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.

» Suggest an Emerging Issue.

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

Alcohol class-action suits — Plaintiffs are bringing class-action suits against manufacturers and distributors of alcoholic beverages based on allegations that the companies are directing their advertising to underage drinkers. ISO will introduce a change to our liquor liability coverage to exclude such suits.
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.

Blanket property coverage — In their facultative reinsurance for blanket property coverage, some reinsurers are imposing a new kind of cap in case of loss. The 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'll file the language as part of a coming multistate general revision to the commercial property program. 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 gasses.
- The severe-weather models used by insurers may need to take into account the changing long-term weather patterns.
Contamination — The SARS epidemic and the specter of an avian flu pandemic bring up the issue of contamination and cleanup under commercial property coverage. At the end of June 2006, ISO filed an amendatory endorsement (exclusion) that explicitly addresses the issue of loss due to disease-causing viruses and bacteria. Regulators in 50 jurisdictions have approved the endorsement for commercial property. The effective date is January 1, 2007, in most states. We have also filed the endorsement for businessowners and our Capital Assets Program and Market Segments Program. Furthermore, the next commercial property multistate general revision will include an errors-in-production exclusion. It is relevant to adulteration of products and property by other contaminants.
Electromagnetic pulse (EMP) bombs — High-powered EMP bombs produce very short but intense electromagnetic shock waves. The weapons could damage or destroy telecommunications equipment and computer equipment used in data-processing and industrial-control applications. The potential effects are similar to the damage from a lightning strike and may require complete replacement of the equipment. We've developed language updating current exclusions to address the exposure more explicitly. We'll file the language as part of a coming multistate general revision to the commercial property program.
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.
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.
Radio Frequency Identification (RFID) — RFID is a method for identifying people or things by reading data stored in devices called RFID tags. The tags contain silicon chips and antennas that can receive and respond to radio-frequency queries from special readers (or transceivers). A wide variety of companies and other organizations use RFID tags to track and identify products, animals, prison inmates, and hospital patients. The tags also function in identification badges, credit and debit cards, and electronic toll-collection systems. One manufacturer makes an under-the-skin chip that offers secure access to buildings, computers, and medical records. In the future, passports and driver's licenses could use the tags to facilitate machine reading of biometric data and other information. An organization called EPCglobal Inc. is developing standards for a system of unique RFID serial numbers for all products. A primary security concern with RFID technology is that companies, governments, or individuals can track the tags for surveillance or other nefarious purposes.
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.