Engineered nanomaterials: risk perception, regulation and insurance

Abstract

Concerns surrounding the health risk of engineered nanomaterials, effective regulation and the lack of specifically tailored insurance products for the nanotechnology sector are putting the industry’s long-term economic viability at risk. From the perspective of the underwriter, this article speculates on the relationship between risk perception, regulation and insurability. In the nanotechnology sector, regulators are currently failing to keep pace with innovation, and insurers generally lack guiding principles for underwriting occupational risk from nanomaterial exposure. Such vulnerabilities when combined with misguided risk perceptions can lead to the overpricing of risk transfer and ill-conceived regulatory initiatives, thus potentially exhausting resources and stifling innovation in the sector. In the absence of well-developed regulatory protocols, the insurance industry has, and will continue, to occupy a key role as an effective lobby in terms of improved risk management practice. We suggest that the insurance industry will increasingly rely on control banding frameworks and ‘risk mitigation at source’ methods developed in conjunction with their clients to manage severe acute diversifiable risks. Long tail risk will continue to represent a serious challenge to insurers and regulators. In the meantime, insurers will have to bridge their current needs with improvised solutions. As an example of one possible solution, we outline a framework that utilizes financial instruments to hedge an insurer’s exposure to uncertain estimates of these long-term risks.

Keywords:

• occupational risk
• nanotechnology
• nanomaterials
• acute risk
• chronic risk
• risk perception
• hedging uncertainty
• regulation
• public interest
• insurance
• actuarial method
• nanotoxicology

Acknowledgements

This article is based on research funded by the European Community’s Seventh Framework Programme FP7 under grant agreement no. 280716, Sanowork (www.sanowork.eu). This communication reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

Notes

1. Nanotechnology is a broad term encompassing many technologies that have nanoscale characteristics (1 [Nm] = 10⁻⁹ m) and involve the manipulation and imaging of material structures at this scale.

2. To mitigate risks to large loss scenarios, insurers can sell a portion of these risk types to other insurers (reinsurers) and thus reduce the seller’s exposure to potentially ruinous losses.

3. A catastrophe bond (Cat Bond) is an investment product that allows an insurer to transfer risk to investors (Stone 2012).

4. The Price Anderson act of 1957 provided government insurance for nuclear power operators to transfer the catastrophic component of their operating risk (Dubin and Rothwell 1990).

5. Ultra-Fine Particles are less than 100 Nm by definition.

6. One such example was the ‘Grey Goo’ scenario that gained some media attention during the 1980s’ (Giles 2004).

7. GMO foods have now been banned in a number of countries (Meyer 2000).

8. REACH is the European Community Regulation on chemicals and their safe use. It deals with the Registration, Evaluation, Authorisation and Restriction of Chemical substances. The law entered into force on 1 June 2007 (Breithaupt 2006).

9. For example, a NM’s typically high-surface area in relation to its volume can cause it to be more reactive and prone to induce inflammation in exposed hosts than its parent material.

10. It should be noted that the majority of risks faced by companies and organizations are not insurable, such as operational and foreign-exchange risk.

11. See also www.sanowork.eu.