Contact:Cary Schneider
(212) 346-5566
Date: March 30, 2002

Asbestos Litigation, Concerns Over Mold and Terrorism Called Emerging Liabilities for the Insurance Industry

TAMPA, FLA - Changes in the asbestos litigation environment, mold claims involving a personal injury component and potential future terrorist acts are among the key emerging liabilities with ramifications for the property/casualty insurance industry, members of a panel on "Emerging Risks - What Now?" presented at the Casualty Actuarial Society Seminar on Ratemaking here.

Asbestos litigation has been called "the perfect tort," said Jennifer L. Biggs, an actuary with Tillinghast-Towers Perrin, an actuarial consulting firm, because asbestos exposure can result in well-know diseases that provide the potential for large jury awards. "Asbestosis, mesothelioma, lung and other cancers are easy for plaintiff attorneys to prove and there seems to be a unending stream of insurance and other funds to pay victims of the dangerous but useful product that is still legal and still in limited use today," Biggs said.

The asbestos litigation environment has changed, increasing costs to defendants because of a surge in annual claim filings and the rescinding of previous settlement agreements between plaintiff attorneys and defendants, stated Biggs. Increasing costs to insurers and reinsurers have been brought on through higher costs for existing defendants, additional costs for new defendants and the accessibility of additional coverage, she added.

Biggs said an asbestos class action settlement in 1993, which dictated the number of claims that could be filed and the size of settlements, was overturned, bringing on an acceleration of claims filings - from 25,800 in 1994 to 59,200 in 2000 - led by aggressive plaintiff attorneys. This increased costs to all parties involved with the more expensive claims going up dramatically, she said.

Asbestos-related problems have caused at least 57 companies to go bankrupt, according to a study by the American Academy of Actuaries. New bankruptcies may drive up the costs for remaining defendants and cause the need for additional defendants - a growing list that has gone from 300 in the 1980s to a few thousand today.

Biggs said her firm estimated in a study released in May 2001 that the net U.S. Insurer/Reinsurer Ultimate Loss and Loss Adjustment Expenses from asbestos will be $55 - $65 billion. She said exposure-based modeling will improve understanding of the ultimate asbestos liability, which will equip the defendant, insurer or reinsurer to deal strategically with its exposure.

"The American Insurance Association and the Asbestos Alliance are working together on legislative initiatives to deal with the continuing asbestos problem," Biggs said. Current proposals would focus any legislation on established objective medical criteria for asbestos-related impairment; liberalize statutes of limitations; eliminate consolidations of cases involving those very sick with disease and those who are not as sick; and eliminate forum shopping in which attorneys are able to file claims in areas of the country where they feel they will be able to get favorable treatment.

Increasing concerns over property insurance problems associated with mold have led Insurance Services Office to do extensive research and make coverage filings to try and restore stability, as well as take away financial incentives for trial lawyers and mold remediation "experts," Dominick J. Yezzi Jr., ISO vice president for commercial lines, told the seminar session.

While making filings with insurance regulators to change personal and commercial lines coverages for mold damage, ISO also is collecting data for those lines to capture the extent of coverage for losses due to mold or bacteria and is introducing new Cause of Loss Codes to identify these losses as either Bodily-Injury-related or Property Damage-related, Yezzi pointed out.

Yezzi said there has been "a lack of consumer education and of federal and state guidelines for evaluating the potential health risks of mold or its remediation, with inconclusive reports from the medical and scientific communities and paranoia from the public caused by a large amount of media coverage of the issue."

Updating the status of federal terrorism legislation, Steven G. Lehmann, a principal with the actuarial firm of Miler, Herbers, Lehmann, & Associates and a vice president of the American Academy of Actuaries, said actuaries have assisted federal officials by helping identify the issues and joining other insurance industry groups in calling for approval of some kind of federal solution.

There have been a number of federal proposals to address the problems, Lehmann said. The U.S. Senate proposal has not passed and the House bill, HR 3210, is still ready for a conference committee if the Senate can pass something, he noted.

"As of February 22nd of this year, 45 states plus the District of Columbia and Puerto Rico have approved the ISO terrorism exclusion for commercial insurance lines, but without federal action most of the risk of terrorism will be shifted to insureds and lenders," Lehmann warned.

The future is unclear and the federal legislative picture is cloudy, Lehmann said. Some actuaries have labeled it as a temporary problem, "but personally I don't think that it is," he said.

Terrorism is an uninsurable risk that cries out for federal action and without it there could be catastrophic ramifications, Lehmann concluded.

The Casualty Actuarial Society is an organization dedicated to the advancement of the body of knowledge of actuarial science applied to property, casualty and similar risk exposures.