|
Genetic Engineering and Biotech Risks: An Insurer’s Perspective
by Manoj Kumar
CPCU,
ACII, ARe, ARM, FIII, MBA
manoj@einsuranceprofessional.com
The
controversy surrounding Genetically Modified (GM) foods have been
making headlines across the globe for several years now and the
debate still rages on. European environmental organizations and
public interest groups have been actively protesting against GM
foods for years and have been able to turn this into a big public
debate. Recent controversial and sometimes contradictory studies
about the effects of genetically modified food have brought the
issue of genetic engineering to the forefront of the public
consciousness in the U.S., Europe and elsewhere. European
supermarkets continue to boycott the GM foods and have pledged to
not stock any of these foods in their shelves in the coming years.
What
are Genetically-Modified (GM) foods?
The
term GM foods or GMOs (genetically-modified organisms) is most
commonly used to refer to crop plants created for human or animal
consumption using the latest molecular biology techniques. These
plants have been modified in the laboratory to enhance desired
traits such as increased resistance to herbicides or improved
nutritional content. Genetic
engineering can create plants with the exact desired
trait very rapidly and with great accuracy. For example, plant
geneticists can isolate a gene
responsible for drought tolerance and insert that gene into a
different plant. The new genetically modified plant will gain
drought tolerance as well.
Although
“biotechnology” and “genetic engineering” are used
interchangeably, GM is a special set of technologies that alter
genetic makeup of such living organisms such as animals, plants or
bacteria. Biotechnology, a more general term, refers to using living
organisms or their components, such as enzymes, to make products
that include wine, cheese, beer and yogurt. Our focus of study here
however is GM technology and associated risks, which are of concern
to property and liability insurers.
Insurability
of GM Industry
In
order for a risk to be insured and rated, there should be enough
loss experience over a substantial period of time. Further, insurers
should understand the risk properly and should be able to identify
the risks and hazards associated with it. In the case of GM
industry, neither the meaningful loss experience is available nor
its impact on health, society and environment is clearly assessed.
The situation gets further complicated by ever changing technology
in the GM industry and involvement of social, political and legal
factors.
Optimists
in the insurance industry, however claim that the GM risk has been
around for some time now and no major claim of catastrophic nature
has been reported till date. But the fact remains that the GM
technology is still evolving and it may be too early to predict its
impact on health and environment.
Likely
Risk Exposures
The
most likely exposure that insurers could face is bodily injury. If a
consumer claims illness due to eating genetically modified or
transgenic food, insurers are exposed to series of claims, which may
assume catastrophic proportions. The situation could be similar to the asbestos
disaster, in which workers who contracted cancer years after being
exposed to the deadly mineral sued mining companies for millions of
dollars in damages. Insurers may also be exposed to Product Recall
risk and associated third party claims.
Labeling is also an issue, as
food manufacturers advertise that their products are free from
genetically modified foods. Insurers might be exposed to claims if
it turns out to be untrue. Infringement of Intellectual Property
Rights is another issue due to every-day patenting of new GM
technologies. From the First Party’s perspective, the company’s
brand name may be affected if there are suites and adverse media
campaign launched against it.
Availability
of Insurance Coverage
In
the beginning, GM Companies were covered by default under their
corporate liability policies since genetic engineering was not
excluded under the policy. But soon the insurers responded to the
risks involving this new technology with great caution, even
following careful underwriting with the co-operation of scientists
and safety engineers. They started to either exclude the liability
arising out of genetic engineering or limited their exposure by
adding suitable conditions or warranties. Even after the acceptance
of the GM risk today, there exists a large gap between the cover on
offer and the level of coverage required for genetically engineered
risks.
General
insurers who are prepared to provide insurance for product and
environmental liability for genetically engineered risks are likely
to offer a specific stand-alone policy on a "claims-made"
or "manifestation" basis. The wording may well exclude
claims arising from changes in genetic make up of humans or animals
or from second generations. The policy coverage will be similar to
that available to the pharmaceutical industry restricting all serial
claims arising from one common event irrespective of what period
they manifest to a single policy year limit of liability.
As
per Marsh’s “Limit of Liability” Report 2003, the maximum
limit of liability available today is about $700 million, but
lawsuits today could result in settlements in the billions of
dollars. Three years ago, the limit was somewhat higher, at about $1
billion, but still inadequate.
Socio-politico-economic
Influence on the Risk Profile
Widespread
skepticism over genetic engineering and GM products has taken the
dimension that has further worsened the risk scenario and raised
questions about the acceptability of the risk from the insurers
perspective. Socially, majority of the consumers prefer non-GM food
even though some researches have proved this food to be safe from
health point of view. Nonetheless, it has become a public issue and
provokes debates in wide circles. Economically, these products are
penetrating in the markets where no adverse reaction is seen today
but future can’t be predicted. Politically, pressure from the
general public and environmentalists could lead to laws where awards
and penalties can be imposed on the GM companies which the insurance
companies may not have accounted for.
Alternative
Financial Risk Coverage
Genetic
engineered risks as discussed in the preceding paragraphs are either
currently uninsurable or unattractive to the general insurance
industry. Coverage that is available is either restrictive or
inadequate.
A
demand for alternative coverage to traditional risk transfer has
been created. Research indicates that there are a number of finite
risks of alternative risk financing models being used alongside
traditional forms of insurance cover. Tailor-made hedging
instruments are carried and financed jointly by the policyholder and
insurer/re-insurers. Companies can establish Captives either
individually or as a group within the same industry. Alternatively,
they can decide to self-insure by setting aside some money for
themselves. But all these options are much less effective than a
traditional insurance plan.
Conclusion
Genetically
modified foods have the potential to solve many of the world’s
hunger and malnutrition problems and to help protect and preserve
environment by increasing yield and reducing reliance upon chemical
pesticides and herbicides. Yet, like all new technologies, they
possess some risks, both known and unknown. Insurers need to study
carefully the controversies surrounding GM foods and crops before
granting cover and focus on risks emanating from human and
environmental safety, labeling, intellectual property rights,
ethics, food security and environmental conservation.
|