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7-Business: Report on GE liability issues by German insurance company

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TITLE:  GE liability underwriting issues in Germany
SOURCE: Report "Liability Risk Genetic Engineering", GE Frankona Re, Germany
        Chapter written by Rainer ZŸfle,
DATE:   November 2000

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IV Underwriting issues



In Germany there are until now only few specific regulations relating to 
genetic engineering risks. The General Terms and Conditions of Liability 
Insurance do not provide for the exclusion of such risks. Even the Special 
Conditions in commercial and industrial policies do not contain any such 
exclusion, with the exception of a few new wordings such as the conditions 
for product recall insurance recommended by the Association of German 
Insurers or other concepts prepared by insurance companies (eg multiline, 
product liability policies). This means that risks arising from genetic 
engineering work, facilities, releases or products are currently covered by 
ordinary policies. This applies for example to public liability, product 
liability, environmental impairment liability and pharmaceutical products 
liability policies.

The automatic inclusion of these risks in existing policies is the simplest 
way of doing things. But it will not be the most economic means unless 
future genetic engineering risks do not give rise to any losses. If the 
dismal scenarios certain genetic engineering critics are evoking come true, 
insurers who have not provided for special underwriting tools to cope with 
genetic engineering risks will quickly come up against the limits of their 
capacity. The mass claims imaginable in this context could take on 
horrendous proportions.

Should insurers take a wait-and-see approach or proactively attempt to 
devise special concepts to cover the - albeit only alleged - risks of 
genetic engineering? The many operations that are being established in this 
sector provide the opportunity to reflect on a new conception of the 
insurance of genetic engineering risks without being constrained by 
existing covers.


The Association of German Insurers is currently developing a draft wording 
for the insurance of genetic engineering risks based on the General Terms 
and Conditions of Liability Insurance, which is strongly geared to the 
Environmental Impairment Liability Model published in 1993. Like this 
model, an occurrence depends on the first verifiable discovery of a claim. 
The concept is meant to include risks arising from releases and facilities, 
irrespective of whether they involve facilities subject to compulsory 
insurance or not subject to compulsory insurance. Product liability does 
not come under the scope of this cover. Hence the modelÕs scope of 
application is equivalent to that of the Genetic Engineering Act.

Like the Environmental Liability Model, insurance coverage shall be 
provided for so-called expenditure incurred prior to occurrence of the 
insured event. The ten-year extended reporting period requested by 
politicians is rejected by the Association of German Insurers. They would 
like to limit the extended reporting period to three years, as is the case 
in environmental impairment liability.

The limits of indemnity for facilities subject to compulsory insurance have 
not yet been determined by the legislators. The Ministry of Justice has 
already indicated that the limits of indemnity ranging between DEM 10 and 
DEM 30 million suggested when the draft compulsory cover regulation for 
facilities subject to compulsory insurance was submitted in 1991 are no 
longer deemed sufficient. The issue as to whether the limits of indemnity 
should apply per plant or per policyholder/operation has not been clarified 
either. Applying them to each plant would lead to exorbitant limits of 
indemnity for those policyholders who have several plants, which would 
render insurance coverage unaffordable. The Association of German Insurers 
hasmentioned that the limits should apply to each company and, if the 
policyholder owns several facilities, they should reflect the plant with 
the highest safety level. The content of the Association of German 
InsurersÕ model shall depend on the structure of the still outstanding 
compulsory cover regulation, which is not yet in sight.


In summer 1999 GE Frankona Re conducted a survey in the German market 
regarding the genetic engineering liability risk. Its aim was to obtain the 
views of several experts on the current situation as well as on future 
developments in this sector. The survey was conducted among 16 insurance 
companies of different sizes. Due to the restricted number of participants 
the results cannot be considered representative but they do provide an 
indication of the views held regarding this subject. 46% of those surveyed 
stated that their company had already been confronted with a demand for 
liability insurance products in the field of genetic engineering risks, 
above all regarding releases and laboratories. Covers for product marketing 
were only of minor importance, however.

20% of companies are planning to develop special genetic engineering 
insurance products for release and laboratory risks. The question whether 
the company had incorporated a standard exclusion of damage owing to 
genetically modified organisms in certain wordings, was affirmed by just 
under half of those surveyed.

Identifying the proportions of risks related to genetic engineering work, 
facilities or products in the overall portfolio has proven to be 
problematic. The fact that the policyholderÕs range of products and field 
of activities are insufficiently known has created some practical problems. 
It remains to be seen whether in future the risk assessment process will 
require a greater amount of information regarding genetic engineering 
risks. The market potential for special genetic engineering insurance 
products is appraised differently (Figure 8: Market potential for genetic 
engineering insurance products ).

There is a certain amount of restraint in the assessment of future business 
opportunities, which is why less than 50% of those surveyed are planning to 
develop special products. The number of potential buyers for special 
products was estimated by the majority of those surveyed to come to over 
800. In a further survey the companies were requested to assess the current 
and future market volume arising from special genetic engineering insurance 
products. This assessment proved to be very difficult to conduct. The range 
of responses given was extraordinarily wide. While assessments of current 
premium volume range from some DEM 200,000 to DEM 15 million, estimates 
regarding market-wide premium volume in five years diverge widely. They 
range from DEM 1 million to DEM 500 million.

The legal regulations for genetic engineering issues in Germany were 
considered adequate by the majority of respondents, even if reference was 
made to the fact that the legal situation in the field of human genetics 
could be improved further. Some 50% of those surveyed consider certain 
fields to be entirely uninsurable. These include genetic engineering work 
with the human genotype, purely ecological damage and genetic damage.


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