although this makes it no easier for the insurer to assess risks or set premiums, it is still possible to do so as long as loss scenarios are conceivable and the number and extent of the resultant claims can be assessed. This is true as long as insurers are dealing with potential individual claims, even of a novel nature.

Nanotechnology, however, is set to spread to such a wide range of industries and in such a large number of applications and at such speed that the individual claims, conceivable on the basis of experience and resulting from the development, design, product and application defects will surely not be long in coming. Things will become critical if systemic defects emerge over time, or if a systematic change in behaviour remains undetected for a long time. In that case, large loss potential could accumulate, for example in the field of health impairment.

With occupational diseases and product liability, the risk of human and physical exposure increases the closer one is to substances and potentially hazardous influences. The risk is greatest if harmful substances can directly penetrate the body. If this happens without people’s knowledge and in an uncontrolled manner, claims for compensation may be expected in the event of health impairment. The more time passes before the harmful effect is recognised, the greater the cumulative claim for compensation will be.

To assess the potential risk in terms of scale then, one must be familiar with the dissemination routes of the potentially hazardous substances. If the dissemination were limited to products with direct access to the body – such as food, personal hygiene and medication – a rough risk assessment would be possible. But this would not be the case if the hazard were to spread to the environment, the air and our drinking water.

These latter channels are open to nanoparticles, at least theoretically. Furthermore, many of the artificially manufactured nanoparticles would be traceable back to the manufacturer. This would make it easier to establish liability than it would be if substances were universally present. If the risks of nanotechnological products are to be assessable and manageable, tests to determine their long-term toxicity are advisable. New kinds of testing and experimental methods may be required.

It will be no easy task for insurers to recognise the potential risks, as both the manufacture and the use of nanomaterials will spread rapidly. Early application of nanomaterials included pigmentations, surface treatments and coatings of all kinds. Nowadays, the manufacturers of cosmetics and household products also use the special properties of nanotechnological substances, as do the electronics, automobile and aircraft industries.

Experts agree, however, that the greatest potential benefits at present are in the fields of medicine and pharmaceuticals. In the medical field, nanoparticles can transport active substances to specific organs. Knowledge of the potential side effects will be amassed only over time from individual cases. As regards the assessment of the product liability risk attached to such new drugs, the following principle continues to apply: the loss potential of unexpected side effects increases with the time it takes for them to manifest themselves and with the degree of market penetration. As far as the probability of claims due to side effects is concerned, lifestyle preparations are more exposed than life-preserving medicines.

Insurers will have to live with the uncertainties of nanotechnological risks for a long time. They will not be able to determine precisely either the probability of a loss occurring or its possible extent. This will work as long as the individual claims – following the technological development – pursue an evolutionary course, and the insurers can constantly adapt their risk management system to the changed circumstances. What must be avoided is an unforeseeable, ruinous loss accumulation unleashed by a flood of late claims. As always, if the liability risk is incalculable, the insurer must limit its commitment in such a way as to at least assess its own worst-case loss scenario.

The precautionary principle

The responsible authorities face the task of ensuring the safe handling of nanotechnological products and applicators as regards their rapid dissemination in society. Without sound scientific knowledge of the risks involved, however, this is hardly possible under current law.

A sensible pursuit of technological research and development must be found which offers people and the environment optimum protection against possible hazards. This challenge has prevented the introduction of the ‘precautionary principle’ in relation to new technologies for more than 20 years. The precautionary principle demands the proactive introduction of protective measures in the face of possible risks, that science at present, in the absence of knowledge, can neither confirm nor reject. This ‘better safe than sorry’ approach prescribes that necessary measures to protect people and the environment should be introduced at an early stage, even if the scientific uncertainties regarding the risks have not been finally clarified. The Rio Convention of 1992 states: “Where there are threats of serious or irreversible damage, lack of scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.”

Whether and at what stage we should adopt such measures is equally difficult to determine. While one does not want to take unnecessary costly protective measures – especially if they might have a negative effect on continuing economic development – neither people nor the environment should be burdened with avoidable dangers.

The dilemma surrounding the precautionary principle is the subject of a number of public discussions – especially those dealing with mobile communication or genetically modified foodstuffs. To date and despite numerous efforts at an international level, no consensus has been reached on a definition of the precautionary principle that is acceptable to all concerned parties. This is because the details of the situation on which a decision has to be taken differ so radically.

In view of the dangers to society that could arise out of the establishment of nanotechnology, and given the uncertainty currently prevailing in scientific circles, the precautionary principle should be applied whatever the difficulties. The handling of nanotechnologically manufactured substances should be carefully assessed and accompanied by appropriate protective measures. This is particularly important for individuals whose jobs expose them to nanoparticles on a regular basis. At the same time, no reasonable expense should be spared in clarifying the current uncertainties associated with nanotechnological risks.

The main precondition for successful risk assessment in a technology as complex as nanotechnology is finding a consensus among industry representatives, legislators and research institutes. It is one which must extend across national borders. Only if the many open questions are addressed in an organised way can the attempt to analyse the risks be successful.

The burden of research must be shared by several parties. Neither industrial companies nor public institutions can acquire sufficient capacity to investigate these questions on their own. Furthermore, the efforts of individuals are hardly going to be enough to obtain a comprehensive picture of the risk landscape. A degree of standardisation and a basic framework, starting with the nomenclature, are prerequisite to improving the coordination of these efforts.

Certain certificates of non-objection and long-term studies should be given legal status and distributed among various research institutes with appropriate research funding. Industry must also make its contribution by taking an active part in risk research and raising public awareness of risk.

Fostering partnership

The insurance industry assumes the uncertainties and risks of its business partners. In the case of new technologies, the uncertainties prevail, since neither the probability nor the extent of the potential losses are precisely calculable. This is in contrast to the large number of familiar risks in an insurance portfolio, which can be reduced to numerical terms on the basis of experience.

By providing cover for uncertainties – more specifically, by facilitating or enabling a launch into ventures involving risk – the insurance industry makes a key contribution towards technical progress. To be an effective and competent partner for industry, however, it must focus upon identifying, analysing and measuring risks, so that assuming them does not present unpleasant surprises. Making risks assessable and calculable is the insurers’ strength, a strength from which everyone benefits. In this, however, it must pool its knowledge and engage in dialogue with all the representatives of a community bound together by a shared risk.

Only those who have a clear picture of the risk landscape can be reliable partners in the risk business itself.

The main precondition for successful risk assessment in a technology as complex as nanotechnology is finding a consensus among industry representatives, legislators and research institutes.

Biography – Annabelle Hett

Risk Engineering Services, Chief Underwriting Office, Swiss Re After obtaining a degree in veterinary medicine with a thesis in radiology and nuclear medicine, Annabelle Hett worked as a veterinarian in an equine clinic. She then joined the division for epidemiology at the Swiss Federal Veterinary Office, where she focused on BSE and conducted research projects in collaboration with the NeuroCenter, the Swiss Reference Laboratory for Spongiform Encephalopathies in animals. She attended further training in risk communication and joined Swiss Re’s Risk Engineering Services in 2002. She is currently in charge of Swiss Re’s risk perception system SONAR and is involved in various projects relating to the identification, assessment and communication of risk.

Further reference

This article is an edited extract from the report Nanotechnology – Small matter, many unknowns, a part of a series on risk perception produced by the Swiss Reinsurance Company, Swiss Re. The full report and others in the series are available on the company’s website:

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