Out-Law News 1 min. read

US insurers' expected asbestos liability to increase, says agency


The total amount that property and casualty insurers in the US can ultimately expect to pay out over third party claims has increased, to $100 billion, according to ratings agency AM Best.

The agency has increased its estimate by 18% due to historical claims for asbestos-related personal injury showing no signs of slowing down, with insurers experiencing around $2.1bn in new losses each year, according to a new report. The new losses come on top of the nearly $2.5bn in existing claims paid out by insurers every year, AM Best said in its report.

The company has not adjusted its estimate of the amount that insurers will pay out for historical environmental damage, which remains at $42bn. This takes its total estimate for asbestos and environmental (A&E) claims to $142bn, against projected industry funding for these claims of $124bn, according to the report. Asbestos liabilities are traditionally less well funded than environmental damage liabilities, at an 85% funding rate against a 94% funding rate, AM Best said.

US insurers paid out $16.7bn worth of A&E claims over the past five years, while incurring $13.5bn in losses, according to the report. Of these figures, $12.7bn worth of claims related to asbestos as did $10.5bn of the losses. Asbestos-related losses continue to "dominate" the insurance industry's A&E exposures, accounting for more than 80% of total liabilities, AM Best said.

Asbestos losses will continue to be an issue for property and casualty insurers as a result of evolving litigation, the increasing number of secondary exposure cases and an increase in the life expectancy of those diagnosed with asbestos-related lung conditions, according to AM Best. Third party rights allow those who were exposed to asbestos while working for companies that have since gone out of business to pursue their employers' former insurer for the compensation they would otherwise have been entitled to.

Commonly used for industrial and construction purposes in the 1960s and 1970s, asbestos can cause a number of deadly lung conditions and cancers if inhaled. However, as it can take up to 40 years from the date an employee was exposed to asbestos until the first malignant cell develops, the full extent of asbestos' impact on insurance reserves is not yet known.

"It is extremely difficult to quantify the industry's ultimate loss exposure, given the evolving nature of asbestos litigation, tort [damages law] reform and the growing incidence of lung cancer being linked to asbestos exposure," AM Best said.

The company said that it would continue to update its estimates "periodically" in light of developing asbestos litigation and losses.

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