No small matter: nanotechnology holds out substantial growth opportunities--and possibly big risks--for the insurance industry.
* Nanotechnology may deliver substantial growth opportunities to insurers, but it also may bring a new dimension in personal injury, property damage and pure financial losses, as well as third-party liability risks.
* Research funding for nanotech products continues to grow.
* Questions remain about the risks such products may pose to humans and the environment.
* As of yet, since no exclusions have been applied to nanotech applications, they are covered by existing policies.
The positive prospects are mind-boggling. Picture an infinitesimally small silicon comb that could capture cancer cells as it moves through a patient's bloodstream. Think of a car equipped with hydrogen-based fuel cells that could travel nearly 5,000 miles on a full tank. Consider the placement of minute solar cells into building facades and road surfaces, producing far cheaper energy than current systems.
These visionary developments represent the brave--and possibly risk-mined--new world of nanotechnology, a generic term for a large number of applications and products that contain particles smaller than 100 nanometers. A nanometer is one-billionth of a meter. These particles are so small that a million of them would fit onto the dot of this "i."
Nanotechnology is being hailed in some quarters as the force behind a new Industrial Revolution because it is expected to affect virtually all industries. This emerging technology holds considerable importance for insurers that stand to cash in on some substantial growth opportunities. But with the use of nanotechnology products and processes, insurers also may be facing a new dimension in personal injury, property damage and pure financial losses as well as third-party liability risks, said a report by Munich Re Group.
Gerhard Schmid, head of Munich Re's casualty risk consulting unit, said the insurance industry needs to establish a sound risk management system now to evaluate all of the different risks that nanotech products pose for the environment in view of product liability and recall areas." The first thing we have to do is know who is producing nanotechnology related products," he said. For its part, Munich Re already is working toward this end, Schmid added.
With this technology, Munich Re foresees more frequent product recalls because of the innovative nature of nanotechnology's manufacturing methods. Therefore, since recalls usually are not covered under product liability, insurers can expect to see increased demand for product recall policies, the reinsurer predicted.
Miniaturization, the basic idea behind nanotechnology, is not new. It goes back more than 50 years to production of car black containing nanoparticles, the small particles that arise in the miniaturization of any material, said Annabelle Hett, risk specialist for Swiss Re's chief underwriting office in Zurich. In fact, nanoparticles show up today in such commonly used products as sunscreen, packaging material, cosmetics and paints.
What is new, however, is the ability to manipulate individual atoms to manufacture small particles with specific properties, a breakthrough that has come about only in recent years. Thanks to development of the high-resolution, scanning tunneling microscope in 1990, it's now possible to scan an atom, produce a copy and transplant it, or combine it with other atoms.
"By using the novel properties of nanomaterials, you can come up with absolutely innovative products--things that have never been there before," Hett said. "For example, in the medical arena, we see a lot of potential in treating disease, such as cancer and incurable infectious diseases like AIDS. The whole diagnostic part could be revolutionized with nanotechnology." Much of this remains in the research and development phase, she said.
In time, this technology is expected to cut energy use, Hett said. By being able to produce much lighter yet much stronger materials for cars and planes, the reduced weight would lead to far less fuel consumption, she noted. "I couldn't tell you how far away we are from introducing that to the market," Hett said. "There is always the question of price because particles need to become cheaper to be able to produce more bulk material. So the more we will be able to use it, the cheaper this is going to be and then we will have a pervasive use of these materials. But we are not there yet."
Research funding for nanotech products continues to grow worldwide, with an estimated $3 billion spent in 2003 for public research alone, she said. In 2001, the worldwide market volume of nanotechnology applications was estimated at more than 55 billion euros (about $71 billion).
Yet there still are some basic questions that must be answered about the risks these varied products may pose to human health and the environment.
Some fear that nano machines could run wild and reproduce themselves endlessly, dismantling anything in their path, atom by atom, Munich Re said. "If set free, uncontrolled nano robots could, with the necessary constant power supply, transform organic substances in the environment into new materials or penetrate into the soil, causing permanent damage to crop cells or even destroying them," the report said. "These would be totally new loss scenarios, likely to go far beyond anything experienced up to now in today's high-tech world."
When reduced to an extremely minute size, a nanomaterial can take on different properties, such as highly increased mobility. That's because something this small is no longer subject to the laws of classical physics, but to those of quantum physics, Hett said. For example, researchers have found that nanoparticles are capable of crossing the blood-brain barrier, a surprising development because most pharmaceutical substances that target the brain actually fail to cross this barrier she said. Merely by being breathed in, these particles can travel up the nose and into the brain without ever entering the bloodstream.
"Whether that is really alarming or not, we do not yet know," Hett said. "Scenarios differ very much. We don't yet know if the worst-case scenario will become true or whether this stuff will be pretty harmless."
Within the broad category of nanotechnology, the insurance industry addresses only newly engineered nanoparticles and nanotubes, Hett said. The latter are specially manufactured particles that don't occur in nature and typically have a crystalline structure.
Researchers are studying how these particles travel, what reactions the) trigger and where they move. It's a matter of toxicity and exposure, Hett said. In terms of the environment, it has to be determined what kind of materials are actually exposed, and what the greatest exposure level may be. For humans, the question is where the greatest possible hazard may lie, if at all--whether breathing the particles in, swallowing them or applying them to the skin.
And the questions multiply when considering that each of the many nanoparticles that have been developed so far reacts differently, Hett said. Currently, researchers are trying to design highly reactive nanoparticles that would assist the clean-up efforts for large contaminated sites, such as Superfund sites in the United States. The standard procedure has been to remove the contaminated soil, clean it, then return it to the site--a time-consuming and costly procedure. But nanoparticles could be pumped into the earth and water in these areas and, due to a chemical reaction, would neutralize the contaminants. After the particles had done their job, they would be left at the site.
"In most cases when using nanoparticles, it's like a two-edge sword," Hett said. "On the one hand, you have those benefits. On the other hand, you're wondering what happens to the particles once they are in the water; would they ever prove to be toxic or hazardous? And you would have a very hard time getting them out again."
The same quandary arises in the application of innovative drugs that could treat ,, brain diseases directly by crossing the blood-brain barrier. "The question is, what will these particles do once they are in the brain? Will they accumulate? What will happen?" Hett said. "We need to reduce the uncertainty at this time to be a little more sure about how this is going."
Schmid said that one of the most important goals for insurers right now is to see uniform nomenclature in this field. Hett agreed. "It's absolutely necessary to have one common language because fit the moment, different countries and different companies name the same particle in different ways," she said. "So we don't have a common wording."
This means that even if insurers and regulators want to address certain exposures, they can't because they cannot specify certain particles, she said. Both the European Commission and the U.S. Administration have launched projects addressing the nomenclature of nanotechnology materials.
Achieving standardization is important, said Hett, who would like to see producers of new chemicals rectify a number or model certification after their products have passed an approval program. "That currently is nonexistent for nanotechnology," she said.
With this new technology, regulators likely will have to change their methods, turning from a toxicological analysis of a product to an analysis of how vulnerable a human being would be if exposed to the nanomaterial, said Marcel Buerge, one of Swiss Re's senior risk experts. "If that cannot be answered, then they have the same problem as we insurers have," he said. "They would then probably come up with something like best practices of handling nanoparticles because of the uncertainties."
Regulatory agencies have been studying nanotechnology in terms of occupational health issues. Hett said she expected some countries to publish their manufacturing guidelines and best practices in early 2005.
Swiss Re has been proactive in generating discussion on this hot topic. In addition to offering numerous presentations and workshops, the reinsurer sponsored a major international conference in Zurich in December 2004 on nano risks and opportunities. Within the company, risk research is under way to understand its exposures and how it can differentiate one risk from another for underwriting purposes. Swiss Re also has consulted regulatory agencies to see what regulations might apply and their implications for the insurance industry. And the company is the founder of the Center for Global Dialogue in Rueschlikon, near its headquarters in Switzerland, where a study is under way on nanotechnology's risks.
"Obviously the industry is concerned about potential risks and they arc absolutely intent on having these problems solved because they do not want to release these products on the market and later on find out that they do harm to the environment or human beings," Buerge said. "Everybody, really everybody we've been talking to, believes that more research has to be done in terms of the mobility of artificial particles, which could create a problem."
Hett thinks it's a good sign that, this early on, so many industries, including the insurance industry, are considering the possible risks of nanoparticles. "Now we can only hope that out of these discussions, we will have some further, more detailed and fruitful discussions, and then come up with solutions that really work for both sides," she said.
Once the risks can be quantified, Buerge has no doubt that nanotech products will be a boon to the insurance industry. "It is a big piece of business and it is going to be insured," he said. "And there are a large number of positive side effects of this technology that would directly influence our loss patterns because they are going to be used in loss preventing measures."
As nanotechnology develops, it remains to be seen if insurers will have to devise new coverage plans or just adapt existing ones to the new products and processes. Swiss Re Group is considering this now through its global interdisciplinary team, Expert Circle Emerging Risks, Hett said. "They are actually looking at what the potential could be and how we deal with that risk in underwriting," she said. "One of the questions we have on the table right now is how big is the potential exposure and how can we cope with it?"
As soon as insurers can deal with a risk, it no longer matters what technology is behind it, Buerge said. "In our terms, a risk has a number behind it, it has a probability or a frequency and severity, an impact, or loss size," he said. "The moment we have the probability of a certain negative outcome, we can deal with it."
The more difficult part for insurers is the uncertainty--not knowing if someday this technology will produce negative effects, Buerge said. "We cannot price uncertainty and therefore we hesitate to do too much," he said. "We're looking to the possibility that some uncertainties will still remain after the scientists have done their research on nanotechnology. If that is the case, then we would have to find other solutions than traditional insurance."
Up to now, Munich Re pointed out, "losses involving dangerous products were on a relatively manageable scale, whereas, taken to extremes, nanotechnology products can even cause ecological damage, which is permanent and difficult to contain." This calls for the development of risk management tools designed to prevent and reduce losses, the company said.
Meantime, since no exclusions have been applied as yet to nanotech applications, they are covered by existing policies. "In most policies and in reinsurance contracts we would not even know whether there is a nanotech application," Buerge said. "Therefore, we want to know about all the inherent risks and mitigation techniques."
Schmid said he is optimistic about the outcome for nanotechnology products and processes. "We have a huge chance to generate the best economic situations worldwide because nanotechnology is really a big chance to go forward," he said. "The challenge is to generate a round-table discussion with industry, which is producing all these nanoparticles, and perhaps create a risk management society or risk management tool to work on this together."
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Swiss Re Group
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The emergence of the brave new world of nanotechnology brings new challenges for insurers.
Uncontrolled nano robots could, with a constant power supply, transform organic substances in the environment into new materials or penetrate the soil, causing permanent damage to crop cells.
Researchers discovered nanoparticles are capable of crossing the blood-brain barrier. Merely by being breathed in, these particles can travel up the nose and into the brain. Researchers have yet to determine if it's more dangerous to breathe in nanoparticles, to swallow them or to apply them to the skin.
LACK OF STANDARDIZATION
Currently, countries and companies are naming the same nanoparticles in different ways. If insurers want to address certain exposures, they can't because there isn't a uniform nomenclature in place.
NANOTECHNOLOGY is a term derived from "nanos," the Greek word for "dwarf." Nanomaterial is any material that either contains a certain proportion of nanoparticles or even consists exclusively of them. Specialists distinguish between nanoparticles in general and so-called nanotubes or buckyballs.
NANOPARTICLES are small particles that arise in the course of miniaturizing any given material such as gold, carbon or silicate. They account for the great majority of processed nanomaterials.
NANOTUBES AND BUCKYBALLS are specially manufactured particles which do not occur in nature and typically have a crystalline structure. They are used in the field of electronics, among others, and are still difficult and relatively costly to manufacture.
Source: Swiss Reinsurance America Corp.
The American computer magazine Wired has surveyed nano scientists and has found:
* By 2009, we can expect to have the first laws relating to nanotechnology.
* By 2011, there will be large-scale production of machines able to position and manipulate individual atoms with great accuracy.
* By 2029, nano machines will repair live cells using atomic building blocks.
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|Date:||Mar 1, 2005|
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