What can we learn from the disparities between US and UK asbestos claims? asks Dan Sykes
The re-election of George W Bush last year and the increase in the Republican majority in the two houses has re-energised efforts to achieve a legislative solution to asbestos litigation in the US. The Fairness in Asbestos Injury Resolution Act (FAIR) was first promoted by Republican senators in 2003 and promoted extensively throughout the worldwide insurance industry. The bill ran out of time before the presidential election but a revised bill is under discussion.
The bill is not the first attempt to find a federal solution to the spiralling economic problem, reported in a landmark 2002 study by the Rand Institute ("Asbestos Litigation Costs and Compensation: An Interim Report"), as costing the US economy tens of billions of dollars and hundreds of thousands of jobs. The "Georgine" case (named after one of the plaintiffs) sought to find a class action solution to all asbestos claims against a group of asbestos producers. The case was thrown out in 1996 when the Supreme Court ruled that current and future suffers of asbestos-related disease formed too wide a grouping to be included within a single class action.
Until recently, the picture in the UK has been very different. At the same time as the Rand Institute was publishing its landmark analysis, the House of Lords was ruling on the Fairchild case. The issue at stake was the attribution of liability for mesothelioma, a particularly virulent form of cancer linked exclusively to asbestos inhalation.
Incredibly, mesothelioma is a "one fibre" disease: the inhalation of one tiny fibre is theoretically enough to trigger the chain of events that almost always leads to death, in some cases 40 or more years later.
In essence the question was the following: if mesothelioma is caused by one fibre, how do we know where that fibre was ingested and therefore which employer is liable? Clearly, identifying the "guilty" fibre is impossible.
So are we obliged to exonerate all employers? Eventually the House of Lords decided that public policy arguments overrode strict theories of attribution. The burden of proof has now been thrown upon the employer rather than the employee.
In common with the tenor of the ruling, the publicity given to asbestos in the UK has focused on the human cost - on the likely long term effects on public health and on providing adequate recompense for sufferers. The economic aspects of asbestos damage in the UK have been treated as a secondary issue.
That picture is now beginning to change. Late in 2004, the High Court began hearing the cases of ten people suffering from pleural plaques, a non-malignant scarring of the lungs. In defending the cases Norwich Union and Zurich claim that pleural plaques are virtually symptomless and therefore that they do not constitute a compensatible injury. The decision was handed down in February. The High Court ruled that pleural plaques do constitute a compensatible injury, but that the current level of awards is too high.
Pleural plaque awards have averaged between £5,000 and £15,000 and do not account for a major share of asbestos related insurance costs. Nevertheless the cases do seem to signal the point at which the scale of asbestos-related injury in the UK is becoming apparent. This would put us more than ten years behind the US. If this is true, then why? And if we are so far behind, can we expect to see the same level of economic cost here?
Until now, through a lack of credible information, it has proved almost impossible to answer these questions. That changed however in 2004 when the Institute of Actuaries in the UK published a working party paper on the asbestos problem in the UK ("UK Asbestos - The Definitive Guide").
As well as giving a broad background the paper sought to make an informed estimate of the future development of the issue, based for the first time on surveys of insurer experience combined with UK population data and projections.
We can now set this paper alongside the 2002 Rand study in order to make an objective comparison of experience in the two countries and start to understand the reasons for the similarities and the differences.
To start then, the conclusions. The Rand Institute predicted that the total cost of asbestos-related claims in the US would total between $200bn and $260bn, with about $54bn paid to the end of 2000. The Institute of Actuaries paper predicted a total cost between £5bn and £11bn with about £1bn paid to the end of 2003. These figures do indeed suggest that the UK is far behind the US in the recognition of the problem. But they also show, even allowing for the roughly 6:1 ratio between the respective GDPs, that the relative cost of US asbestos claims is far higher. In order to explain these differences it is necessary to take a look at the claims in more detail. First of all this means looking at each main asbestos-related condition separately.
There are four main categories of condition. In ascending order of severity these are pleural plaques, asbestosis, lung cancer and mesothelioma, each with very different characteristics. The rigorous approach would therefore be to look at each condition separately. But there are no usable national statistics for pleural plaques or for asbestosis. For lung cancer, although there are death statistics, the relationship with asbestos exposure can't be disentangled from the smoking risk. Mesothelioma is alone in providing a consistent picture over time that, because there are no confirmed other causes, can be confidently identified with asbestos.
Graph 1 shows the number per 100,000 of population, the history of mesothelioma deaths in the US. The graph shows an increasing trend until about 1990, with a fairly stable rate since then. Not surprisingly the rate amongst males is higher and this is consistent with asbestos being used in heavy industry.
We can compare against this the experience in the UK in graph 2. Annual rates are not readily available in the UK, so the graph shows the five yearly trends. Two things stand out. The first is that death rates in the UK are still climbing - and climbing steeply, and also that the death rate per head of population is far higher.
To explain these trends, we need to look at asbestos exposure. This is all but impossible to do directly but we can look instead at asbestos imports into the two economies in graph 3. Again the two sets of figures have been related to population to make direct comparison easier.
Overall the US imported more asbestos per head of population. This therefore provides no evidence to support the higher UK death rates. There must be another factor at work here, possibly exposure to the different types of asbestos, that we can't uncover without investigating original data in great detail.
On the other hand there is evidence that the UK imported asbestos later, possibly more than ten years later, than the US. Moreover the peak in US asbestos imports occurs about 40 years before the peak in US deaths.
This is the typical latency predicted in epidemiological studies of the condition.
If we now look forward instead of backward, in graph 4 we compare projections of future (male) deaths. UK deaths are predicted to occur around 2015, at which time the numbers of deaths in the UK and US could be about the same.
So the UK is about ten years behind the US, which explains the later recognition of the problem. But the higher incidence of mesothelioma in the UK is at variance with the overall cost predictions where the US figures are much higher. In order to explain that, we need to look at insurance claims - at numbers and average costs.
First of all, the numbers*. Comparing the source data shows that the proportion of mesothelioma cases that lead to claims is about the same.
But when claims for other types of condition are brought into the picture things change markedly.
For each mesothelioma claim in the UK there are three other asbestos-related claims. In the US the ratio is 20. This can lead to an estimate of about 60,000 to 70,000 future asbestos-related claims in the UK but well over half am in the US. So, although the predicted number of future mesothelioma deaths in the UK and US are similar, the predicted number of future asbestos claims in the US is nearly ten times higher.
What's the cause of this difference? It's a common assumption that the vast majority of US claimants are uninjured, an assumption that's beginning to be supported by hard evidence. An August 2004 study in Academic Radiology, a US trade journal for the radiological profession, looked at a sample of x-rays submitted alongside asbestos claims. The readers employed to assess the x-rays reported a 95% injury rate. The independent assessors brought in by the journal reported that 95% of the x-rays showed no injury.
Average awards also show large differences. The average UK mesothelioma claim is in the order of £100,000. In the US the average award is well into the millions. When we combine this with the predicted numbers of claims we end up with a predicted total future cost in the US about fifteen times higher.
So when we look again at the potential economic impact we see two major differences - the preponderance of US claims from uninjured people and the larger scale awards. In both cases the likelihood is that we won't follow the US pattern, but potential developments such as advances in the treatment of mesothelioma or a switch in emphasis from employers' liability claims to, say, products claims could see us facing much higher costs.
Of course, the US and the UK are only two industrialised economies. What of the others? Graph 5 takes US and UK asbestos imports and compares trends with France and Japan, two other economies for which data is available.
Both France and Japan imported asbestos later than the UK and in the case of Japan, imports didn't tail off until the 1990s. Clearly there are many factors at work and it would be dangerous to draw conclusions on these figures alone. But studies of mesothelioma are being carried out in several countries across the world and many of these point to the same increasing pattern, in some cases pointing to another ten to 20 years of increasing mortality.
There is a consistent theme to the recognition of the problem across the world - starting with an appreciation of the danger, a focus on the medical and social consequences and finally attempts to analyse and control the huge economic cost. The US is clearly well into the final stage of this process and the UK and other jurisdictions such as Australia entering that final stage. But many other industrialised nations, with a later pattern of consumption, are only now beginning to study the demographic consequences and are perhaps years away from an understanding of the economic cost.
Of course, features that have magnified the cost of asbestos in the US are currently unlikely to be repeated in the UK and may not be repeated elsewhere. But it is clear that asbestos could begin to be regarded as a global issue over the next few years. Whether or not the US achieves a legislative solution, the worldwide economic implications could reverberate for many years to come.
- Dan Sykes is director of KPMG's Corporate Recovery Insurance Solutions.
- The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP (UK).
* Source data: Rand Institute Asbestos Litigation Costs and Compensation, An Interim Report (2002) & Institute of Actuaries Working Party UK Asbestos - The Definitive Guide (2004).