Insurance Industry Refuses to Insure "Unpredictable Risks"
of Genetic Engineering

27th January 1999

by John Madeley

Genetically engineered products could cause such huge insurance problems

that it will be insurance companies who run for cover. This is clear from a

report by the Zurich-based Swiss Re, an influential re-insurance company

(available at <<>, in PDF format).

Genetic engineering is potentially one of the most "exposed technologies of

the future", says the report "Genetic engineering and liability insurance".

"Is the insurance industry perhaps being too rash in its dealings with

genetic engineering?" it wonders.

There is "insufficient loss experience" and "no quantifiable elements" for

the insurance of genetic engineering, the report points out. Its findings

will come as a bombshell for genetic engineering companies. For the report

casts doubt on whether insurance companies can fulfil their role as risk

carriers to the genetic engineering industry. "Since the insurance

industry's business is to accept risks in return for premiums, it must have

a clear conception of the nature and size of those risks", it says.

How can genetic engineering risks be insured, asks the report, when there

is no clear conception of them? Much will depend on whether the genetic

engineering industry and insurance industry can reach a consensus "on the

relevant loss scenarios....we are at present a long way off". The more

disagreement there is about "the basic prerequisite of insurability, the

more insurance companies consider themselves unable to fulfil their

function as a risk carrier".

At present, genetic engineering is insured under many existing liability

insurance policies. Only a handful of markets define special cover or even

exclusions for its applications. "This creates the impression that many

insurers treat genetic engineering as a simple continuation of industrial

activity", says the report. The report's author, Thomas Epprecht, says that

this also makes it difficult to estimate the size of the insurance market

for genetically engineered products.

The "one-sided acceptance of incalculable risks" means that insurance

companies face the risk "of losing control over their exposure", the report

warns. Lawsuits from people suffering allergies to genetically modified

foods are conceivable. "If one single genetic engineering loss manifests

itself not only the seed manufacturers, but also at the farmers and the

foodstuffs industry, different underwriting liability covers could be

triggered simultaneously", it says.

Public attitudes are also important. The euphoria which once accompanied

and spurred each advance, "has hit a crisis", says the report; society

increasingly associates scientifically complex developments with a massive

potential for destruction; this holds true for genetic engineering.

The less acceptance the public shows towards new risks, "the greater the

likelihood that the possible negative consequences of each new technology

will become a problem for the insurance industry", it points out. And

legislation may change if a growing number of people begin to perceive

genetic engineering as dangerous.

Genetically engineered foodstuffs have become a huge area of controversy in

the past year. Tom McDermott, public affairs director of Monsanto Europe,

one of the companies involved, played down the Swiss Re report. He said it

was concerned "about the unpredictability of political and legislative

developments, as opposed to risks of the technology itself. Risks posed by

a product depend on the product's properties, irrespective of what methods

were used to produce it."

A spokesman for Lloyds said that an insurance company that was asked to

cover the risks of genetically engineered products would work out a premium

to cover them and that "it would only be after any adverse claims

experience that the company would raise premiums or get out of the market

altogether". But he added there would nonetheless be a liability limit on

such policies.

Some kind of hedging instrument may be appropriate, believes the Swiss Re

report, in which the risks of genetic engineering are "carried and financed

jointly by the insurer and the insured".This would be in accordance with

the "polluter pays" principle.

The implication of the report is that the genetic engineering industry will

have to bear some of the cost of insuring its products - which would

inevitably raise their prices and could make them uncompetitive.



If ecosystem and biodiversity damage are only insurable

when they also damage human property, health or welfare,

it is absolutely imperative that the scope of the Biosafety

Protocol explicitly includes humans and their social institutions.


(IATP/TWN, Minneapolis)

SUNS (south-north development monitor) #4343 Friday 11 December 1998

publisher: third world network, 228 macalister road, 10400 penang, malaysia

chief editor: chakravarthi raghavan, rm c504, palais des nations, ch-1211

geneva 10, switzerland; tel:(4122) 7344274, fax 7401672; email



Insurers wary of LMOs and GE products

Minneapolis, USA, 9 Dec 1998 (IATP/TWN) - Insurance companies are finding

themselves unable to evaluate properly the risks of covering liability for

genetically engineered products. They appear to be covering risks that are

unquantifiable under existing liability policies and may be over-exposed.

Representatives of non-governmental organizations (NGOs) from the US,

Brazil and India visited the Swiss Reinsurance Group in Zurich on 1

December, to learn more about the giant reinsurance company's concerns

about living modified organisms.

The NGOs wanted to compare the views of the insurance industry with those

of negotiators in the Ad Hoc Working Group on Biosafety, who are charged

with drafting a legally-binding international Biosafety Protocol to set out

procedures for handling these organisms safely.

The NGOs were told that because the technology is so new, there is no way

as yet to properly evaluate the risks. In effect, therefore, the

consequences for insurers range anywhere from near zero to near

catastrophic levels. Meanwhile, insurance companies in most markets are

covering these unknown risks under existing liability policies and are thus


"We are neutral between industry and ecologists," said Swiss Re's Dr.

Thomas Epprecht, a biochemist in Risk Management Services. "Our business is

risks. We are not shy to talk about risks." Epprecht explained that the

normal way insurers calculate risk is by looking backwards at the history

of claims; when such a history does not exist, they must build scenarios.

"The main problem with genetically modified organisms," Epprecht said, "is

that public acceptance ranges from full to zero." This makes it especially

difficult to build practical scenarios. "The question isn't whether it is

safe or not; the burden of proof is on us."

Dr. Epprecht is author of a brochure published by Swiss Re in November

entitled "Genetic Engineering and Liability Insurance: The Power of Public

Perception." On the cover, the brochure states: "...the decisive element is

not whether genetic engineering is dangerous, but how dangerous it is

perceived to be."

It is in response to the brochure that the NGOs went to the reinsurance

company. They were Kristin Dawkins of the Institute for Agriculture and

Trade Policy USA; David Hathaway of AS-PTA in Brazil; and Biswajit Dhar of

Research and Information System for the Non-Aligned and Other Developing

Countries, India.

In the brochure, Epprecht says: "The less acceptance the public shows

towards new risks, the less trust is placed in the means to deal with them

and the greater the likelihood that the possible negative consequences of

each new technology will become a problem for the insurance industry ...

the more disagreement there is about the basic pre-requisite of

insurability, the more insurance companies consider themselves unable to

fulfil their function as a risk carrier."

The Swiss Reinsurance Company, which calls itself "Swiss Re", has Monsanto

as a client. It insures the primary insurance companies which spread their

risks by purchasing reinsurance. When risks are unknown, said Epprecht, the

reinsurers will only accept partial liability and the risks are shared. For

example, the primary insurer might accept a maximum of $1 million in

damages, Swiss Re might accept from $2-$50 million, and the insured would

have to bear the remainder.

The brochure explains that "tailor-made hedging instruments which are

carried and financed jointly by the insurer and the insured" are being

developed "in accordance with the 'polluter pays' principle."

The brochure says: "A development of societal and legal frameworks

unfavourable to genetic engineering could lead to insupportably high

liability risks which cannot be carried by either the genetic engineering

industry or the insurance industry alone. Despite differing motives, both

industries hold joint responsibility for helping to shape the change in

societal values."

Epprecht told us that lack of consumer choice creates problems for

insurers. With choice, consumers are far more willing to bear some of the

risk. For example, he said the public more readily accepts the new medical

biotechnologies than genetically engineered foods because the risks of

medical uses are perceived as balanced by benefits, whereas engineered

foods have "very unclear" advantages.

AS-PTA's David Hathaway said that consumer choice was not only about

labelling genetically engineered foods. With increasing monopolization of

the seed industry, farmers were losing the choice not to plant genetically

engineered crops. "If the farmer has no choice, the consumer won't either,"

he said.

Serge Chamandon, head of Swiss Re's Agricultural Risks Unit, explained that

the property and liability sides of the insurance industry are separate.

Farmers risks from genetically engineered seeds are property issues, but

insurers are considering how to handle changes to risk created by new


He said several Latin American insurers have excluded genetically

engineered crops from basic insurance policies, so special premiums must be

paid to cover them. Chamondon added that, "insurers don't like exclusions

because they cut out an opportunity and the industry is very competitive."

The Agricultural Risks Unit of Swiss Re has published the brochure

"Agricultural Insurance in Transition". It says traditional crop insurance

mostly covers hail damage, whereas a "multi-peril" policy covers drought,

flood, disease, insects, etc. It says these hazards have "a probability of

occurrence which can hardly be calculated, even though they are well known

as an individual peril and their consequences can be estimated."

However, "When genetically engineered products are used... it should be

considered that, first, little is still known about the consequences, and,

second, that it is precisely these unknowns against which the policyholders

would like to protect themselves." ... "The risk involved is actually the

development risk of the producer of the recombinant seed."

"In livestock insurance, the use of genetic engineering makes the risk

situation even more complex: positive effects on growth or quality and the

resultant increase in revenues are offset by the disadvantages of greater

susceptibility to disease or even impaired vitality. The uncertainties that

accompany a new technology of the significance of genetic engineering may

give rise to substantial fluctuations in claims expenditure and the costs

of warding off claims..."

Chamondon said private US agricultural insurers have a Florida-based trade

association called "National Cooperative Insurance Services" which is

researching the industry's problems with genetic engineering.

Chamondon and Epprecht emphasized that insurers only cover damage to

humans, on both the property and liability sides. So, environmental impact

can be a valid basis for claim, but only if it affects property owners or

human health and welfare. Ecological damage, such as the extinction of a

species is not insurable.

There can be no claims if there are no owners. Epprecht illustrated this.

First he drew a large box, then inside the box he drew three concentric

circles. Inside the smallest circle is the scope of damage a plaintiff is

insured against. Between this circle and the next is the total risk of

potential liability - risk which is run by the policyholder but not covered

by the insurance policy. Between the second circle and the outer circle is

the potential socio-economic damage for which society has specially put

aside funds - for example, a fund to clean up oil spills.

But there is a gap between this third circle and the outer box which

represents the ecosystems. Ecosystem damage, he explained, is never


Key point. If harm to ecosystems and biodiversity is only insurable when it

also damages human property, health or welfare, it is absolutely imperative

that the scope of the Biosafety Protocol explicitly includes humans and

their social institutions.

So, in the Biosafety Protocol negotiations we support the position of

developing countries that humans be included, and the terms of liability

and compensation be clearly defined. The opposite view taken by the United

States and other OECD delegates will leave both the environment and

humanity vulnerable.