Alice Underwood

Alice Underwood is an executive vice president for Willis Re Inc. in New York, and leads Willis Re's North American Analytics practice. She is a fellow of the 5,800-member Casualty Actuarial Society and currently serves as CAS vice president for Research and Development. She can be reached at riskletters@lrp.com

Innovation Risk

A Not-So-Microscopic Risk

Nanotechnology could well be the underwriting challenge of the next hundred years.
By: | October 15, 2013 • 5 min read
Products created through nanotechnology have greater strength and lighter weight, but the risks are still unclear.

Why don’t lifeguards wear white stuff on their noses anymore?

We’re more aware of the dangers of sun exposure than ever before. You’d think folks exposed to the sun would want the best protection possible. And you’d be right. The thing is, a thick layer of white zinc oxide is no longer the best thing going … because of nanotechnology.

Nanotechnology is the understanding and control of matter at dimensions between approximately 1 nanometer and 100 nanometers, according to the U.S. National Nanotechnology Initiative. One nanometer is one-billionth of a meter. For comparison purposes, if a marble were a nanometer in diameter, then one meter would be the diameter of the Earth.

At the nanoscale level — down to 1/100,000th the width of a human hair — materials exhibit different properties than what is detectable in the everyday “macroscopic” world.

For example, nanomaterials can have greater strength, lighter weight and greater chemical reactivity than their larger-scale counterparts. Scientists have learned how to rearrange atoms of carbon, silver, titanium, silicon, gold and zinc to leverage these nanoscale superpowers — not just in the laboratory, but efficiently enough, and at low enough cost, to enable commercial manufacturing.

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That’s why new fabrics are more stain-resistant, why tennis rackets and bicycle frames are lighter and stronger than ever before, why food containers can help keep food fresher even longer. It’s why lifeguards no longer wear those unfashionable white sunblock smears.

Nanoscale technology is already more than a decade old, and — to put it mildly — its potential is tremendous. But nanotech products are lightly regulated, and their long-term effects are not well understood.

Fast-Growing Technology

Products using nanotech may one day zap tumors or enable more effective treatments for cardiovascular illness or Parkinson’s disease. They could improve the performance, resiliency and longevity of our transportation infrastructure while reducing cost. They could transform our energy future by making batteries last longer, and enable solar panels to produce many times more energy. Nanotechnology could make it easier for us to bring clean drinking water to millions in need around the world.

No wonder nanotech is growing fast — so quickly, in fact, that reliable data is hard to find and may be out of date by the time it is published.

There are more than 5,400 nanotech firms globally. The consumer products inventory at www.nanotechproject.org lists more than 1,300 products using nanotechnology, produced in 30 different countries, that are commercially available.

Every state in the United States has at least one nanotech manufacturer, with California leading the pack. Nanotechnology is already in our food, medicines, clothes, cosmetics, sunscreens, pesticides, electronics, homes, sports equipment, cars, airplanes, water, air and land. Nanotechnology is everywhere.

But, little has been spent studying short- or long-term effects, and early tests indicate potential risks such as cellular or genetic damage. Some nanoproducts pass through the skin and are distributed throughout the body, with unknown effects. Nanomaterials may be able to breach landfill barriers as well.

The U.S. Food and Drug Administration has released draft food and cosmetic guidance, but there are few labeling requirements, and many manufacturers have failed to test the safety of their products.

In April 2013, the National Institute for Occupational Safety and Health (NIOSH) recommended that occupational exposures to carbon nanotubes and carbon nanofibers be controlled to reduce a potential risk of certain work-related lung effects. According to NIOSH, recent results from experimental animal studies with rodents indicate that exposure to carbon nanotubes and carbon nanofibers may pose a respiratory hazard if inhaled.

Several studies have linked carbon nanotubes to mesothelioma. That has echoes of an emerging risk from decades gone by: asbestos.

An Underwriting Challenge

Insurers are already at risk. Standard policies don’t specifically exclude nanotech, and it’s not clear whether courts in all jurisdictions would apply a policy’s pollution exclusion. Few insurance applications ask about nanomaterials. Nanotechnology could well be the underwriting challenge of the next hundred years.

Even though data is in short supply, actuaries have been tackling the challenge presented by nanotechnology.

Drawing on the lessons learned from the notorious exposures of asbestos and pollution, property/casualty actuaries are helping insurers prepare to handle new emerging risks like nanotechnology by assisting with the development of new policy language and encouraging underwriting discipline.

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Actuaries can also help integrate pricing, planning and reserve setting to manage the underwriting cycle.

Actuarial work is, fundamentally, the analysis of relevant information to develop estimates of future financial implications. Just because nanotech-related insurance data has yet to emerge, that doesn’t mean there is a complete lack of relevant information.

As with the emerging risk of climate change, analysis begins with scientific findings — and by applying the expertise of the subject matter experts in the insurance world. Actuaries involved with coverage of nanotech processes and products use work such as that presented in Nanotechnology Safety, edited by Ramazan Asmathulu, a Wichita State University associate professor who focuses on nanomaterials.

Then, most importantly, actuaries apply a sound analytical structure to address the problem. Framing the issues in a logical manner involves the use of techniques such as lifecycle analysis and expert elicitation to supplement available data and develop preliminary estimates.

Also important is the regulatory environment. As asbestos litigation evolved, it was perhaps unexpected developments such as the 1965 Restatement of Torts that proved the most troublesome.

An analysis of current regulations, in the United States and abroad, can provide context for initial product design and rate estimates. But it will be important, in this quickly changing landscape, to remain alert for changes in the legislatures and the courts.

Insurers are wise to be alert to new sources of risk — but not all apparently emerging issues do, in fact, emerge. Our reaction time as an industry, however, has improved. New opportunities are quickly tackled while at the same time managing, and pricing for, the inherent risks.

The insurance industry can be an important enabler of new industries and technologies such as the ones nanoprocesses have already brought to market, and the many more applications yet to be discovered. Like the lifeguard watching over the pool, insurers seek to make money without getting burned. That’s why it’s important to think ahead, assess the risks and put the right protections in place.

Alice Underwood is an executive vice president for Willis Re Inc. in New York, and leads Willis Re's North American Analytics practice. She is a fellow of the 5,800-member Casualty Actuarial Society and currently serves as CAS vice president for Research and Development. She can be reached at riskletters@lrp.com
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