EMERGING RISKS IN CASUALTY BUSINESS

E-Cigarettes, Social Inflation & Opioids

EMERGING RISKS IN

CASUALTY BUSINESS

9 September 2020

Nkejane MofokengTafadzwa Mugadza

Emerging Risks Casualty

9 September 2020Emerging Risks in Casualty Business

Agenda

Introduction

Social Inflation

Opioids

E-Cigarettes

Climate Change

Conclusion

9 September 2020Source: Getty Images / debibishop Emerging Risks in Casualty Business

Introduction

A new or unforeseen risk that we haven’t yet contemplated. This risk should be on

our radar, but is not, and its potential for harm or loss is not fully known.

erm.ncsu.edu/library/article/identifying-and-evaluating-emerging-risks.

How do we define emerging risks?

New risks or familiar risks that become apparent in new or unfamiliar conditionsInternational Risk Governance Council (IRGC)

9 September 2020

Introduction

Dynamic operating landscape

Globalisation and de-globalization trends

What are the drivers of Emerging Risks?

Increasing Complexity - Growing Integration and interaction of digital systems

Natural resources and the environment

Social and cultural dynamics

Regulatory environments

Source: Getty Images / debibishop Emerging Risks in Casualty Business

iStock-918855102

Social Inflation 2

9 September 2020

Social Inflation

▪ A term used to describe rising jury awards and settlements

▪ Nuclear verdicts - rising claims severity (defined as $10M U.S. or greater)

▪ Rising costs of insurance claims due to societal trends

▪ An increase in litigation, a broadening of definitions of liability, more plaintiff - friendly legal decisions,

larger compensatory jury awards

Source: Image Source/getty images Emerging Risks in Casualty Business

9 September 2020

Social Inflation - Drivers

▪ Increase in negative sentiment towards large corporations - someone needs to pay

▪ Legal, regulatory, social changes in standards and values

▪ Increase in the cost of claims attributed to social trends (millennials, influencers or not?)

▪ Plaintiffs bar unafraid to demand exorbitant dollar amounts

▪ Restatement of Law, Liability Insurance - public policy vs. prevailing authority

▪ Settlement vs. Litigation - percentage of claims attorney represented increasing



2019 -2020 Losses/ $250m +

Fires - $13.5b

Risperdal – Product

Liability - $8b

Roundup – $2.055b

Opioids - $1.6b Las Vegas shooting -

$800m

Product Liability -

$759m

Talcum Powder -

$750mWildfires &

Mudslides - $360m

9 September 2020

Only a foreign phenomenon?


9 September 2020

Differences between U.S, U.K, Australia & RoW

The U.S. and Australia law is directly descended from British Law

▪ Court systems (Civil claims) – U.S. generally relies on established tort law and precedent

▪ The U.S. has attorneys who specialize in personal injury.

▪ Litigation funding prevalent in U.K. & Australia.

▪ Awards –U.S. is much higher than the rest of the world.


9 September 2020

Action steps

▪ Increase rates

▪ Constrict limits

▪ Change Terms & Conditions - i.e. raise retentions

▪ Uncover where spike in activity is coming from (proactive in identifying systemic issues)

▪ Review reserve adequacies

▪ Avoid certain risks – i.e. high profile (question what risks pose more risk to social inflation trends)


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Opioids 3

9 September 2020

Opioids

Opioids are morphine derived prescription drugs important for the treatment of severe pain

▪ Fueled by excessive overprescribing which is also enabled by

▪ A lax healthcare framework leading to direct advertising of prescription drugs,

▪ Lack of guidelines for prescriptions, education/training programs,

▪ Lack of control mechanisms

▪ The high increase in usage in the USA has led to an epidemic of addiction and overdoses representing

one of the most pressing public health emergencies

▪ Created an increased liability exposure in North America – (pure financial losses and bodily injury) for

companies involved in the entire pharmaceutical value chain.

Source: Design Pics/Plainpicture Emerging Risks in Casualty Business


Opioids – Important Litigation Pending

PlaintiffsCities,

Counties,

Municipalities,

Native American tribes

Consolidated LawsuitNational Prescription Opiate Litigation,

Northern District of Ohio – state most hard

hit by opioid overdoses

Class Action - Over 2,000 cases DefendantsThe Deep Pockets, i.e.

Manufacturers,

Distributors,

Pharmacies, and Prescribers

The Case Defendants accused of fueling opioid crisis to line pockets, drug makers aggressively marketing drugs while

downgrading addiction & overdose risks, distributors failing to detect, probe or report suspicious orders/prescriptions.

Damages sought are for socio-economic impact: increased costs for addiction treatment, costs for law enforcement

resources, and healthcare system.

9 September 2020Source: Design Pics/Plainpicture Emerging Risks in Casualty Business

Opioids – Outlook & Possible Effects of Corona

▪ Efforts taken by Federal Health agencies to implement measures towards combating this issue over

several years

▪ Average consumption of legal opioids declined in 2017 after decades of constant increases

▪ However, COVID -19 may negatively impact the positive trend:

▪ Closure of walk in clinics and syringe exchange programs.

▪ Community support groups now virtual

▪ Disruption of public health services

▪ Decreased access to treatment, social distancing could also be concealing a surge of opioid abuse

▪ Supply chain disruptions cause opioid-related shortages

9 September 2020

Implications for RoW

▪ Due to legal and social environments, opioid crisis in other countries outside North America highly

unlikely (Europe, Australia & Asia adopted stricter frameworks)

▪ Monitoring however imperative – aspects which can increase/decrease likelihood of the crisis:

▪ Availability of inexpensive illegal opioids

▪ Cultural attitude towards pain/pain management

▪ Legal system and likelihood of significant recoveries

▪ Prescription tracking systems in place (limits multiple prescriptions to single patient from different

doctors)

▪ Permissibility of direct marketing of prescription drugs by pharmaceutical companies

▪ Emerging middle class – more likely to be targeted by manufacturers as a growth market


9 September 2020

Risk Assessment & Underwriting

Medical Malpractice

Trigger – claims made

Nature of Loss – Policies covering

financial loss more exposed compared to

those only covering Bodily Injury .

Ongoing Litigation may change this view!

Directors & Officers Liability

Increased but overall moderate exposure

Directors & Officers of manufacturers &

distributors of opioids for non-compliance

with regulation, failure to supervise or

implement adequate controls.

Significant drop in share price could lead

to shareholder class action . Avoid

underwriting US listed companies &

pharmaceutical companies – highly

exposed

Workman’s Compensation (WC)

▪ Injured employees prescribed opioids

to ease pain in the US.

▪ Quick return to work in high capitalist

economies encouraged.

▪ Average cost of prescription opioids

claims 4x that of a non opioid one

▪ Medical operations, therapy, and

indemnity/wage replacement costs

covered under WC.

▪ RoW – Monitor opioid usage in WC

and possible impact on the system

▪ Affected industries include

Construction, Manufacturing, Farming

▪ Check level of prescription control in

country of operation and

effectiveness of government action.

▪ Ensure sufficient deductibles are

applied.


Electronic Cigarettes

4

4

iStock-663981890

9 September 2020

Electronic Smoking Devices

▪ What is an E- Cigarette?

▪ US Food & Drug Administration (FDA) Definition:

▪ Battery operated products designed to deliver nicotine, flavour & other chemicals.

▪ E-Cigarettes turn chemicals, including highly addictive nicotine, into an aerosol that can be

inhaled by the user.

▪ Other names for E- Cigarettes:

▪ E Cigs, E-Hookahs, Mods, Vape Pens, Vapes, Tank Systems, Electronic Delivery Systems

(ENDS)

▪ Many of these products can also be used or modified to deliver marijuana or other drugs

Source: BlackJack3D / Getty Images Emerging Risks in Casualty Business

9 September 2020

Key Facts - US

Origin:

Introduced to US market in 2006

▪ Relatively new and untested product

▪ FDA to only scientifically evaluate e-cig

additives by September 2019

▪ Developed flavors that appeal to young

users

Key Manufacturers in the US:

▪ US$4.2b in 2018

▪ Projected to hit US$16.5b by 2024

▪ 24% Compound Annual Growth Rate

(CAGR)

▪ JUUL had 75% market share in 2019

▪ Altria acquired a 35% share in JUUL in

December 2018

Users:

▪ Over 5m US middle & high schoolers (ages 11 -18) in

2019

27.5% of all high school students

10.5% of all middle school students

▪ 2.7% of US adults in 2017

59% also smoked cigarettes

40% of young adults (18 - 24) never smoked cigarettes

Developments:

▪ E-Cig/Vaping Associated Lung Injury (EVALI)

▪ ER visits for lung injuries increased late summer 2019

▪ 2,807 ER visits & 68 deaths as of Feb 2020

▪ Culprit identified – Vitamin E Acetate in THC vaping

products

▪ Vit E Acetate not approved for human consumption by

FDA


9 September 2020

RoW

▪ Global market estimated to be worth more than US$20bn

▪ Currently no major litigation in Europe

▪ E-cigarettes promoted by health authorities in Europe as a safer alternative to tobacco

▪ First Europe death attributable to e-cigarettes in November 2019

▪ Discovery of harm caused by e-cigarettes in the future could increase litigation

▪ Continuously growing markets for e-cigarettes in Asia, Latin America and Africa


9 September 2020Source: BlackJack3D / Getty Images Emerging Risks in Casualty Business

Action Steps

What are the risks?

▪ Classical manufacturing errors e.g. contaminated raw materials, wrong mixing/blending etc

▪ BI & TPPD arising from overheating, explosion, bursting, or rupturing of an electronic smoking device

▪ D&O claims against directors and officers

Exclusions?

▪ Consumer protection legislation in the EU, the UK, South Africa and some US states that allows for a

victim/plaintiff to sue anyone in the entire distribution chain, therefore exclude:

▪ General liability coverages for the entire distribution chain

▪ Electronic devices manufactured, distributed and marketed globally and pose a similar health hazard

▪ Legal frameworks in most jurisdictions protect youth, litigation based on social harm foreseeable

iStock-479446229

Climate Change 5

What is it about?

▪ Most climate change is man-made

▪ Climate liability litigation was started by environmental groups in the US to compel policy

development towards a national climate change regulatory scheme.

▪ Liability for Climate Change two-fold:

▪ for greenhouse gas emissions

▪ failure to disclose/report/consider consequences of climate change (greenwashing)

Source: john finney photography / Getty Images Emerging Risks in Casualty Business

9 September, 2020

Different Claims

Damages for property loss, relocation

Damages for expenses of public entities

Claims for damages

Stricter/less strict regulation

Discontinue/reduce use of fossil fuels

Claims for regulatory

action, injunctive

reliefEven invalid claims cause defense costs

High claims get lots of media coverage

Claims to raise

awareness, for political pressure


9 September, 2020

Litigation

NIGERIA

Gbmere v Shell Petroleum &

Others

Challenge to practice of gas flaring

in the Niger Delta by oil & gas

companies

▪ Nigerian federal court ruled oil

companies to stop flaring gas in

the Niger Delta

▪ Fundamental rights of life and

dignity violated

*Claim for regulatory action

*Based on constitution, human

rights

SOUTH AFRICA

GroundWorkv Minister of

Environmental Affairs, ACWA

Khanyisa Thermal Power Station

▪ At issue – consideration of

climate change in environmental

impact statements

▪ Decision Pending

KENYA

Save Lamu et al v National

Environmental Management

Authority & Amu Power Co. Ltd

▪ Challenge to issue license for

Kenya’s first coal fired power

plant

▪ Environmental impact

assessment did not adequately

consider Climate Change Act of

2016


Claims for Climate Change

Liability issues:

▪ Legal standing (Who can sue?)

▪ Causation (Man-made? Who caused exactly what damage to whom?)

▪ Limitation periods/time-related issues

▪ Allocation of liability: Proportionate/market-share liability


Outlook

▪ Rising awareness, litigation funding and media coverage incentive to sue

▪ Recourse of property insurers against casualty insurers (e.g. after floods or wildfires)

▪ Check your wordings (occurrence, defense costs, losses of public entities)

▪ New/different need for coverage?


Conclusion

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