Post on 29-Nov-2021
E-Cigarettes, Social Inflation & Opioids
EMERGING RISKS IN
CASUALTY BUSINESS
9 September 2020
Nkejane MofokengTafadzwa Mugadza
Emerging Risks Casualty
9 September 2020Emerging Risks in Casualty Business
Agenda
Introduction
Social Inflation
Opioids
E-Cigarettes
Climate Change
Conclusion
9 September 2020Source: Getty Images / debibishop Emerging Risks in Casualty Business
Introduction
A new or unforeseen risk that we haven’t yet contemplated. This risk should be on
our radar, but is not, and its potential for harm or loss is not fully known.
erm.ncsu.edu/library/article/identifying-and-evaluating-emerging-risks.
How do we define emerging risks?
New risks or familiar risks that become apparent in new or unfamiliar conditionsInternational Risk Governance Council (IRGC)
9 September 2020
Introduction
Dynamic operating landscape
Globalisation and de-globalization trends
What are the drivers of Emerging Risks?
Increasing Complexity - Growing Integration and interaction of digital systems
Natural resources and the environment
Social and cultural dynamics
Regulatory environments
Source: Getty Images / debibishop Emerging Risks in Casualty Business
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Social Inflation 2
9 September 2020
Social Inflation
▪ A term used to describe rising jury awards and settlements
▪ Nuclear verdicts - rising claims severity (defined as $10M U.S. or greater)
▪ Rising costs of insurance claims due to societal trends
▪ An increase in litigation, a broadening of definitions of liability, more plaintiff - friendly legal decisions,
larger compensatory jury awards
Source: Image Source/getty images Emerging Risks in Casualty Business
9 September 2020
Social Inflation - Drivers
▪ Increase in negative sentiment towards large corporations - someone needs to pay
▪ Legal, regulatory, social changes in standards and values
▪ Increase in the cost of claims attributed to social trends (millennials, influencers or not?)
▪ Plaintiffs bar unafraid to demand exorbitant dollar amounts
▪ Restatement of Law, Liability Insurance - public policy vs. prevailing authority
▪ Settlement vs. Litigation - percentage of claims attorney represented increasing
Source: Image Source/getty images Emerging Risks in Casualty Business
9 September 2020Emerging Risks in Casualty Business
2019 -2020 Losses/ $250m +
Fires - $13.5b
Risperdal – Product
Liability - $8b
Roundup – $2.055b
Opioids - $1.6b Las Vegas shooting -
$800m
Product Liability -
$759m
Talcum Powder -
$750mWildfires &
Mudslides - $360m
9 September 2020
Only a foreign phenomenon?
Source: Image Source/getty images Emerging Risks in Casualty Business
9 September 2020
Differences between U.S, U.K, Australia & RoW
The U.S. and Australia law is directly descended from British Law
▪ Court systems (Civil claims) – U.S. generally relies on established tort law and precedent
▪ The U.S. has attorneys who specialize in personal injury.
▪ Litigation funding prevalent in U.K. & Australia.
▪ Awards –U.S. is much higher than the rest of the world.
Source: Image Source/getty images Emerging Risks in Casualty Business
9 September 2020
Action steps
▪ Increase rates
▪ Constrict limits
▪ Change Terms & Conditions - i.e. raise retentions
▪ Uncover where spike in activity is coming from (proactive in identifying systemic issues)
▪ Review reserve adequacies
▪ Avoid certain risks – i.e. high profile (question what risks pose more risk to social inflation trends)
Source: Image Source/getty images Emerging Risks in Casualty Business
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Opioids 3
9 September 2020
Opioids
Opioids are morphine derived prescription drugs important for the treatment of severe pain
▪ Fueled by excessive overprescribing which is also enabled by
▪ A lax healthcare framework leading to direct advertising of prescription drugs,
▪ Lack of guidelines for prescriptions, education/training programs,
▪ Lack of control mechanisms
▪ The high increase in usage in the USA has led to an epidemic of addiction and overdoses representing
one of the most pressing public health emergencies
▪ Created an increased liability exposure in North America – (pure financial losses and bodily injury) for
companies involved in the entire pharmaceutical value chain.
Source: Design Pics/Plainpicture Emerging Risks in Casualty Business
9 September 2020Emerging Risks in Casualty Business
Opioids – Important Litigation Pending
PlaintiffsCities,
Counties,
Municipalities,
Native American tribes
Consolidated LawsuitNational Prescription Opiate Litigation,
Northern District of Ohio – state most hard
hit by opioid overdoses
Class Action - Over 2,000 cases DefendantsThe Deep Pockets, i.e.
Manufacturers,
Distributors,
Pharmacies, and Prescribers
The Case Defendants accused of fueling opioid crisis to line pockets, drug makers aggressively marketing drugs while
downgrading addiction & overdose risks, distributors failing to detect, probe or report suspicious orders/prescriptions.
Damages sought are for socio-economic impact: increased costs for addiction treatment, costs for law enforcement
resources, and healthcare system.
9 September 2020Source: Design Pics/Plainpicture Emerging Risks in Casualty Business
Opioids – Outlook & Possible Effects of Corona
▪ Efforts taken by Federal Health agencies to implement measures towards combating this issue over
several years
▪ Average consumption of legal opioids declined in 2017 after decades of constant increases
▪ However, COVID -19 may negatively impact the positive trend:
▪ Closure of walk in clinics and syringe exchange programs.
▪ Community support groups now virtual
▪ Disruption of public health services
▪ Decreased access to treatment, social distancing could also be concealing a surge of opioid abuse
▪ Supply chain disruptions cause opioid-related shortages
9 September 2020
Implications for RoW
▪ Due to legal and social environments, opioid crisis in other countries outside North America highly
unlikely (Europe, Australia & Asia adopted stricter frameworks)
▪ Monitoring however imperative – aspects which can increase/decrease likelihood of the crisis:
▪ Availability of inexpensive illegal opioids
▪ Cultural attitude towards pain/pain management
▪ Legal system and likelihood of significant recoveries
▪ Prescription tracking systems in place (limits multiple prescriptions to single patient from different
doctors)
▪ Permissibility of direct marketing of prescription drugs by pharmaceutical companies
▪ Emerging middle class – more likely to be targeted by manufacturers as a growth market
Source: Design Pics/Plainpicture Emerging Risks in Casualty Business
9 September 2020
Risk Assessment & Underwriting
Medical Malpractice
Trigger – claims made
Nature of Loss – Policies covering
financial loss more exposed compared to
those only covering Bodily Injury .
Ongoing Litigation may change this view!
Directors & Officers Liability
Increased but overall moderate exposure
Directors & Officers of manufacturers &
distributors of opioids for non-compliance
with regulation, failure to supervise or
implement adequate controls.
Significant drop in share price could lead
to shareholder class action . Avoid
underwriting US listed companies &
pharmaceutical companies – highly
exposed
Workman’s Compensation (WC)
▪ Injured employees prescribed opioids
to ease pain in the US.
▪ Quick return to work in high capitalist
economies encouraged.
▪ Average cost of prescription opioids
claims 4x that of a non opioid one
▪ Medical operations, therapy, and
indemnity/wage replacement costs
covered under WC.
▪ RoW – Monitor opioid usage in WC
and possible impact on the system
▪ Affected industries include
Construction, Manufacturing, Farming
▪ Check level of prescription control in
country of operation and
effectiveness of government action.
▪ Ensure sufficient deductibles are
applied.
Source: Design Pics/Plainpicture Emerging Risks in Casualty Business
Electronic Cigarettes
4
4
iStock-663981890
9 September 2020
Electronic Smoking Devices
▪ What is an E- Cigarette?
▪ US Food & Drug Administration (FDA) Definition:
▪ Battery operated products designed to deliver nicotine, flavour & other chemicals.
▪ E-Cigarettes turn chemicals, including highly addictive nicotine, into an aerosol that can be
inhaled by the user.
▪ Other names for E- Cigarettes:
▪ E Cigs, E-Hookahs, Mods, Vape Pens, Vapes, Tank Systems, Electronic Delivery Systems
(ENDS)
▪ Many of these products can also be used or modified to deliver marijuana or other drugs
Source: BlackJack3D / Getty Images Emerging Risks in Casualty Business
9 September 2020
Key Facts - US
Origin:
Introduced to US market in 2006
▪ Relatively new and untested product
▪ FDA to only scientifically evaluate e-cig
additives by September 2019
▪ Developed flavors that appeal to young
users
Key Manufacturers in the US:
▪ US$4.2b in 2018
▪ Projected to hit US$16.5b by 2024
▪ 24% Compound Annual Growth Rate
(CAGR)
▪ JUUL had 75% market share in 2019
▪ Altria acquired a 35% share in JUUL in
December 2018
Users:
▪ Over 5m US middle & high schoolers (ages 11 -18) in
2019
27.5% of all high school students
10.5% of all middle school students
▪ 2.7% of US adults in 2017
59% also smoked cigarettes
40% of young adults (18 - 24) never smoked cigarettes
Developments:
▪ E-Cig/Vaping Associated Lung Injury (EVALI)
▪ ER visits for lung injuries increased late summer 2019
▪ 2,807 ER visits & 68 deaths as of Feb 2020
▪ Culprit identified – Vitamin E Acetate in THC vaping
products
▪ Vit E Acetate not approved for human consumption by
FDA
Source: BlackJack3D / Getty Images Emerging Risks in Casualty Business
9 September 2020
RoW
▪ Global market estimated to be worth more than US$20bn
▪ Currently no major litigation in Europe
▪ E-cigarettes promoted by health authorities in Europe as a safer alternative to tobacco
▪ First Europe death attributable to e-cigarettes in November 2019
▪ Discovery of harm caused by e-cigarettes in the future could increase litigation
▪ Continuously growing markets for e-cigarettes in Asia, Latin America and Africa
Source: BlackJack3D / Getty Images Emerging Risks in Casualty Business
9 September 2020Source: BlackJack3D / Getty Images Emerging Risks in Casualty Business
Action Steps
What are the risks?
▪ Classical manufacturing errors e.g. contaminated raw materials, wrong mixing/blending etc
▪ BI & TPPD arising from overheating, explosion, bursting, or rupturing of an electronic smoking device
▪ D&O claims against directors and officers
Exclusions?
▪ Consumer protection legislation in the EU, the UK, South Africa and some US states that allows for a
victim/plaintiff to sue anyone in the entire distribution chain, therefore exclude:
▪ General liability coverages for the entire distribution chain
▪ Electronic devices manufactured, distributed and marketed globally and pose a similar health hazard
▪ Legal frameworks in most jurisdictions protect youth, litigation based on social harm foreseeable
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Climate Change 5
What is it about?
▪ Most climate change is man-made
▪ Climate liability litigation was started by environmental groups in the US to compel policy
development towards a national climate change regulatory scheme.
▪ Liability for Climate Change two-fold:
▪ for greenhouse gas emissions
▪ failure to disclose/report/consider consequences of climate change (greenwashing)
Source: john finney photography / Getty Images Emerging Risks in Casualty Business
9 September, 2020
Different Claims
Damages for property loss, relocation
Damages for expenses of public entities
Claims for damages
Stricter/less strict regulation
Discontinue/reduce use of fossil fuels
Claims for regulatory
action, injunctive
reliefEven invalid claims cause defense costs
High claims get lots of media coverage
Claims to raise
awareness, for political pressure
Source: john finney photography / Getty Images Emerging Risks in Casualty Business
9 September, 2020
Litigation
NIGERIA
Gbmere v Shell Petroleum &
Others
Challenge to practice of gas flaring
in the Niger Delta by oil & gas
companies
▪ Nigerian federal court ruled oil
companies to stop flaring gas in
the Niger Delta
▪ Fundamental rights of life and
dignity violated
*Claim for regulatory action
*Based on constitution, human
rights
SOUTH AFRICA
GroundWorkv Minister of
Environmental Affairs, ACWA
Khanyisa Thermal Power Station
▪ At issue – consideration of
climate change in environmental
impact statements
▪ Decision Pending
KENYA
Save Lamu et al v National
Environmental Management
Authority & Amu Power Co. Ltd
▪ Challenge to issue license for
Kenya’s first coal fired power
plant
▪ Environmental impact
assessment did not adequately
consider Climate Change Act of
2016
Source: john finney photography / Getty Images Emerging Risks in Casualty Business
Claims for Climate Change
Liability issues:
▪ Legal standing (Who can sue?)
▪ Causation (Man-made? Who caused exactly what damage to whom?)
▪ Limitation periods/time-related issues
▪ Allocation of liability: Proportionate/market-share liability
Source: john finney photography / Getty Images Emerging Risks in Casualty Business
Outlook
▪ Rising awareness, litigation funding and media coverage incentive to sue
▪ Recourse of property insurers against casualty insurers (e.g. after floods or wildfires)
▪ Check your wordings (occurrence, defense costs, losses of public entities)
▪ New/different need for coverage?
Source: john finney photography / Getty Images Emerging Risks in Casualty Business
Conclusion
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E-Cigarettes, Social Inflation & Opioids