SUNS  4343 Friday 11 December 1998



ENVIRONMENT: INSURERS WARY ON GENE-ENGINEERED PRODUCTS

Minneapolis 9 Dec (IATP/TWN) -- Insurance companies are finding themselves unable to evaluate properly the risks for covering product liability in cases of genetically engineered products, and appear to be covering unknown risks under existing liability policies, and may thus 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 genetically engineered organisms.
The NGOs were curious to compare the views of the insurance industry to those of negotiators in the Ad Hoc Working Group on Biosafety, who are charged with drafting a legally-binding international 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 over-exposed.

"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 went on to explain 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 -- Kristin Dawkins of the Institute for Agriculture and Trade Policy in the US, David Hathaway of AS-PTA in Brazil, and Biswajit Dhar of Research and
Information System for the Non-Aligned and Other Developing Countries in India -- paid a call at the reinsurance company.

In this clearly-written brochure, Epprecht points out, "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" and counts the Monsanto Corporation among its clients, actually insures the primary insurance companies who spread their risks by purchasing reinsurance. When risks are unknown, said Epprecht, the reinsurers will only accept partial liability. 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."

In its final paragraph, the brochure states: "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 the NGOs that insurance companies have a problem when consumers do not have a choice. When consumers do have a choice, they are more willing to bear some of the risk. For example, the public more readily accepts the new medical biotechnologies than genetically engineered foods. The perceived risks in medical applications, he noted, are balanced by perceived benefits, whereas in genetically engineered foods the perceived benefits are "very unclear."

AS-PTA's David Hathaway pointed out that the issue of consumer choice is not just about the labelling of genetically engineered foods. Given increasing monopolization in the seed industry, farmers have less and less choice whether or not to plant genetically engineered crops. "If the farmer has no choice, the consumer won't either," said Hathaway.

At this point, Serge Chamandon, head of Swiss Re's Agricultural Risks Unit, explained that the property side of the insurance industry is distinct from the liability side. The risks farmers face with
genetically engineered seeds are handled by the property insurance side. The industry is weighing how to handle the changes in risk that the new technologies generate.

A number of Latin American insurers, he said, have already established exclusions for genetically engineered crops in basic insurance policies, with special premiums for their coverage. However, Chamondon added, "insurers don't like exclusions because they cut out an opportunity and the industry is very competitive."

At Swiss Re, the Agricultural Risks Unit has published a brochure entitled "Agricultural Insurance in Transition" explaining that traditional crop insurance covers hail, most commonly, or offers a
"multi-peril" policy covering drought, flood, disease, insects and other hazards. 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," it says.

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."

"It is true that genetically modified crop plants are better protected against spoilage," states this booklet. "However, a loss resulting from a systematic breakdown in resistance can have a cumulative impact on the agricultural insurer, depending on the proportion of such risks in his portfolio. The risk involved is actually the development risk of the producer of the recombinant seed."

"In livestock insurance," it continues, "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 informed the NGOs that private agricultural insurers in the US have a trade association based in Florida called "National Cooperative Insurance Services." This group is now researching the problems that genetic engineering presents to the insurance industry. It meets annually with the publicly-funded Federal Crop Insurance Corporation: their next meeting will take place in La Jolla, California in February, he said.

Both Chamondon and Epprecht were careful to emphasize, in their conversation with the NGOs, that insurers only cover damages to humans -- whether through the property side or the liability side.

Environmental impairment can be a valid claim, but only as it affects property owners or human health and welfare. Ecological damage, such as the extinction of a species of fish, is not insurable; there can be no claims if there are no owners.
Epprecht illustrated this point on paper. First he drew a large box and then inside the box he drew three concentric circles. Inside the smallest circle is the scope of damage against which a plaintiff is
insured. Between this circle and the next is the total risk potential for liability -- that risk which exists for the policyholder but is not covered by the policy purchased. Between this circle and the third
circle is the potential socio-economic damage for which society has established special funds -- for example, a fund to clean up oil spills. But there is a gap, he said, between this third circle and the
outer box that represents ecosytems.

Damage to ecosystems, he explained, is never insured.
For the NGOs, this information is key.

Hathaway, Dhar and Dawkins have all monitored the on-going negotiations of the biosafety working group, which has been meeting for several years to implement terms of the Convention on Biological Diversity, one of the treaties finalized at the 1992 Earth Summit in Rio de Janeiro. If harm to ecosystems is not insurable unless human property, health or welfare is damaged, they concluded, it is all the more imperative that the protocol explicitly include humans in its scope.

In the most recent biosafety meeting, the United States delegation and a few others refused to consider including humans in the protocol's scope and has tried to minimize the draft text's references to risk and liability. Developing countries led by the African Group have, to the contrary, insisted that humans be included in the scope and that terms for liability and compensation be clearly defined.

The next meeting of the biosafety negotiators will take place in Cartagena, Colombia in February. The US participates as "observers," since the US Congress has not yet ratified the Convention on Biological Diversity. However, even as a non-party, they are very active in the negotiating process. The parties to the Convention on Biological Diversity hope that a final biosafety protocol can be adopted immediately afterwards.