The insurance industry must develop a better understanding of the risks posed by nanotechnology, argues Thomas Epprecht

Novel technologies have one aspect in common: their possibilities - and their inherent risks - are only just beginning to unfold. As an enabler of risk taking, the insurance industry focuses on understanding these risks in order to help its business partners to mitigate the financial consequences of possible losses. As with other innovations, actuarial uncertainties currently prevail for nanotechnology, too. Risk assessment based on experience is not possible, and the conclusions that can be drawn from analogy are very limited. This makes it difficult to anticipate the future loss potential associated with nano-engineered particles. Even so, the insurance industry continues to provide cover and thus makes a key contribution towards technological progress, while actively promoting dialogue on emerging uncertainties with all stakeholders.

Nanotechnology encompasses many disciplines and it offers promising innovation potential for the chemical and pharmaceutical industries, medicine and biotechnology, food processing and car manufacturing, as well as information, energy and environmental industries. As a result, technological convergence in the nano-sphere will change daily life, as did the acceleration and miniaturisation in information technology. Although a positive stance prevails today, not least because risks are largely unexplored, a fundamental technological change sooner or later also triggers resistance, apprehension and an elevated need for safety. At this stage, the call for insurance must be responded to.

The insurance industry is sensitive to change and uncertainty, maybe earlier than other stakeholders. The limited possibility of comparison with familiar patterns of risk and their financial consequences means going beyond classical actuarial methods. Nanotechnology may impact society and its way of dealing with risk, as well as the underlying legal framework.

Thus, the insurance industry is well advised to participate actively in shaping both risk governance and legal framework. There is some urgency involved, since progress is gathering pace and nano-based products are already widely used in both industry and consumer goods.

INSURING THE UNKNOWN?

Manufacturing materials at the nano-scale may change their physical properties fundamentally. This, however, does not necessarily make them harmful.

The challenge for science is to establish criteria, which will facilitate identification of the novel and potentially harmful properties. Most of today's nano-materials are embedded in larger structures and are thus harmless. At the same time, certain superfine particles are manufactured to be free and have a diameter below 100 nanometers each. These particles must be investigated for their risk to the environment, health and safety.

Nano-sized particles have a large surface area in relation to their mass and are thus extremely reactive. Their increased reactivity may, for example, generate so-called free radicals. Their activity as biocides can be useful in medical or environmental applications, but in the worst case, they may be harmful to human tissue, resulting in inflammation or even tumors.

Nanoparticles are also highly mobile and may accumulate in the environment.

They can enter the body through the skin, lungs or the digestive system and then be carried freely via the blood stream or the lymphatic system.

The more and longer nanoparticles travel in the body, the more likely they are to enter and build up in organs such as kidneys, the liver or the brain. Whether they remain inactive or have harmful effects in the target organ is largely unknown and subject to individual investigation.

LIABILITY AS A MOVING TARGET

Apart from the risks pertaining to the single applications of nanotechnology per se, the legal development also needs to be considered in evaluating the liability loss potential. In today's environment, liability regimes are changing at an accelerated pace and an increasing number of regulations specific to individual technologies are being introduced. An aggravating factor is that European and American regulatory approaches are fundamentally different and often lead to dissent. The contrast between the European technology-centred "precautionary principle" and the case-by-case approach that exists in US-dominated common law which is based on the "principle of substantial equivalence", challenges insurability on a worldwide basis.

Since regulatory differences and approval procedures arise from underlying value systems and assumptions that also frame science, increasingly, science alone is unable to deliver what is considered to be conclusive evidence.

Although a loss still needs to be attributed to a clearly definable cause in order to trigger liability, the concept of what actually constitutes a loss is often subject to public debate. Therefore, the scientific community is becoming less able or willing to make ex cathedra pronouncements or - vice versa - an ever-growing segment of society is increasingly unwilling to accept scientific findings without dispute and contention. Hence, when assessing nanotechnology liability risks, insurers must consider that both regulation and legislative processes are characterised by a plethora of differing opinions, and the resulting impact on the rules of liability will become more volatile and less predictable.

Nanotechnology meets a predominantly positive response in the media today, and therefore may not necessarily follow the path into socio-political stalemate, as was the case with nuclear technology or genetic engineering.

Fears of claims and an unfavourable legal environment may prove to be unfounded for a long time. As a case in point, some years ago the media carried numerous reports about the possible adverse health effects of mobile phones. However, health impairments could neither be proven nor excluded. But just recently, the US Supreme Court has opened doors for class actions against mobile network operators. The several pending claims require - among other things - an obligation to warn of potential health hazards. The presumed hazard arising from electromagnetic fields, paired with the clear advantages of mobile phones for the consumer are a good example for the ambiguity inherent in any technological progress: technology always holds promises and hazards, while society decides about its benefits and acceptability.

LOOKING TO THE FUTURE

To reduce uncertainties and ensure a sustainable introduction of nanotechnology facilitating ever-increasing investment levels, efforts clearly must be made to establish common risk governance rules addressing the particularities of nano-sized particles. International and interdisciplinary platforms should facilitate open dialogue on risk analysis, risk management and options for acceptable risk transfer.

A nanotechnology conference at Swiss Re's Centre for Global Dialogue in Ruschlikon offered participants from science, business, the insurance sector and regulatory bodies a platform to effectively exchange their concrete requirements. It was agreed that more work is needed to specify standards and agree nomenclature. Risk research needs to be stepped up to secure a sound and objective basis for discussion, while stakeholder groups should define priorities and common ground to benefit from the exchange.

The insurance industry must develop an understanding of more than merely individual risks posed by nanoparticles. The challenge will be to assess the potential changes to the overall industry risk profile resulting from the progressive shift towards nano-sized materials and nano-scale production methods. Only then will it be in a position to anticipate the characteristics of future losses and deal with them accordingly.

Thomas Epprecht, Swiss Re, is a risk expert responsible for the issues of bio- and nanotechnology.

NO RISK TOO SMALL

The degree to which nanotechnology is being used may surprise many people. Already being actively used in the textile and paint industry, this new technology has found its way into food additives and packaging, sun lotion, car manufacturing and has moving steadily into the pharmaceutical arena. As Jack Uldrich, president of the NanoVeritas Group, explains, "What makes nanotechnology so unique is that once materials get down below 100 nanometers they have enhanced characteristics that can essentially make the drug more effective or they can deliver the drug more effectively." However, with little research having been done into how such materials might "bio-accumulate" in the human body and how they may interact with the natural environment, the widespread use of nano particles is causing growing concern. "From my perspective as a consultant in this field," says Uldrich, "I am surprised at how little research is going on into the long term consequences of these new nano materials and particles." Despite some $4bn of funds having been earmarked by the US government for research into this technology, unsurprisingly most of the focus is on how to harness the beneficial properties of such particles, with little attention being paid to the potential risk. Uldrich believes that this is where the insurance industry must get involved. "The insurance industry, to the extent that it helps facilitate the creation of new industries by taking on risk, has a significant role to play here, whether that be to encourage the government to do more or take it upon themselves to do more research."