Emerging Exposures CAS Annual Meeting – San Francisco Raji Bhagavatula, FCAS Principal November 14,

2 Emerging Exposures- Basic Questions Are they insurable? Can they be underwritten? Are you able to price for emerging exposures?

3 Emerging Exposures- Lessons From History The loss quantification exercises have been reserving exercises rather than pricing exercises. They seem to creep into the claims history- the insurer had no intention of covering them, has not underwritten them, has not specifically priced for them at the time of underwriting.

4 Emerging Exposures- Insurer Obligations Liability insurance is “all risks” insurance- “the insurer will indemnify against all sums which the insured shall become legally liable to pay as damages and claimants costs and expenses “ Emerging risks have to be dealt with in exclusions A lot of imagination is needed to come up with the exclusions at the time of underwriting.

5 Emerging Exposures- Insurability Risk has to be random and unambiguous Risk must be estimable There must be a causal relationship between the action or omission by the insured and the resulting property damage, bodily injury or financial loss The loss must be independent of the volition of the party generating the loss Emerging exposures do not satisfy the criterion of insurability

6 Emerging Exposures-Underwriting Underwriters need to understand the art and science of the business of the insured. Need to be able to imagine futuristic scenarios. Time limits for reporting and payout of claims Well crafted exclusions Dollar limits on payments Bear in mind that the legal landscape is continually changing- what is covered is subject to interpretation and reinterpretation. The interests of the insurance company and insured have to be aligned. Use of warranties Geographic area limitations

7 Nanoparticles- Next Asbestos? Experts view the emergence of nanotechnology as the next industrial revolution- (Asbestos the miracle mineral!) Nanotechnology has the potential to embrace a broad spectrum of products and applications-( Asbestos was used in over 3000 products and touched all but a few industries) Expert opinions vary markedly over the potential risks associated with nanoparticles; while some believe that risks outweigh benefits others believe that nanoparticles will harm living creatures by virtue of their size- (Asbestos fibers are small; nanoparticles are smaller!!) Nanoparticles can be inhaled, can be absorbed through the skin, may be ingested- Although risks unknown have the potential to give rise to many more ailments than asbestos. The people exposed likely in higher income brackets than asbestos victims Loss accumulation potential due to latency – (Similar to asbestos many policy periods may be impacted)