Insurance Industry Refuses to Insure "Unpredictable Risks"
of Genetic Engineering
27th January 1999
GE and INSURANCE
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 <<http://www.swissre.com>, 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
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.
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
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
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,"
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