Report: Lloyd’s of London: 2007 Emerging Risks Team on Nanotechnology
World-famous insurer Lloyd’s of London has released an ‘Emerging Risk Team Report on Nanotechnology.” The report provides Lloyd’s views on how insurers should work with researchers, private firms, and even regulators to foster nanotechnology’s benefits and mitigate risks.
Nanotechnology, Recent Developments, Risks and Opportunities
by Lloyd’s Emerging Risks Team Report
1. A potentially large market.
The report focuses on nanotechnology; a class of products containing materials built on the atomic scale. Nanotechnology represents an entire scientific and engineering field, and not just a single product or even group of products. Market research suggests that products valued between US$30 billion - US$200 billion contained nanotechnology in the year 2005. One estimate by the Lux Research says that 15% (by value) of all products will contain nanotechnology by the year 2014. A project on Emerging Nanotechnologies, set up in part by the Woodrow Wilson International Centre for Scholars now has 580 products in its database, an increase of 175% since the database was released in March 2006. Currently most nanotechnology products are found in the sports, household and food industry though others are using them to a growing extent. This is a rapidly growing and potentially large future market.
2. Nano Particles, different material properties.
The chemical reactivity of a material is related to its surface area when compared to its volume. Dissecting a 1 centimetre cube of any material into 1 nanometer cubes increases the total combined surface area some ten million times. Nano particles can therefore be much more reactive than larger volumes of the same substance. They are relatively cheap and can be manufactured in large quantities. They are already used in consumer products and can be highly reactive. Such particles often have unknown toxicity which can be difficult to quantify. They can disperse easily in air or water. Researchers believe this form of nanotechnology is the most risky at present and the insurance industry should monitor developments in this field closely.
3. Unknown impacts on health.
It is unclear whether nanoparticles can cause chronic health effects. There are several ways that nanoparticles can enter the body, these include: inhalation, ingestion, absorption through the skin and direct injection for medicinal purposes. The skin is surprisingly permeable to nanomaterials. Carbon nanotubes are strong and can have a similar shape to asbestos fibres; several reviews conclude that carbon nanotubes are potentially toxic to humans. Given that nano-sized objects tend to be more toxic than their large scale form it would be unwise to allow the unnecessary build up of nanoparticles within the body until the toxicological effects of that nanoparticle are known. Such studies are still speculative but insurers would be prudent to consider adverse scenarios when agreeing terms and conditions and when determining pricing and capital. In particular whether a claims made trigger as opposed to an occurrence trigger is appropriate and whether limits should have an aggregate limitation.
4. Unknown impacts on the environment.
Removing nanoparticles from the environment may also present a significant problem due to their small size. If absorbed, the particles may travel up the food chain to larger animals in a similar way to DDT though there is no evidence either way that this is a valid mechanism. There is still too little research into the potential negative impacts of this technology on the environment. However, some nanoparticles (such as copper or silver) have been shown to be harmful to aquatic life. Given the large pollution losses faced by the insurance industry in the past this is cause for concern although there are now many exclusions in place to limit such losses. As for health impacts, where there is cover, insurers may want to consider the terms and conditions carefully and, in addition whether to exclude losses due to the reduction of property values.
5. Many positive effects.
Nanotechnology could also bring direct benefits to risk mitigation in the form of new materials that are stronger or more adaptive than before. Cars could be made to absorb more of the impact during a crash; building materials could be made stronger and more flexible to resist damage from earthquakes, fire, flood and corrosion. Environmental clean-up operations could be made easier and cheaper with the use of specialised nanoparticles. Medicine could also be transformed by nanotechnology allowing cheaper and more sensitive diagnostic tools for diseases giving insurance professionals better statistics to determine pricing. However, this is perhaps one of the great dangers; because the benefits are so seductive society may rush to capitalize on them before adequately assessing safety. The insurance industry must ensure that its own financial health is not compromised by systemic aggregations of loss from these technologies.
6. Lack of regulation.
Currently almost all regulation of nanotechnology is done using existing mechanisms. Stakeholders in nanotechnology are divided on whether specific regulation is required. However, the “wait and see” approach is increasingly becoming a dangerous way to determine the risks. There is progress in this area and the Economic Co-operation and Development (OECD) have released a “Nano Risk Framework” which provides a framework for risk managers to address this. The precautionary principle is now accepted to apply to the degradation of human health as well as the environment, and suggests the use of this technology should be risk assessed appropriately before consumption by the public. This approach is being recommended within the EU, though the US and Japan prefer a lighter regulatory touch. In the past a vacuum of regulation has proved unhelpful to insurers. The insurance industry should lobby for clarity in this area.
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Nanotechnology, Recent Developments, Risks and Opportunities.