On 3 January 2008, Lloyd’s released a report entitled Nanotechnology: Recent Developments, Risks and Opportunities, which examines the potential risks and opportunities in the emerging field of nanotechnology. Lloyd’s states that nanotechnology “promises to improve many industries including medicine, food technology, textiles, materials, cosmetics, defence and more, but the risks are still not fully understood.”
The potential risks and opportunities, according to Lloyd’s, include:
- A Potentially Large Market: One estimate by the Lux Research says that 15% (by value) of all products will contain nanotechnology by 2014. Currently most nanotechnology products are found in the sports, household and food industry, though others are using them to a growing extent. This is a rapidly growing and potentially large future market.
- Nanoparticles, Different Material Properties: Nanoparticles can be much more reactive than larger volumes of the same substance. Such particles often have unknown toxicity which can be difficult to quantify. They can disperse easily in air or water. Researchers believe this form of nanotechnology is the most risky at present and the insurance industry should monitor developments in this field closely.
- Unknown Impacts on Health: It is unclear whether nanoparticles can cause chronic health effects. Studies are still speculative, but insurers would be prudent to consider adverse scenarios when agreeing to terms and conditions, and when determining pricing and capital. In particular, whether a claims made trigger as opposed to an occurrence trigger is appropriate, and whether limits should have an aggregate limitation.
- Unknown Impacts on the Environment: There is still too little research into the potential negative impacts of this technology on the environment. Given the large pollution losses faced by the insurance industry in the past, this is cause for concern although there are now many exclusions in place to limit such losses. As for health impacts, where there is cover, insurers may want to consider the terms and conditions carefully and whether to exclude losses due to the reduction of property values.
- Many Positive Effects: Nanotechnology could also bring direct benefits to risk mitigation in the form of new materials that are stronger or more adaptive than before. Cars could be made to absorb more of the impact during a crash; building materials could be made stronger and more flexible to resist damage from earthquakes, fire, flood, and corrosion. Environmental clean-up operations could be made easier and cheaper with the use of specialised nanoparticles. Medicine could be transformed by nanotechnology, allowing cheaper and more sensitive diagnostic tools for diseases, giving insurance professionals better statistics to determine pricing. Because the benefits are so “seductive,” however, society may rush to capitalise on them before adequately assessing safety. The insurance industry must ensure that its own financial health is not compromised by systemic aggregations of loss from these technologies.
- Lack of Regulation: Currently almost all regulation of nanotechnology is done using existing mechanisms. The “wait and see” approach is increasingly becoming a dangerous way to determine the risks. There is progress in this area, and the Organization for Economic Cooperation and Development (OECD) has released a “Nano Risk Framework,” which provides a framework for risk managers to address this. The precautionary principle is now accepted to apply to the degradation of human health as well as the environment, and suggests the use of this technology should be risk assessed appropriately before consumption by the public. This approach is being recommended within the European Union (EU), though the U.S. and Japan “prefer a lighter regulatory touch.” In the past, a vacuum of regulation has proved unhelpful to insurers. The insurance industry should lobby for clarity in this area.