The Next Big Thing In Food Packaging
Innovative nanotechnologies can enhance food safety, but may pose unknown environmental and health risks.
Just as plastics were a transformative and revolutionary part of the 20th century, products made with nanotechnology are changing our lives in myriad ways. And just as the use of plastics that touch food items has raised safety concerns, so has the recently increased use of engineered nanoscale materials in food packaging.
Nanotechnology is a generic term for applications that work with matter so small it exists at the atomic and molecular level. This technology has been used to strengthen golf clubs, create stain- and water-repellant clothing and produce bacteria resistant coatings.
Major manufacturers and industries, including food preparation and packaging, are increasing their use of various nanotechnologies, and MarketWatch predicts the $1 trillion global nanotechnology industry will grow at a rate of 16.5% through 2020.
However, like plastics, nanotechnology products carry both risks and rewards. While it appears the rewards will greatly outweigh the risks, attention must be paid to possible dangers of occupational disease and latent bodily injury caused by the technology. The growing consensus among insurers suggests that nanoparticles--the basic building blocks of nanotechnology and the tiniest materials ever engineered and produced--potentially may pose unknown environmental, health and safety risks.
Enter Insurance
The insurance industry plays a major role in helping society capture the benefits of these technologies by building credible accumulation models so that risk tolerance and capital can be aligned with the new exposures faced. As it stands today, most global insurers do not differentiate, name or exclude specific nanotechnology product risks from their policies. As a result, insurance policies may already be covering these risks.
Nanotechnology-based applications could be covered under various policies, including general liability, products liability, workers' compensation, professional liability, employment practices liability and directors and officers liability. This potentially exposes a broad swath of the industry.
The emergence of new losses and unknown risks to insurers from long-tailed claims have always been a concern and challenge. This may be especially true with new substances and where an insurer may have accumulations of linked industries within a given product/service supply chain. Although future catastrophic liability claims and class action lawsuits may emanate from any emerging product risk, the potential could be greater when novel technologies with unknown risks emanate from an industry that "touches" consumers as closely as food packaging.
As with all other potential emerging risks associated with technological innovation, nanotechnology exposures must be quantified by insurers, who need to correctly price risks and establish adequate reserves to pay future claims. Due to the lack of historical data, this can be expedited by making certain modeling assumptions. Examples of the challenges related to this are:
-- Foreseen risks, such as leakage of contaminants or harmful substances. To facilitate future claims modeling, these can be quantified based on similar events in past history.
-- Unforeseen risks, such as the possibility of undesirable misuse of applications or effects that cannot be anticipated at the time of invention. These risks are more challenging to model because of the lack of historical information.
Both of these categories of risk are made more acute by the speed and complexity of technological development. As with other nanotechnology products currently in use, food packaging is currently between the second and third stages of the insurance coverage cycle.
The first stage, also called the study period, involves research and debate and possibly the decision to exclude the risk from policies. The second stage, known as the concern phase, is frequently short in duration given the unknown and unproven nature of the risks and the insurance industry's desire to pursue growth opportunities afforded by covering the products. The third stage--the mature phase--occurs when coverage is provided on a routine basis either within conventional products or on a standalone basis.
Asbestos Revisited
The 2013 Best's Briefing: Emerging Technologies Pose Significant Risks with Possible Long Tail Losses, cited some immediate as well as long-latent concerns of nanotechnology. The briefing noted that nanotechnology could be "similar to asbestos" and recommended insurers "carefully monitor its development."
Similar to today's nanotechnology products, items containing asbestos were being used in innovative ways nearly 100 years ago. And at that time the fibers were not considered to be toxic or chemically hazardous. Since then, however, asbestos have been found to be carcinogenic, and more than $85 billion has been paid out in asbestos-related claims over the past few decades, according to a 2015 Best's Special Report: Asbestos & Environmental Losses Drop Sharply in 2014, but Funding Level Concerns Remain. Some analysts indicate these claims may just be entering their third wave of emergence.
Today, most nanoparticles are assumed to be non-toxic, yet some of their special properties remain unknown. Could the increasing presence of nanotechnology in a consumer product as pervasive as food packaging represent an example where unforeseen liabilities could arise?
Advancements in Food Packaging
Innovative nanotechnologies in packaging can enhance food safety and hygiene in our global food supply chain. They reduce food waste by extending shelf life, and they improve biodegradability and recyclability of the organic compounds in plastic containers.
And the industry is growing. According to Helmut Kaiser Consultancy, nanotechnology has the potential to be integrated into 25% of the current $100 billion food-packaging industry, as some traditional packaging gets replaced with multi-functional, intelligent materials. Various food packaging applications are in the research stage, the testing stage or already in use. For example:
-- Improved packaging and nano-coatings that include nanoclays and nanofilms used as barriers to prevent spoilage and prevent oxygen absorption; antimicrobial and antifungal surface coatings with nanoparticles such as silver, magnesium and zinc; lighter, stronger and more heat-resistant films with silicate nanoparticles; modified permeation behavior of foils.
-- Active packaging that includes antibodies attached to fluorescent nanoparticles to detect chemicals or foodborne pathogens.
-- Smart packaging that includes biodegradable nanosensors for temperature, moisture and time monitoring; and electrochemical nanosensors to detect ethylene, a natural plant hormone used to help control the ripening of fruits and vegetables.
The use of engineered nanoscale materials in food packaging raises safety questions similar to those involving conventional materials. The public is most familiar with Bisphenol A (BPA), polycarbonate plastic resins that have been used to coat food cans and plastic bottles; and polyvinyl chloride (PVC), a substance added to plastics to make them more pliable. Consumers and insurers have been concerned with BPA and PVC since they found their way into many food products nearly 50 years ago.
As studies on the potential links to brain development, nervous system problems, reproductive issues and other diseases continue, the U.S. Food and Drug Administration has rejected environmental group petitions calling for wider bans within the food packaging industry. To date, there remains no direct legal causal link between these substances and injury. Still, virtually all plastic baby bottle and some canned food manufacturers have responded to consumer demand by removing BPA from their products.
Similar concerns exist regarding the potential migration of nanopackaging material into food, and if that occurs, whether migrating nanoparticles are safe. However, the possibility that nanomaterials might provide relatively safer alternatives to these controversial chemicals currently in use also needs to be considered.
Liability's Long Reach
The $1 billion Chinese drywall settlement in 2014 demonstrates that liability in the United States may extend well beyond a particular product's original equipment manufacturer to several others within the supply/service chain, such as subcontractors, distributors and even home builders. Similarly, since food sourcing and packaging are used by a vast array of global food manufacturers, distributors, wholesalers and retailers, the potential for litigation and class action lawsuits is always a possibility--for all carriers, large and small.
For those manufacturers with direct and material exposure to nanotechnology, a handful of specialty underwriters have already begun providing coverage via the excess and surplus market. And as is the practice with products liability policies, the coverage and exclusion of specific products--whether or not they contain particular chemicals or nanoparticles--remains part of the underwriting process.
Integrated, Intricate Risks
As with other emerging products risks, nanotechnology presents insurers and reinsurers with many unknowns. Once a risk has been identified and ranked, the next step is to evaluate and quantify the likely impact on the financial results of the firm. This will depend on relevant data and industry accepted modeling practices.
Many carriers hope to improve upon how they gather essential insured-level data on emerging casualty catastrophe. Property catastrophe models that were developed during the 1980s contemplated highly granular and sophisticated geo-coded data and are applied to very specific and robust building construction data and historical event sets. Products-based casualty catastrophe modeling also would greatly benefit from similar highly granular exposure captured at the insured level. Such data should include the policy sales and payroll exposures; specific industries and products covered; and policy limits and attachments.
In addition, data collection best practices and peril- and scenario-based modeling techniques should be further developed. Both should meet a carrier's enterprise risk management needs and rating agency requests to identify relevant specific casualty catastrophe scenarios and potential loss estimates. Applications being developed involve identifying and quantifying emerging exposure aggregations and global supply chain dynamics. Other niche models focus on emerging threats from the accumulation of systemic reserves that an insured may have been exposed to over multiple years.
Various models are beginning to emerge based on the data compatibility, the approach taken and the specific scenario set being analyzed. Some take a highly granular, data-intensive, bottom-up approach, while others contemplate a more general, top-down market share approach requiring less rigorous data. Models can be loss experience-based and contemplate an integrated historical event set or alternatively can be much more exposure-based. The exposure-based models are highly ingrained in generally accepted scientific and mass tort data, operating under the fundamental assumption that past losses and patterns may not necessarily be indicative and directly applicable to future emerging threats. As a result they tend to focus predominantly on products-based liability scenarios and their latent impact on bodily injury.
Due to the complexity and uncertainty around new technology risks, the degree to which carriers have advanced their risk management practices in this regard greatly varies. Until recently, carriers tended to manage technology liability risks independently and assume the integrated risks knowingly--or sometimes unknowingly. It is essential that these risks be identified, prioritized, accumulated and modeled holistically in order for their ERM-level implications to be properly understood and hedged.
By Emil Metropoulos
(Best's Review contributor Emil Metropoulos is senior vice president, Casualty Specialty Practice, Guy Carpenter, LLC. He can be reached at emil.metropoulos@guycarp.com.)
