Emerging Issues

ISO regularly monitors technological, social, and business issues — as well as legislative, regulatory, and legal developments — that may affect our insurance programs. We modify our programs to reflect changes in all those areas.

ISO's staff also actively pursues emerging issues and long-term trends that may affect the insurance industry. We discuss those issues with our insurer panels, and we have a special Emerging Issues Panel that helps us identify important future concerns.

Here's a selective list of some of the issues we're watching now:

Artificially generated electrical/magnetic energy — Artificially generated electrical, magnetic, or electromagnetic energy can damage or destroy electronic grids or telecommunications equipment and computer equipment used in data processing and industrial control.

As part of a larger revision, ISO has developed language updating various exclusions to reflect the current understanding of electromagnetic energy (including electromagnetic pulse or waves) and microwaves. We’re implementing the language as part of a multistate general revision to the commercial property program effective November 1, 2008.

We’re also considering the personal lines implications of the issue, including potential damage to GPS and other electronic equipment.
Avian flu — A possible avian flu pandemic could affect the property/casualty insurance business in a number of ways. For example, insurers could be subject to workers compensation losses for businesses specifically related to poultry. Also, although ISO’s property forms provide no coverage, insurers could face attempts to recover for:

business interruption and extra expense
lost revenue from decreased sales of poultry
losses related to quarantines, travel restrictions, or other government action
losses from property destruction (farm inland marine)

Benzene — There have been reports about the potential for a wave of class-action lawsuits over benzene, a hydrocarbon compound linked to acute myelogenous leukemia and other illnesses. Researchers have found benzene in differing amounts in some beverages. Among possible defendants of the class-action suits are beverage manufacturers and distributors. Exposure to the substance, which appears naturally in crude oil, has allegedly caused employees in the oil industry to fall ill and has been the subject of litigation for many years. Our general liablity staff is monitoring issues related to benzene and other hazardous products.

Blanket property coverage — In their facultative reinsurance for blanket property coverage, some reinsurers are imposing a new kind of cap in case of loss. Carriers cap the blanket average value not to the blanket limit, but to the highest value of covered property at any one location — or to the stated value for the property where the loss occurred. To help primary insurers limit their losses when such caps apply, ISO staff has developed an optional "margin" endorsement. We're implementing the language as part of a multistate general revision to the commercial property program effective November 1, 2008. The new endorsement will limit the loss payment on items at a location to their stated value plus a specified percentage of that value. We are also considering the need for similar changes in the businessowners line of insurance.
Climate changes — Scientists have recorded a gradual warming of the earth's surface — a greenhouse effect — over many decades. Some scientists predict that, as a result of the greenhouse effect, the world's weather will become more violent. That poses a major business risk for many industries, especially insurance. In recent years, insurers have suffered a run of climate-related disasters, including the stunning series of hurricanes in 2004 and 2005. ISO is tracking a number of other trends related to climate change. Here are just three examples:
- Concern about the greenhouse effect has already helped drive new markets for weather derivatives — securities designed to rise or fall in value depending on the weather. Insurers can use such securities to finance their catastrophe risk.
- Some publications suggest that plaintiffs could attempt to sue corporate directors and officers who did not order their companies to reduce emissions of greenhouse gases.
- The severe-weather models used by insurers may need to take into account the changing long-term weather patterns.
Diacetyl — Some food processing workers exposed to diacetyl — a common ingredient in microwave popcorn — have developed bronchiolitis obliterans, otherwise known as “popcorn lung disease.” Workers who deal with high concentrations of the flavoring chemical in the production of pastries, frozen foods, candies, and dog food may also be at risk of developing serious and irreversible lung damage. According to recent reports, diacetyl may also be harmful to professional cooks and service workers, since some butter-flavored oils and related cooking products contain the chemical.

A consumer has filed a lawsuit in U.S. District Court for the District of Colorado alleging that he developed lung disease as a result of inhaling fumes released when microwaving popcorn.

We’ve received reports that four of the largest popcorn manufacturers have removed diacetyl from nearly all their products, but it may take several months before the reformulated popcorn replaces older varieties on store shelves. ISO’s general liability staff is monitoring issues related to diacetyl and other hazardous products.
Genetically modified organisms — Genetic modification refers to a special set of technologies that alter the genetic makeup of living organisms, including animals, plants, and bacteria. Combining the genes from different organisms alters the DNA, producing a new organism characterized as genetically modified, genetically engineered, or transgenic.

Genetically modified organisms (GMOs) appear in foods, pharmaceuticals, and other products. The health effects on humans are unknown. One potential concern is that an insured may unknowingly incorporate GMOs into its products, exposing itself to uncertain product liability risk.

ISO’s General Liability and Commercial Lines Industry Liaison Panels have considered an item on this topic, and we are now monitoring the issue. Our farm program staff plans to introduce an exclusion for injury or damage from genetically modified farm personal property. The exclusion would be an optional endorsement in a future farm multistate filing.
Green movement — There is a growing trend among builders of commercial properties to build “green” — to save energy costs and help improve the environment. The U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system provides criteria for the “green construction” certification of commercial construction projects. The Council has also recently launched a LEED rating system for homes.

ISO’s commercial property and personal property staffs are analyzing the need for changes to our policy programs, such as optional coverage for green upgrades after a loss or credits for certified green buildings. We will engage in further research and development.
Internet exposures — No business can afford to be without Internet access, but use of the Internet brings a host of new issues, including concerns about advertising and personal injury. ISO is considering whether we need to modify our general liability contract. In the personal lines, use of the Web has also led to increased exposures (such as claims for personal injury caused by cyberbullying and personal-experience blogging). To help you deal with the situation, ISO will introduce, as an option in our homeowners program, an aggregate limit for personal injury coverage.
Nanotechnology — There is a growing body of science founded on the concept of assembling products, processes, and machines by manipulating individual atoms or molecules. Eventually, we'll see a wide array of products built or enhanced by nanotechnology. Nanotechnology promises products that can reduce the number of accidents and their costs and reduce damage from natural disasters. However, there is also a good deal of concern about this technology and its possible unexpected consequences.
Mortgage market — Reports indicate that the subprime mortgage crisis could potentially lead to an increase in arson, as many homeowners are unable to afford their mortgages and face foreclosure. The large number of foreclosed homes has also led to reports of increased vandalism and other crimes, especially incidents in which thieves gut vacant properties for their copper, aluminum, brass, and other metals. And a recent report raised concerns that the rising number of unoccupied and unsecured properties during hurricanes and other severe storms will increase the risk of damage. The credit crisis could also affect D&O and E&O policies. Several class-action lawsuits against lenders allege noncompliance with disclosure laws and regulations.
Plastics — There is growing concern about the chemicals bisphenol A and phthalates, used to produce polycarbonate plastic, especially with regard to potential harm to children. A recent draft report from the federal National Toxicology Program stressed the possible effects of bisphenol A on humans. Several plaintiffs in various states have sought nationwide class-action status for lawsuits concerning such products as baby bottles containing bisphenol A.
Secondhand smoke — We have begun to see lawsuits attempting to have secondhand smoke declared a public nuisance at apartment, condominium, and office complexes where management allows smoking in outdoor common areas. The pleadings vary, but they can include allegations that the secondhand smoke is harmful to health and indecent and offensive to the senses, that it interferes with the comfortable enjoyment of life, and that building management encourages smoking by supplying ash trays.
Smart transportation systems — To prevent accidents and ease traffic congestion, auto manufacturers are developing intelligent vehicles — cars equipped with computers, cameras, Global Positioning System (GPS) receivers, and transmitters to communicate with other vehicles. Cross-vehicle communications would help drivers avoid collisions by exchanging information on the locations of vehicles and their rates of travel. Cameras and related systems would identify intersections, stop signs, and stop lines and warn a driver if his or her vehicle drifts out of its lane. Warnings would appear on the driver's display screen along with alerting sounds. The systems would also assist with braking and steering. Warnings of blind spots would appear on mirrors. On-board computers would determine if a vehicle is stopped ahead or blocking an intersection. Event data recorders (EDRs) could save information from such systems to help in analyzing any accidents that do occur. Some cars already have a few of these features, but a full system — including intelligent roads — will most likely not appear until the 2010s.
Vehicle data recorders — More than 40 million vehicles now have vehicle data recorders (VDRs), which today can record auto speed, engine revolutions per minute, and the status of seat belts and braking for five seconds before and one second after an accident. Lawyers have already used VDR data in civil and criminal highway-accident cases. A new regulation from the National Highway Traffic Safety Administration (NHTSA) would standardize VDR data by 2011 and make it easier to access. In several states, privacy concerns about VDRs have resulted in legislation that bars insurers from putting wording in a policy's cooperation clause requiring insureds to provide VDR information. Some car rental contracts make insurance coverage invalid if the renter is breaking the law. Following a loss, the companies might be able to use VDR data to determine whether the driver was violating speed restrictions or other laws. Linked with OnStar or a similar system, a VDR could report the location of an accident and driver behavior over a period before an accident.

For more information . . .
. . . on any of these topics, please call Jeffrey De Turris at 201-469-2697, or send e-mail to jdeturris@iso.com.

Or suggest an emerging issue for consideration by ISO's Emerging Issues Panel.