Insuring Nanotech Risk
New technologies often come with great promises from proponents and grave warnings from skeptics. This is certainly the case with nanotechnology, which has been touted as a potentially revolutionary method of improving everything from health care to clothing, but has also raised fears about what could happen if nanoparticles accumulated in the human body or the environment. The risk management community has taken notice. Major insurers such as Allianz, Munich Re, Swiss Re and Lloyd’s have issued detailed reports describing the potential risks to people and the environment. To date, few losses or claims have been reported, but the issue looms and risk managers and insurers are continuing to develop strategies in response.
ACE USA continues to carefully evaluate and underwrite nanorisks, responding as needed on a case-by-case basis. “At ACE, we are closely following this area of emerging technology,” said Connie Germano, senior vice president of ACE Casualty Risk. “We are very interested in hearing as many opinions as possible about how this developing area of scientific research and application will affect businesses and provide them opportunities. As we continue to follow the growth of nanotechnology in the United States, ACE seeks to assess this risk, and will be flexible when considering insuring a properly controlled nanomaterial exposure.”
Chubb has taken an active approach in communicating risk management ideas to the nanotechnology community. “The insurance industry has had a tangible impact on the scientific thought process, which is key,” said Chubb vice president Louise Vallee. “From a loss control perspective, while the end nanoproduct is easy to see, the interim product is harder to identify. Also, it behooves clients engaged in nanotechnology to control nanorelease not just from a loss control standpoint, but an expense standpoint.” Vallee believes that the insurance industry is making an impact on the advance of nanotechnology, and has “calibrated the scientific community on the risk management perspective.”
To provide nanotechnology users with more robust identification of their nanotechnology risks, Zurich has developed the ZNEP (Zurich Nanotechnology Exposure Protocol), a web-based software product. The ZNEP program looks at particle characteristics such as size, shape and solubility to determine the level of potential hazard. Zurich is also focusing on risk characteristics. “The primary challenge is the lack of certainty of the risk information available,” said Ashutosh Riswadkar, liability line of business director for Zurich Services Corp. “In insurance, what you don’t know can hurt you. Nanotechnology has no single characteristic that determines the level of risk, so the risk is difficult to assess.” Riswadkar believes it is important that insurers participate in a dialogue with both nanotechnology industry stakeholders and standards organizations. “In the absence of health and safety standards, the insurance industry can play a balancing role,” he said. “Insurance and risk management are essential enablers for the successful commercialization of nanotechnology. We don’t want to hamper development, but rather, bring the consideration of health and safety to the table.”
Lexington Insurance has taken a proactive approach. As a result of dedicated panel discussions, it realized that there was a need among smaller firms in the nano space for underwriter expertise to help manage potential risks. The result was the development of a specific insurance policy for nano clients. “We’ve developed an integrated coverage form for this group, who may lack the level of risk management sophistication of larger companies,” said Karen O’Reilly, Lexington’s director of product development. “The coverage form can include general and products liability, as well as product recall and products pollution coverage. We will also offer the services of a specialized law firm to help navigate legal issues, as well as the services of a technical consultant to help with other risk management issues.”
With bodily injury and product liability activity still minimal, perhaps the main exposure for nanotech firms is from an intellectual property standpoint. “As nanotechnology research matures into nano-based product development, companies are becoming acutely concerned with freedom-to-operate issues,” said Jeff Rosedale, co-chair of the nanotechnology practice group at the law firm Woodcock Washburn. “Several areas of nanotechnology, such as carbon nanotubes, are saturated with multiple overlapping patents. But obtaining numerous licenses is impractical, so companies need to carefully design their products to avoid infringing others’ patents. Clients are asking how to minimize this risk, which can require a lot of work and money. This creates a catch-22 for investors and entrepreneurs: investors are only willing to invest as long as the IP infringement risk is low, but entrepreneurs don’t typically have the funds necessary to prove the IP risk is low. Ultimately, developing IP and understanding the associated risks requires good planning.”