March 2005 NEWSLETTER to clients of Knox Insurance Brokers Ltd. From Randy Bushey, A.I.I.C., General Manager	Close newsletter
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TOPIC: LIABILITY INSURANCE - THE PROBLEM OF PRICING

The issue:

Every liability insurance underwriter has a basic problem:

• How much should they charge for claims that may happen this year, or are not even discovered for many years in the future??
• and what will those claims be worth when they are finally adjudicated?

Take for example the issue of silica. Most of us would struggle to define what silica is, but it is one of the most common substances on earth. Silica has been related to construction, mining and manufacturing for decades. (Those tiny bags of sand packaged in the box with new shoes, electrical appliances or other consumer goods, generally contain silica.)

The concern is that years of excessive exposure, may result in "silicosis", a respiratory disease in humans.

Although the U.S. Centre for Disease Control data shows that the healthcare trend is improving (from 1800 deaths in 1969, to 180 deaths in 2000), silica-related claims are going the other way. In fact, litigation experts expected 35,000 silica-related claims in North America by the end of 2004.

This raises the question: Is silica a health problem or a litigation problem?

What about the underwriters? These liability policies were written for contractors, mining companies and manufacturers, 20, 30 or 40 years ago. They had no way of foreseeing the connection of silica with respiratory disease, let alone calculate how much it would cost to settle these claims in the legal system of the 21^st century. We have witnessed similar problems with products liability, medical malpractice liability, pollution liability, mould, prescription drugs and the current front-burner litigation issue: asbestos. What will be next?

Why this is important to you:

Largely due to the recurring problem of collecting inadequate premium for future liabilities, the global insurance industry is believed to be currently under-reserved by US$67-billion, according to rating agency, A.M.Best. As a consumer, you need to know that your insurers have sufficient legal sophistication and financial resources to stand behind the promises they make to you, the policyholder. After all, every insurance policy is a promise to pay, when and if required.

As your broker, we work hard to ensure that we define your exposures, relate them accurately to the underwriters, and deal with insurers who will fulfill their promise to indemnify, when you need them.

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