2015 Most Dangerous Emerging Risks

Vaping: Smoking Gun

As e-cigarette usage rises, danger lies in the lack of regulations and unknown long-term health effects.
By: | April 8, 2015 • 7 min read
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SCENARIO: It’s 2040, and there were not quite as many attendees of the 25-year high school reunion party as expected. Gossip begins to circulate just as it did around the cafeteria and corridors a couple of decades earlier.

“Is John coming tonight?” one man asked an ex-classmate.

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“No, didn’t you hear? He’s in the middle of chemo treatments right now,” she responded solemnly. “Esophageal cancer.”

“Hey Kelly!” another alumnus shouted. “I don’t think I’ve seen you since Nationals senior year. How are you? Still running?”

Kelly was a standout miler on her high school and university track teams, known for her strong finishing kick.

“No,” she responded, exhaling a cloud of raspberry-flavored vapor as she lowered her still-glowing e-cigarette.

“I haven’t been able to run much lately, not without an inhaler, anyway. Developed asthma a few years ago.”

In 2015, when this group was graduating, “vaping” was the latest and greatest trend. It delivered the soothing effects of nicotine without the carcinogens of tobacco smoke, tasted much better, and there were no age restriction laws.

The litigants claim their health issues stem directly from the dubious concoction of chemicals in the e-liquid his company imported from China and sold in their branded vape pens.

E-cigarette advocates predicted that vaping would dramatically decrease the rates of lung cancer and other smoking-related diseases. But 25 years later, the effects of the e-liquid’s various chemicals and concentrated nicotine are clear. Rates of lung cancer, which had been decreasing steadily in the U.S., are rising again, along with heart disease and other types of cancer.

That same night, the CEO of a national e-cigarette distributor is staring at a subpoena. His company is being sued by the families of a few hundred of his most loyal customers who have developed respiratory and heart problems.

In fact, a recent longitudinal study of “vapers” by the Centers for Disease Control and Prevention found strong positive correlations between high use of e-cigarettes and incidence of heart disease and cancers of the respiratory system.

The litigants claim their health issues stem directly from the dubious concoction of chemicals in the e-liquid his company imported from China and sold in their branded vape pens.

Tests of several batches of the liquid by the FDA revealed inconsistent concentrations of nicotine, propylene glycol, and other flavor additives and preservatives. The levels of nicotine found in the vapor were also inconsistent with the label.

The class-action litigants were seeking punitive damages totaling $20 billion, half of which would be used to create a medical treatment fund. The number is staggering, but not out of line with some of the lawsuits that emerged against “Big Tobacco” companies in the late 1990s, the highest of which sought damages of $23.6 billion. Other smaller distributors had already been knocked out by smaller settlements, still in the millions.

The CEO had already talked to his broker. The contractual protection they had in place pinned product liability to the manufacturer, based in Shanghai, but did not address risks of long-term health effects. That liability was all theirs.

ANALYSIS: In 2015, the retail vaping industry is forecast to reach $3.5 billion, more than twice the $1.7 billion estimated for 2013, according a Wells Fargo Securities report on tobacco trends in the U.S.

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E-cigarettes, which deliver a nicotine hit without tobacco combustion — and the carcinogens that come with it — attract customers from the traditional cigarette market looking for a healthier or safer alternative to their smoking habit, and from the youth market, drawn to the sleek styling and fun flavors of vaporizers, as well as the claim that they are far less dangerous than combustible cigs.

According to the CDC’s National Youth Tobacco Survey, “the number of never-smoking youth who used e-cigarettes increased from 79,000 in 2011 to more than 263,000 in 2013.”

According to “Monitoring the Future,” a study from the University of Michigan analyzing drug and tobacco trends among teens, there were twice as many e-cig users than smokers of combustible cigarettes among eighth, 10th and 12th graders. Sixty-two percent of eighth graders surveyed said that cigarettes are very harmful to health, while only 15 percent reported feeling that way about e-cigarettes.

And there is basis for these beliefs. Studies of e-vapors show that the amounts of toxic chemicals they contain are negligible, compared to traditional cigarettes, and their concentrations are nearly equal to those already present in the air we breathe. Many public health advocates laud e-cigs as a long-term tool to reduce smoking rates and the respiratory illnesses that come with it.

“There’s no question that e-cigarettes are much safer,” said Michael Siegel, a professor at Boston University’s School of Public Health.

Mark Wood President and CEO of LifeScienceRisk

Mark Wood
President and CEO of LifeScienceRisk

“The risks are minimal, compared to tobacco smoking.”

But the danger in any new product lies in the unknown. Vapors produced from e-liquids may not be as harmful as smoke, but the composition of those liquids varies widely.

“A lot of these devices are made in countries that struggle with quality issues in the manufacturing process,” said Mark Wood, president and CEO of LifeScienceRisk, a subsidiary of RSG Underwriting Managers.

“When using foreign contract manufacturers, you don’t always know who exactly is making the product.”

Inconsistent manufacturing leads to variability in nicotine levels. Byproducts of the manufacturing process, flavoring and other preservatives also potentially introduce other carcinogens into the mix. But the final composition is largely unknown.

Adverse health effects of those unknown chemical mixtures could range from allergic reactions to cancer.

The heating element of e-cigarettes also poses a threat. If it gets too hot, it can “trigger a thermal breakdown” of the materials used to make the e-cig, creating carbonyls like formaldehyde and acetaldehyde. These compounds are delivered in nano-sized particles directly into the airways, where they trigger inflammation that can lead to the development of chronic conditions.

Little clinical research has been conducted on the safety of these vapors, and the long-term health effects may not be seen for another 20-30 years.

“From the FDA’s point of view, they’re waiting to see if e-cigarettes can reduce the number of smoking deaths. They want to see the whole picture before they take a firm stance on the issue,” said Markus Kalin, head of casualty risk engineering at XL Group.

Another problem is the lack of age restrictions, coupled with flavorings like cherry vanilla and blue raspberry, which make these products highly appealing to those under 18.

In a customer base that has never or rarely smoked traditional cigarettes, long-term use of e-cigarettes could increase, rather than reduce, the likelihood of health issues.

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“The purpose of e-cigarettes is to get people off smoking in a safer way. They are not absolutely safe,” Siegel said.

Current high-school vapers could be in their 40s or 50s before any ill effects emerge. It may not be lung cancer or emphysema, but perhaps higher rates of asthma, bronchitis, cystic fibrosis or other inflammatory pulmonary diseases.

And distributors of vaping products could be held liable, in much the same way tobacco companies faced massive lawsuits after smoking was definitively linked to lung cancer.

The fact that most e-cigarette manufacturers are based in China also “puts distributors and retailers in the U.S. at higher risk,” said Randy Nornes, executive vice president at Aon Risk Solutions.

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“If you’re the only link between a non-U.S. manufacturer and the customer, you’re an obvious target for plaintiffs.”

Wood said that distributors “can subrogate that claim against a contract manufacturer or supplier, but it’s more difficult to do that against an entity in a different country subject to different laws.”

Given the huge settlements with tobacco companies, plaintiffs’ attorneys will be more than willing to take on the e-cigarette industry.

“They look for market opportunities,” Nornes said, “anything that potentially has harm in it and involves a lot of people.”

Vaping distributors could face product liability suits for improper labeling of e-liquid cartridges or false advertising concerning its health benefits. Kalin of XL Group said parents of e-cigarette users could pursue advertising litigation against distributors for failure to protect young people.

“But the next stage will be, if you start to see health issues emerge and more studies trickling out, and younger people developing diseases like lung cancer, that will be the catalyst for mass tort,” Nornes said.

E-cigarette distributors and retailers need proactive risk management, experts said.

“You really have to understand your supply chain,” said Aaron Ammar, risk manager at XL Group. “Make sure you have appropriate age restrictions and proper labeling about potential health effects. Where are the component parts coming from? Do you understand it?”

“I’m sure they’re all doing contractual risk management, to make sure risk stays with the manufacturer,” Nornes said.

“The second issue is making sure the manufacturer has adequate levels of insurance in the event you get sued for distributing someone else’s product. That’s where issues will creep in, because you’re relying on a third party’s insurance.”

BlackBar

Complete coverage of 2015’s Most Dangerous Emerging Risks:

Corporate Privacy: Nowhere to Hide. Rapid advances in technology are ushering in an era of hyper-transparency.

04012015_04B_implant_devices_150px_mainImplantable Devices: Medical Devices Open to Cyber Threats. The threat of hacking implantable defibrillators and other devices is growing.

04012015_03_concussions_150px_mainAthletic Head Injuries: An Increasing Liability. Liability for brain injury and disease isn’t limited to professional sports organizations.

04012015_04_vaping_150px_mainVaping: Smoking Gun. As e-cigarette usage rises, danger lies in the lack of regulations and unknown long-term health effects.

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Aquifer: Nothing in the Bank. Once we deplete our aquifers, there is nothing helping us get through extended droughts.

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Most Dangerous Emerging Risks: A Look Back. Each year since 2011, we identified and reported on the Most Dangerous Emerging Risks. Here’s how we did on some of them.

Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at ksiegel@lrp.com.
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Opportunities in Cuba

Greenberg on Cuba

The easing of travel restrictions to Cuba is bound to open up opportunities.
By: | March 12, 2015 • 3 min read
Havana

On a visit to Moscow in 1964, Hank Greenberg noticed a picture of a Havana office building on the desk of an official with the Soviet insurance company Ingosstrakh.

“That looks like the building where my company housed its insurance operations,” Greenberg — who was in Moscow seeking a travel risk reinsurance deal — told the official.

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The C.V. Starr Companies had an office in Havana – pictured above – between 1943 and 1958.

“That may be,” the Soviet official replied. “Now it is the building where Ingosstrakh houses the Soviet Union’s Cuban operations,” he added.

“Please take care of that building,” Greenberg told the official. “We will get it back … soon.”

More than 50 years after Greenberg made that bold statement, as recounted in his 2013 book “The AIG Story,” the day that Starr Companies takes possession of its former property in Havana is not yet here.

“Change must come about, but how fast? I can’t answer that.” – Hank Greenberg, CEO and Chairman of the Starr Companies.

With the recent easing of travel restrictions to Cuba by the U.S. government, however, Starr Companies’ executives are checking on the condition and ownership of the building just the same.

Untangling the history of that Havana building is just one of the opportunities that are on the minds of business people in the United States since travel restrictions to Cuba were eased in January.

Greenberg expresses the hope that his company can one day re-open an insurance operation in Havana. At the same time, Greenberg said that there is much work yet to be done, on the part of both the public and the private sector, before anything like that can happen.

“Both governments have got to agree on the speed by which normalization would come into being,” Greenberg said.

Hank Greenberg CEO and Chairman Starr Companies

Hank Greenberg
CEO and Chairman
Starr Companies

Since the restrictions were eased, Greenberg reports that the Starr Companies’ travel services subsidiary Assist-Card International Holdings, which it acquired in 2011, is already seeing an uptick in inquiries from businesspeople interested in its travel protection services in Cuba.

“From what we can discern, there is a great deal of interest and a pent-up need to travel,” Greenberg said.

The hotel and restaurant business, agriculture and travel-related industries like cruise shipping and aviation are just a few of the industries that will see opportunities in nearby Cuba as relationships between that country and the United States open up.

There will also be an intense interest, Greenberg said, for people of Cuban descent who are United States citizens eager to visit their origin country.

However, more evolution in government relations must occur before many of those dreams can become a reality.

“Change must come about, but how fast? I can’t answer that,” Greenberg said.

One thing Greenberg is certain of. Free trade is the quickest route to building lasting bonds between the United States and Cuba.

“I think that where trade increases between countries generally you see change in attitudes and building better trust between countries. You learn from each other, it’s a faster way to normalize relations than anything I can think of,” Greenberg said.

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Greenberg stressed that Assist-Card International isn’t the only U.S.-based insurance company or subsidiary in the travel risk business.

The Starr chairman indicated though that he expects his company to be a strong competitor.

“The challenges of doing business in Cuba are substantial,” Greenberg said.

“But Starr is well-positioned and prepared to leverage our relationships and global network to support our clients’ entry into this market.”

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at dreynolds@lrp.com.
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Sponsored: Berkshire Hathaway Specialty Insurance

Healthcare: The Hardest Job in Risk Management

Do you have the support needed to successfully navigate healthcare challenges?
By: | April 1, 2015 • 4 min read

BrandedContent_BHSIThe Affordable Care Act.

Large-scale consolidation.

Radically changing cost and reimbursement models.

Rapidly evolving service delivery approaches.

It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.

After all, this is more than just a business.

The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.

But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.

“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.

Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.

The Foundation: Financial Strength

BrandedContent_BHSIBerkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.

For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.

But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.

For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.

“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.

Keeping Things Simple

BrandedContent_BHSIHealthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.

Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.

“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.

Claims: More Than an After Thought

Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.

In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.

And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.

“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”

Responding To Ebola: Creativity + Flexibility

BrandedContent_BHSIThe recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.

Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.

BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.

These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.

At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance, Berkshire Hathaway Specialty Insurance

Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.

“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.

It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.

To learn more about BHSI Healthcare, please visit www.bhspecialty.com.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact info@bhspecialty.com.

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance.
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