ENVIRONMENT: INSURERS WARY ON GENE-ENGINEERED PRODUCTS (IATP/TWN, MINNEAPOLIS)
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Environment: Insurers wary on gene-engineered products
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
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
"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
Institute for Agriculture and Trade Policy
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Minneapolis, MN 55404
Direct Phone: 612-870-3455
IATP Ph. 612-870-0453 IATP fax. 612-870-4846
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