Emerging liability exposure risks for specialty insurers

Specialty insurers in Canada are facing a number of emerging liability exposures ranging from well-known to new risks, Markel senior executives tell Canadian Underwriter.

Liability exposures include technology-related risks (i.e. blockchain, nanotechnology, 3D printing, and artificial intelligence); class action lawsuits; environmental, social and governance (ESG) principles; misinformation; and ‘forever chemicals.’

Tech risks

Emerging tech risks are related to the implementation of — or disruption by — blockchain. Also, lawsuits are targeting toxicities associated with nanotechnology in the medical field, says Dave Crozier, president and managing director of Markel Canada.

Even 3D printing brings risks.

“If everyone has a 3D printer and can suddenly make anything they want, do we have product liability now coming down to a person?” Crozier asks. “Do we have people making things maybe they shouldn’t?

“Is the printer responsible for that? Is the person responsible for that? There can be many heads of damage.”

When it comes to AI, the question is if it’s fit for purpose, Crozier says. “And do we put it to purposes for which it is not fit? Again, does liability spring from that? Who’s responsible?”

Class actions

Beyond technology, older emerging risks like class action lawsuits continue to spread.

“They’re not plentiful yet, but there are hints of more and more attempts at class actions in Canada,” Crozier says. “Something that is creeping across the border with some measure of speed is third-party litigation funding.

“And third-party litigation funding in Canada is not even as regulated as it is in the States, so we’ve got some catching up to do there.”

Third-party litigation funding essentially refers to a funder who’s not a party to the case. Nevertheless, the funder pays some or all of the plaintiff’s legal costs, and often indemnifies against adverse costs, in exchange for a share of any settlement or judgement. Law firm Dentons LLP found class-action litigation has “significantly increased across Canada, likely fuelled by an expansion in aggressive legal advertising that encourages Canadians to launch lawsuits,” Insurance Bureau of Canada reported in June.

ESG

‘Greenwashing,’ or companies making themselves appear more enviro-friendly than they really are, is also a concern. “You’ve seen some of the response to diversity and inclusion in the States,” Crozier adds. “Does that give rise to potential? Because you’re reacting to a political situation or changing the way you approach those kind of initiatives.”

Misinformation

Misinformation is a relatively new liability risk.

“Again, who’s responsible for it?” Crozier asks. “Who’s responsible for spreading it? When does it cross the border from people just saying their opinions into people trying to massage outcomes?”

Other risks, including forever chemicals

Other potential emerging liability risk exposures revolve around increased Cat activity; pandemic liability; per- and polyfluoroalkyl substances (forever chemicals), such as microplastics in firefighting chemicals; opioid/fentanyl issues; and even permafrost thaw that could lead to increased flooding.

“There is a huge amount of uncertainty out there,” adds Markel International president Andrew McMellin. “We’ve got a lot of geopolitical uncertainty…you’ve got economic uncertainty.”

This uncertainty highlights the importance and relevance of insurance, which transfers the risk and provides certainty to clients, McMellin says. “Risk has just catapulted upwards in the last few years, but that’s why you need a strong insurance market to be able to respond to that.”