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Environment: Insurers wary on gene-engineered products 
    (IATP/TWN, Minneapolis) 
SUNS #4343 Friday 11 December 1998 
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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 

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 

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.   

Kathy Hiltsley 
Program Assistant 
Institute for Agriculture and Trade Policy 
2105 1st Avenue South 
Minneapolis, MN  55404 
Direct Phone: 612-870-3455 
IATP Ph. 612-870-0453  IATP fax. 612-870-4846 

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