Small Tech, Big Risks

The world’s population will expand by 50% in the next 50 years, according to United Nations forecasts. This growth will be accompanied by a 500% rise in the use of energy and a 300% increase in the use of materials. Nanotechnology — the manufacture and manipulation of materials at the atomic and molecular levels — represents a promising new approach to meeting the demands produced by this explosive growth. Many consider it the driving force behind a new industrial revolution.

Private spending on nanotechnology already exceeds US$3 billion worldwide, comparable to the biotechnology sector. Lux Research estimates nanotechnology products will rise from less than 0.1% of global manufacturing output today to 15% in 2014, totaling US$2.6 trillion — about the size of the information and telecom industries combined.

Although nanotechnology holds enormous promise, the risks are still largely unknown. The insurance industry is only now beginning to assess the potential liabilities of these new processes and materials.

ORIGINS OF NANOTECH

Modern nanotechnology originated in the 1930s and has been used in products ranging from self-tinting window glass and sunglasses to car bumpers and paints. Physicist Richard Feynman anticipated a powerful form of chemistry in 1959 that could be unleashed through the manipulation of individual atoms. Norio Taniguichi of Tokyo University coined the term “nanotechnology” in 1974. The earliest use of nanomaterials, however, dates back to the ninth century when Arab potters used nanoparticles in glazes to make objects change colors from different viewing angles.

Nanoscale materials are generally less than 100 nanometers in diameter (a sheet of paper is 100,000 nanometers thick), and exhibit very different properties from those same materials at a larger scale. Nanomaterials have a larger surface area than larger objects, making them more chemically reactive. Additionally, below the size of 50 nanometers, the laws of classical physics give way to quantum effects, resulting in optical, electrical and magnetic behaviours different from the same materials at a larger scale. This allows for unique properties such as exceptional electrical conductance or resistance, high capacities for storing or transferring heat and even new biological properties. Silver, for example, becomes a powerful bactericide on a nanoscale. The harnessing of these new qualities can help researchers develop materials, devices and systems superior to those in use today.

Nanotechnology is also used to improve existing products, such as materials for golf clubs and bicycle frames, stain and water-repellent clothing and wear-resistant paints. Advances have led to increasingly diverse applications in fields such as materials manufacturing, computer chips, medical diagnosis, energy, biotechnology, space exploration and security. In the long term, nanotechnology is likely to result in revolutionary advances ranging from more effective diagnosis and treatment of cancer to alternate fuel sources.

RISKS AND OPPORTUNITIES

As new nanomaterials are developed, there is growing concern about knowledge gaps surrounding the safety of these materials. This lack of information could negatively impact businesses and become a major barrier to innovation.

Risks associated with nanotechnology are potentially substantial. Growing evidence suggests nanoparticles — the basic building blocks of nanotechnology and the tiniest materials ever engineered and produced — may pose environmental, health and safety risks. Of main concern is the small size of certain nanoparticles, which makes them hard to measure and control. Nanoparticles can easily be inhaled, ingested or enter the body through the skin. In the environment, nanoparticles can pass through soil and or seep through groundwater, whereby they may be absorbed by plants and enter the food chain.

Analogies have been drawn between the possible ill effects from exposure to nanomaterials and exposure to asbestos. A study published in the May 2008 issue of Nature Nanotechnology suggests nanotubes, a type of nanoengineered material comparable in shape to asbestos, may pose health risks akin to those resulting from asbestos contamination. Asbestos, once considered a wonder material, turned into a curse when it was discovered after decades of use that asbestos fibers could lead to lung disease. The size and shape of certain nanotubes were found to cause lesions similar to those that appear on the lungs after the inhalation of asbestos. In the case of asbestos, such lesions eventually become mesothelioma, a deadly cancer.

Current exposure to manufactured nanoparticles is concentrated in workers in nanotechnology research institutions and companies. It is estimated more than 11,000 employees, working at more than 800 entities, are in the field of nanotechnology in Canada. Around 20,000 work in the field in the United States. And yet, a report released by the International Council on Nanotechnology estimates only about one in three nanotechnology manufacturers conduct monitoring for exposure to substances.

Private and public funding can help advance knowledge concerning nanotechnology risks. Transparency, access to results of research and ongoing dialogue between insurers and commercial clients is also necessary. Risks should be communicated to consumers adequately to allow for public trust and the successful introduction of products into the market. Currently, most businesses in the consumer market do not advertise that their products contain nanoengineered materials for fear of bad publicity and consumer backlash.

REGULATION

Existing regulation may prove to be inadequate in addressing the safety concerns associated with nanotechnologies. Regulators have not yet taken into account the health and safety implications of nanoparticles; thus, no meaningful policies or standards exist to deal with the risks of potentially dangerous nanoproducts. Although future regulatory standards in areas such as medical products and the environment will need to account for nanoproducts, nanotechnology as an industry or a discipline may defy efforts at regulation. A recent editorial in Nature magazine posited: “There may well be dangers in nanotechnology, as in any emerging area of research. But nanotechnology is a diverse field, united only by the factor of scale. So it is not even clear how one would go about regulating nanotech in a manner unique to the discipline.”

UNDERWRITING ISSUES

The recent study published in Nature Nanotechnology comparing nanotubes to asbestos, among others, is worrisome to the insurance industry. Asbestos contamination in the past has resulted in large employee claims and class action suits, resulting in large losses to asbestos producers and contractors, as well as their insurers. The unknown consequences of exposure, as well as the uncertainty surrounding delayed reporting of large claims, underscores the risk surrounding nanotechnology as well.

Nanotechnology could potentially affect the following lines of insurance:

• workers compensation: employees involved in developing engineered materials, as well as workers using nanomaterials in their jobs;

• general and products liability: exposure to loss from products containing or releasing nanomaterials;

• product recall: the cost of recalling a nanotechnology product with safety defects;

• environmental liability: damage caused to the environment from nanomaterials released intentionally or accidentally; and

• property: the fine particle size of nanomaterials could cause ignitable dust to form.

Underwriters will increasingly be called upon to address the following challenges related to nanotechnology:

• few underwriters are familiar with nanotechnology products or processes;

• risks are difficult to assess because of no long-term experience;

&b ull; similar to asbestos, delay between exposure and damage is likely;

• cause-and-effect relationships between exposure and damage may be difficult to establish; and

• substantial accumulation of losses across industries and geographic territories is possible.

Some insurers are likely to be innovators in addressing nanotechnology exposures, but most will wait to see how the market develops. Some insurers will likely seek segments or niches they already understand and in which they have confidence. However, given the expected prevalence of nanoengineered products, it is unlikely any commercial lines insurer will avoid confronting the risks posed by nanotechnology.

The insurance industry can play an important role in stimulating innovation by helping businesses manage the emerging risks associated with product development. While care needs to be taken to protect bottom lines from runaway losses, a lack of support by underwriters could severely hamper innovation and the introduction of important new products into the market.

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Analogies have been drawn between the possible ill effects from exposure to nanomaterials and exposure to asbestos.