Evidence from: tp97_kendrink_underwriting_new_normal_18june2013. A personal view from Andrew Kendrick – well worth reading. Published by CII. http://www.cii.co.uk/search-results/?q=thinkpiece+97&searchIn=site In particular on page 4, a plea for risk based pricing, without which the sustainability of an insurer seems more and more to depend on good fortune. How long will investors, regulators and policy-holders tolerate a ‘good luck’ argument? Comment Some insurance products have a strategic role to play in lubricating the economy. My suspicion is that these will be the focus of the insurance regulator. Risk based pricing and transparent systems for managing emerging risks will be very important to them. Margin, market share and group exposure cannot always be traded off against each other, at some point insurance must keep its promises.        

Evidence from: [2013] EWHC 520 (QB) 13th March 2013 Hill and Billingham v Lloyd’s British Inspection Services Ltd Exposure to asbestos dust occurred in 1968. Was there a breach of duty? HM Factory Inspectorate’s Technical Data Note (TDN) 13, issued in March 1970 was presented as representing the duty of care standard of around about that time. The judge (Mr Bean) regarded the generally low background exposure to be irrelevant, focussing instead on showers of dust dislodged from overhead structures. He accepted that peak exposures of a few seconds duration would be at up to 100 f/ml. Unfortunately, TDN13 includes express provision for such peak exposures. These are to be measured over a 10 minute period. Background level is critical to deciding what the 10 minute average would be. Using basic physics (CFD would be preferred) the following estimates are made: If arbitrarily set at a maximum allowable 2 f/ml background, allowing 100f/ml exposure to persist for an unlikely 10 seconds

It is being reported that the House of Lords have (23rd April 2013) passed Clause 61 of the Enterprise and Regulatory Reform Bill. This will (in good time) remove  section 47(2B) of the Health and Safety at Work etc Act 1974. Section 47(2) of HSWA explicitly provides that a breach of ‘health and safety regulations’ (a breach of statutory duty) is actionable where the breach causes damage, unless the particular regulations specifically exclude this right (currently very few regulations exclude civil liability). This is in contrast to the position for breach of the general duties under HSWA where section 47(1) makes clear that there is no right of action in any civil proceedings for breach of statutory duty. Most claims are currently brought in respect of both breach of statutory duty and negligence. In the absence of the former, it is expected that the law of negligence will develop to deal with situations and legal issues previously dealt with under statutory breach, more claims may be

IAS 37 provides the detail. see for example: http://www.iasplus.com/en/standards/standard36 Firms may have reason to consider that a liability is emerging, but don’t have to recognise it in the accounts unless: a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event), payment is probable (‘more likely than not’), and the amount can be estimated reliably. Every firm will have its own method of making these judgements.  This in turn will be influenced by their risk management philosophy. They should offer these judgements to the auditor for an independent view. As an emerging risks regime is put in place and develops experience, there will be false positives which would show up on the bottom line. This would tend to lead to marginal judgements becoming hardened into “not yet, if ever”. A conservative view of emerging liabilities is entirely justifiable. Over time, money tied up by false positives would be rel

Paragraphs 11 and 12 of the PRA guidance paper insuranceappr1304 refer to market failure at the level of a given type of insurance policy e.g. third party motor insurance. The concern is that the beneficiaries of a policy would be denied their rights in the event that an insurer gets into difficulty. Of course, there are mechanisms for the market to pick up the tab for some kinds of insurance policy when an insurer goes out of business. The implication might be that PRA will take a market level view of threats to individual policy types e.g. Employer’s Liability, the more so the more difficult it would be to manage economic risks were those insurances to be withdrawn for whatever reason. EL is of course compulsory, so employment would be impossible without it, Prof Indemnity is highly advisable, its absence would not be in the interests of commerce or the beneficiaries of third party policies. Market-wide action on general threats to policy lines would seem to be the obvious resp

Prudential regulation of insurance has been transferred to a new unit at the Bank of England – the Prudential Regulation Authority (PRA). The PRA’s approach to regulation and supervision has three characteristics:  A judgement-based approach: The PRA will use judgement in determining whether financial firms are safe and sound, whether insurers provide appropriate protection for policyholders and whether firms continue to meet the Threshold Conditions. A forward-looking approach: The PRA will assess firms not just against current risks, but also against those that could plausibly arise in the future. Where the PRA judges it necessary to intervene, it will generally aim to do so at an early stage. A focused approach: The PRA will focus on those issues and those firms that pose the greatest risk to the stability of the UK financial system and policyholders.  The PRA approach to supervision will not seek to operate a “zero-failure” regime. Rather, the PRA will seek to ensure that a f

It was a great pleasure to lecture to Swansea U business and economics students just before Easter. Dr  Jing Chen (Maggie) invited a talk on emerging liability risks. Having explained the risk management and business planning context, the talk provided 4 examples of emerging liability risks: phosphate additives in food long nano fibres diesel engine exhausts night shift work In each case, the students were asked to be the Board of Directors and given 3 options, choose one which would be company policy on that risk. For example: do nothing, divest from that market sector, increase premium, reduce premium, prepare a defence strategy etc. … among the usual choices for insurance risk managers. Responses were provided and they were allowed to change their minds as the consequences of each choice were explained. But they made a choice. Its all about forming a judgment and making a decision. These well educated young people were able to form and evaluate their own judgements in the face

Science is not the decider of fact. For example, cancer is probably the result of an accumulation within a given cell, of seven or so genetic changes, but the courts decide that any given cancer does not have a cumulative cause. The scientific probability of it not being cumulative in nature is very small indeed but the legal fact (following the Phurnacite case) is that it is not. For example, among those who make a claim for whiplash if 65% are actually injured and the test is 80% accurate then the Bayesian odds of making a diagnosis is six to one. The inference is that 86% will be diagnosed! Yet if a random sample of the population is assessed (annual prevalence ~ 1%), the odds are worse than eleven to one (against) that anyone given a whiplash diagnosis actually has such an injury. Given these scientific ‘facts’, the court would be forgiven for deciding either there was no such thing as whiplash or in the alternate, that everyone who makes a claim must be injured and it

Thank you to Roger Nash and the IUA team for inviting me to speak today. I spoke about added phosphate in food and, carbon nanotubes. Having heard a brief narrative, the challenge to the audience was to form an opinion and then identify which key factor needs to be monitored if a new opinion of this risk is to be formed. There were many different answers. It is quite clear that the market is alive and well and that everyone would manage emerging risks in different ways. None of them wrong. By identifying a key factor, the support team could look out for it and be less distracted by the noise that usually surrounds these risks. Given similar briefings on a range of current topics the never-ending list of emerging risks can soon be turned into a list of key changes, many of which will be shared with other risks. Correlated emerging risks would become more apparent.

With new risks proposed every week liability risk managers soon develop ways to filter out the noise. By adopting a systematic approach the filtering process can be refined in the light of feedback and can be inspected by the enterprise risk manager and others. A brief introduction to a systematic approach is provided here: Practical Emerging Risk . Once a subject has been evaluated by the risk manager, it doesn’t need to be re-evaluated until the trigger condition is satisfied. Practical Emerging Risk  

Evidence from: The December 2012 issue of the Radar journal. In a nut shell, the normal neck is to varying degrees defective. Most of us just ignore it. It comes and goes. Normal defect does not often count as a motoring injury unless a person is examined after a not-at-fault car crash. At that point, the observed defect is an injury and what’s more, it was caused by the car crash!  At-fault drivers are many times less likely to be described as injured. The problem has been that expert examiners have had no common-law-compatible method for distinguishing between normal and probably abnormal. They have had no tools for assessing, from a common law point of view, whether there is an injury or not. So, they use a medical approach instead. Medics are in effect precautionary, rather than reasonable, and trusting rather than probabilistic. This approach is acceptable for broken bones, but is of doubtful relevance to the common law when the actual defect is commonplace and normal. Insurance c

Evidence from: A symposium for Civil Service ‘Horizon Scanners’ and decision-makers. Shrivenham 15th Jan 2013. Remit: How to get more attention [and funding] from decision-makers?   Tuesday was my first taste of a ‘Horizon Scanners’ symposium. It was free to attend. Thank you to CSaP University of Cambridge. Two approaches to “Horizon Scanning” were evident. One approach develops a deterministic model of the current landscape, identifies the different drivers that make sense and to which there is a measured vulnerability. This approach is probably best described as evidence-based resilience testing with targeted enquiry to identify when priority threats and opportunities are emerging. I wouldn’t call it horizon scanning I would call it risk management. An excellent example of this is the National Institute for Health Research Horizon Scanning Centre and of course, the Radar service. The second collects opinions based essentially on strongl

Evidence from: Managing Injuries of the Neck Trial (MINT): a randomised controlled trial of treatments for whiplash injuries. Health Technol Assess 2012;16(49). People were diagnosed at ED assessment with whiplash grade I to III. They were randomised to receive the Whiplash Book (developed for an ABI evidence-based guidance project) and or a combination of physiotherapy or neither. 18% went on the have persistent whiplash. Overall, there was no measurable effect of any intervention at 12 months. Those still in trouble at 3 weeks post accident did benefit very marginally at 4 months. Having assessed the cost, the authors concluded that: from a healthcare perspective, the physiotherapy package was not cost-effective at current levels of willingness to pay Comment: The medical test of benefit and the medical test of cost effectiveness are both more generous than would be expected at common law; where the balance of probabilities is used to judge facts. Applying the common law standard, th

Evidence from: Neutral Citation Number: [2012] EWHC 2936 (QB) Case No: HQ09X03547 JEFFREY JONES AND OTHERS – and – THE SECRETARY OF STATE FOR ENERGY AND CLIMATE CHANGE – and – COAL PRODUCTS LIMITED The claimants failed to establish that carcinogenesis is a cumulative disease process when viewed under the lens of legal causation. Paradoxically most medical experts agree that the mechanism does in fact involve an accumulation of DNA damage but this does not influence the legal thinking. 1) the disease can occur with no external exposure 2) when multiple carcinogens are present in the environment increased risk of DNA damage arising from one exposure does not mean that the cancer was actually caused by that given source of exposure. 3) any threshold test of material risk would at present be arbitrary. The case reverses a growing sense that any contribution to the risk of indivisible harm could be found liable for 100% of the damages, as appeared to be the case in B

A group of six scientists and a government official are facing six years in jail for manslaughter after providing “an incomplete, inept, unsuitable and criminally mistaken” assessment of risks posed by what turned out to be the devastating L’Aquila earthquake. They had met  a few days before the damaging quake and ruled that it was impossible to determine whether the (recent small) tremors would be followed soon by a large quake. The prosecutor Mr Picuti told the court that the defendants had provided “an incomplete, inept, unsuitable and criminally mistaken” analysis which gave the residents of L’Aquila a false sense of security. Evidence from: http://www.telegraph.co.uk/news/worldnews/europe/italy/9626075/LAquila-earthquake-scientists-sentenced-to-six-years-in-jail.html Comment Various comments suggest that given the data and relevant theories  the inconclusive finding of the committee was among the range of opinions that could have been reasonably formed. It is suggested that the fa

Most of the Nanomaterials that come into direct contact with consumers and workers are produced in  quantities exceeding 1 tonne per annum. The so called REACH regulations (relating to chemical hazards)  have a reporting threshold of 1 tonne. EC considers therefore, that most of the potential hazards presented by Nanomaterials will fall within the scope of REACH. They do acknowledge however, that substances can be registered in the non-nano-form without reference to there being any nano-form in production/sale. If, in the opinion of the producer, the nano-form is hazardous, and has not been included in registration of a bulk form of the same substance, then the REACH agency (ECHA) should be informed. They also consider that REACH should be modified to accommodate any new thinking on nanomaterial risk assessment: where current evaluations systems seem to be inadequate. EC will establish a web site with references to all relevant information sources, including registries on a national or

Dr Michael Maran, Chief Science Officer, Catlin, was recently welcomed to the Radar subscriber group as from 1st September 2012. Dr Andrew Auty, Director of Re: Liability (Oxford) Ltd, explained that the Radar service is growing in strength within the Lloyd’s market.   For more detail on the Radar service: http://www.reliabilityoxford.co.uk/radar/. Contact: andrew@reliabilityoxford.co.uk .

The author was asked to prepare an IMC lecture, to be presented in Cambridge. The lecture began with some good advice before moving on to examples of emerging risk: phosphates, carbon nanotubes, diesel exhausts and breast cancer. Subscribers to the Radar service can get the technical details on these topics; the good advice is summarised below. Change is continuous. The problem: Head office could spend all their time analysing changes in exposure. In practice, trigger levels are used to reduce wasted effort. These thresholds filter out the noise, result – only the big changes are to be evaluated and re-judged. If the portfolio is big enough the net effect of small changes, may average out. Sounds good, but the human response to this approach is always to make sure that any estimate of change comes to just below the trigger level.  Moving exposure out of the reckoning is not good practice, but may be convenient both in terms of apparent competitiveness and gives increased confiden

Nano fibres were injected into the pleural cavity of lab mice. Fibre length was a key factor in determining the strength of inflammatory reaction. Given the short time-scale, the full biological significance of this length dependence was not determined. However, the same pattern of length dependence was found for different fibre compositions, including long vs short asbestos fibres. The researchers provide a consistent explanation, which, unlike more orthodox explanations, gives rise to the possibility that there is a lower bound to the risk of mesothelioma. It is highly unlikely that this model will be universally welcomed; but offers an opportunity for defence. Evidence from:  A Schinwald et al. Toxicol. Sci. (2012) Vol.128 (2) p 461-470 The Threshold Length for Fiber-Induced Acute Pleural Inflammation: Shedding Light on the Early Events in Asbestos-Induced Mesothelioma The research, and its potential for safety specifications and for defence of mesothelioma claims will be discussed

Two years since the consultation closed, the Government has announced new measures to ensure that more people are compensated for occupational mesothelioma. Essentially the problem is that the latency of this disease is so long that records of insurances are often lost by the time the victim realises they could make a claim and the employer long since gone out of business.  As a result, those with potentially good claims for compensation are denied access to justice. The proposed solution is an Employers’  Liability Insurance Bureau (ELIB), providing a mechanism for funding good claims where the insurance policy cannot be traced. Funding would be generated by imposing a levy on current EL insurers. Evidence from: DWP (2012) ISBN 978-1-78153-071-9 Accessing compensation – Supporting people who need to trace Employers’ Liability Insurance: Government response to consultation – July 2012 The DWP report makes no attempt to quantify the number of ca

Alex Hindson, Head of Group Risk, Amlin plc, has confirmed that Amlin will take up the Radar service from 1st September 2012. Dr Andrew Auty, Director of Re: Liability (Oxford) Ltd describes the Radar service as an essential complement to all systems of liability risk management. The Radar service informs insurance decision-makers about emerging liability risks. Changes in science, technology and law are assessed for their probable effect on liability exposure. Priority is given to any change which is likely to be larger than that predicted by experience trends or,  to lead to a completely new exposure. The aim is to provide quantitative information with which to evaluate timing, size and uncertainty of change and to provide a narrative which will aid the formation of good judgment.  Radar also supplies tactical information on well known issues e.g. vibration white finger, substantial contribution, contamination etc. This leads to possible new defences or better loss control options fo

There is uncertainty surrounding the long term health effects of added phosphates in foods and beverages; though they have been used in processed foods for a very long time. The intended uses are many, varied and highly prevalent. These are the right conditions to register as an emerging liability risk; exposure uncertainty may be much larger than the estimated risk itself. Evidence from: E Ritz et al. Dtsch Arztebl Int 2012; 109(4): 49-55 Phosphate Additives in Food—a Health Risk While generally regarded as safe, there is a growing body of evidence that suggests room for doubt about this designation. There is a coherent mechanism, via the effect of phosphates on calcium, that would predict problems with existing heart disease and even causation. Risks so far have been measured as small. Liability risk managers have to assess the potential product liability exposure, keeping in mind that some of the predicted outcomes are indivisible. There are also potential D&O risks associated w

Two key starting points: In a well managed system, the decision-maker will know how close to the wind he is sailing. He will know how big  a chance change in wind speed needs to be to give him that extra reward, or risk toppling the ship. Appetite for risk plays an important part; the more chance you take, the bigger the potential reward, and the bigger the potential cost of emergency action. It follows that the successful decision-maker will have a keen interest in the projection of revenue and outgo. Regulators and shareholders would expect expert, transparent and auditable systems, and experienced judgements to be in place. For an overview of the expected approach and how there are particular problems with liability insurance see : Emerging risks management – overview For liability insurance business, the plan begins with identifying the right definition of emerging liability risk:  projected liability exposure will probably exceed its anticipated level by more than its accept

Some of our most talented minds and the vast computing resources at their disposal have been devoted to climate modelling. This has been a huge academic exercise producing an array of approximate solutions which now seem to converge on a view about anthropogenic effects. Man has had and will have a measurable effect on the climate. The basic science is accepted but it is still unclear whether or not some key elements of the model have been missed out or are poorly approximated. This continues to drive the academic endeavour. Does this matter? The simple question soon reveals that in their tremendous efforts to make good physics the basic question has not been answered: are any of the models fit for purpose? If not, will they ever be? Fit for purpose implies that someone needs to be making some kind of decisions based on these models. But who? Politicians, insurers, estates managers, businesses, charities among others. But in each region each stakeholder will have different action thres