As if a ghost from the past has reawakened, property/casualty insurers are again confronting a huge potential wave of asbestos claims.Indeed, the recent moves by Ace Ltd. to boost its asbestos reserves by $1.9 billion, following Travelers Property Casualty Corp.'s decision to add almost $2.5 billion to its asbestos reserves, has caught both credit agencies and financial analysts off guard.
To deal with the situation, the industry is lobbying Congress for legislative relief that will give them and industry investors certainty about the cost and duration of this problem.
At the same time, the industry is being urged to turn to process management as one means of containing costs that threaten to spin out of control.
According to according to officials at Visibillity Inc., a collaborative litigation management solution provider based in Chicago, complex environmental claims are taking their toll on insurance carriers, largely because of the high costs of litigation expenses.
Visibillity officials cite statistics from Insurance Service Office Inc., Jersey City, N.J. which has issued a report concluding that an estimated $1.1 billion a year is spent annually defending companies against environmental claims, with asbestos and toxic mold leading the pack.
The mushrooming asbestos crisis stems from the fact that companies whose use of asbestos was ancillary at best are being hit by a wave of claims from employees and customers.
The most critical component of the problem is that those who are now suing, in most cases, are not showing symptoms of asbestos poisoning,. In addition, they have few means of showing that their exposure to asbestos will ultimately shorten their lives or increase their medical expenses.
These new litigants are going to court out of fear that by the time they show symptoms, the money to pay claims will be exhausted.
A 2001 study by Tillinghast estimates that asbestos settlements and related expenses will ultimately reach $200 billion in the United States, five times more than the $40 billion estimated in the mid-1990s.
The study predicts that without the federal government establishing a compensation system, nearly 1 million new claims will be filed before litigation ends. With the recent rise in claims, insurers will have a $23-billion to $33-billion shortfall in insurance reserves established to pay asbestos claims, industry experts predict.
On Capitol Hill
On the legislative front, support from Democrats in the House as voiced early in February by Rep. Barney Frank (D-Mass.), ranking minority member of the House Financial Services Committee, indicates that asbestos tort abatement legislation could pass this year.
Frank says he expected legislation to be introduced within "a couple of months," and that there are a number of people on both sides of the aisle who are interested in such legislation. He adds the issue will be taken up soon by the House Judiciary and Workforce and Education committees.
At the same time, Frank says the industry would not be able to totally eliminate court adjudication of all asbestos claims.
Frank says the alternative adjudication mechanism he could support would be similar to the worker's compensation system currently in use.
"I think you would be pleased to learn that there a large number of liberal Democrats in Congress who are strongly prepared to support legislation that would set up an alternative to the judicial tort system to deal with asbestos," Frank said at a Feb. 4 insurance industry legislative forum sponsored by The Council of Insurance Agents + Brokers, American Insurance Association, and the Reinsurance Association of America.
The problem is that there are a large number of people exposed to asbestos who are not sick now but who have been persuaded to run to the courts and make claims, according to Frank. As a result, by the time other people get sick in the future, there may not be any money to pay claims.
A Software Solution?
The other part of the problem, according to Visibillity executives, is that these type of environmental claims often require specialty teams with multiple lawyers working in multiple locations for many years on the same case.
To deal with this, Visibillity officials say, companies are looking at Web-based solutions and supporting consulting services that streamline the litigation management process but still provide flexibility to meet a company's particular needs.
Automated programs reduce the chance of human error, Visibillity executives say, while providing standardized policies and procedures.
Arthur D. Postal is Washington, D.C. bureau chief for Insurance Chronicle, a Thomson Financial Insurance Solutions publication.
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