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The Actuary The magazine of the Institute & Faculty of Actuaries

UK asbestos - the definitive guide

Summary of insurance industry costs
We estimate the future cost to the UK insurance industry of asbestos-related claims to be in the range £4£10bn. Well over half of this amount relates to mesothelioma claims, the number of which is predicted to continue to rise over the next ten years. By contrast, the number of claims relating to other asbestos-related diseases, such as asbestosis, is expected to fall in the coming years, mirroring the declining use of asbestos since the 1970s.

In producing our estimates, we have used data collected via an anonymous survey of all major UK insurers, representing the majority of the UK market. The future costs relate to an estimated 80,000200,000 claims over the next 30 years or more.

Content of the paper
As well as showing our projections, the paper describes the main types of asbestos and asbestos-related diseases, health and safety regulations, claims-handling protocols, and relevant court cases. We have included some information about two significant UK asbestos employers, Cape and Turner & Newall, and the state compensation available for asbestos-related diseases. We have also reviewed information regarding the use of asbestos in the UK and around the world, other relevant data sources, and given a brief overview of asbestos-related developments in the US. For good measure we’ve included a comprehensive bibliography, including summaries of many of the relevant papers.

Some details of our projections
Most estimates of the number of future mesothelioma claims are based on the latest (2003) Health & Safety Executive (HSE) projections. We have reproduced the HSE projections in a spreadsheet to help practitioners understand the HSE model. This highlights the sensitivity of the projections to the key parameters. In particular, the future number of mesothelioma deaths is very dependent on how the disease continues to develop at older (80+) ages, with over half of all claims being in respect of those aged over 80 by the year 2020. The number of future mesothelioma deaths could easily be considerably higher or lower than the current projections, depending on the experience of this age group. We suspect that the variability in the HSE projections is not fully understood by the majority of users of the HSE model.

As well as modelling mesothelioma deaths, we have developed a simplified, high-level model of other types of asbestos-related diseases. Using our survey data we have also produced estimates of future average costs, adjusted to reflect the changing age profile of claimants. The estimates are based on data submitted by all major UK insurers this is the first time such data has been collected to enable insurance industry costs to be estimated. It is also the first time detailed projections have been made for asbestos-related diseases other than mesothelioma, as well as the first time average costs (rather than simply numbers of claims) have been projected.

Headline observations from the paper
More ‘unimpaired’ claims UK moving towards situation in the US?
The working party survey shows that the number of UK asbestos-related claims for which there has been no actual injury has more than doubled in the past three years. In part this has probably been exacerbated by the introduction of so-called ‘scan vans’ in the UK, which actively seek people who may have been exposed to asbestos. In America, claims for so called ‘unimpaired lives’ now form around three-quarters of all asbestos-related US claims. It is highly undesirable for the UK to go down this route, as resources will be diverted away from claimants with real and serious injuries. More than half of US asbestos-related compensation relates to ‘frictional’ costs mainly legal fees. It does not seem to be in society’s best interests to let a similar compensation environment develop in the UK.

Asbestos problems being exported overseas?
UK health and safety regulations regarding asbestos have tightened up considerably over the past 30 years, culminating in the recent Control of Asbestos at Work Regulations 2002. Whereas asbestos consumption has steadily declined in North America and western Europe, it has continued to increase in Asia and some parts of eastern Europe. Asbestos consumption has reduced by a factor of five in the US and western Europe from 1960 to date; it has increased by a factor of five in Asia and some parts of eastern Europe over the same period. More asbestos is being used today in Asia than was ever consumed at its peak in America 3040 years ago. It’s hard not to conclude that the problems associated with asbestos exposure have simply shifted from western developed nations to emerging industrialised countries such as China, India, and Russia.

Removing disease claims from employer liability (EL) cover may lead to fairer sharing of costs
The range of potential outcomes for the cost to the insurance industry shows how hard it is to assess, let alone ‘price’, latent disease claims even 40 years after the periods of exposure. This lends weight to the argument for ‘separating’ these types of latent disease claims for the purpose of providing EL cover. In many ways this method provides a more equitable way for society to bear the cost of this type of claim.

Asbestos data recording could do better
Our data survey has highlighted a range of practices in recording relevant information regarding asbestos-related claims. With such potentially large numbers at stake, the insurance industry would do well to improve its ability to record relevant information electronically.

Julian Lowe is actuarial director of Norwich Union Insurance; he chaired the UK Asbestos Working Party which reported at the October GIRO Convention (and won the Brian Hey prize for the best paper presented to the conference)