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Genetic Engineering & Biotic Risks

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Genetic Engineering and Biotic Risks: An Insurer's Perspective

By Manoj Kumar, ACII (UK), CPCU (USA), ARe (USA), ARM (USA), FIII (India). MBA

President & Managing Partner, Bancassurance Consultants Worldwide Ltd. (BCWL)
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This article was published in Insurance Chronicle from the ICAFI University in its September 2004 Special Issue.

Manoj Kumar

The controversy surrounding Genetically Modified (GM) foods have been making headlines across the globe for several years now and the debate still rages on. European environmental organizations and public interest groups have been actively protesting against GM foods for years and have been able to turn this into a big public debate. Recent controversial and sometimes contradictory studies about the effects of genetically modified food have brought the issue of genetic engineering to the forefront of the public consciousness in the U.S., Europe and elsewhere. European supermarkets continue to boycott the GM foods and have pledged to not stock any of these foods in their shelves in the coming years.

What are Genetically-Modified (GM) foods?

The term GM foods or GMOs (genetically-modified organisms) is most commonly used to refer to crop plants created for human or animal consumption using the latest molecular biology techniques. These plants have been modified in the laboratory to enhance desired traits such as increased resistance to herbicides or improved nutritional content. Genetic engineering can create plants with the exact desired trait very rapidly and with great accuracy. For example, plant geneticists can isolate a responsible for drought tolerance and insert that gene into a different plant. The new genetically modified plant will gain drought tolerance as well.

Although “biotechnology” and “genetic engineering” are used interchangeably, GM is a special set of technologies that alter genetic makeup of such living organisms such as animals, plants or bacteria. Biotechnology, a more general term, refers to using living organisms or their components, such as enzymes, to make products that include wine, cheese, beer and yogurt. Our focus of study here however is GM technology and associated risks, which are of concern to property and liability insurers.

Insurability of GM Industry

In order for a risk to be insured and rated, there should be enough loss experience over a substantial period of time. Further, insurers should understand the risk properly and should be able to identify the risks and hazards associated with it. In the case of GM industry, neither the meaningful loss experience is available nor its impact on health, society and environment is clearly assessed. The situation gets further complicated by ever changing technology in the GM industry and involvement of social, political and legal factors.

Optimists in the insurance industry, however claim that the GM risk has been around for some time now and no major claim of catastrophic nature has been reported till date. But the fact remains that the GM technology is still evolving and it may be too early to predict its impact on health and environment.

Likely Risk Exposures

The most likely exposure that insurers could face is bodily injury. If a consumer claims illness due to eating genetically modified or transgenic food, insurers are exposed to series of claims, which may assume catastrophic proportions. The situation could be similar to the asbestos disaster, in which workers who contracted cancer years after being exposed to the deadly mineral sued mining companies for millions of dollars in damages. Insurers may also be exposed to Product Recall risk and associated third party claims.

Labeling is also an issue, as food manufacturers advertise that their products are free from genetically modified foods. Insurers might be exposed to claims if it turns out to be untrue. Infringement of Intellectual Property Rights is another issue due to every-day patenting of new GM technologies. From the First Party’s perspective, the company’s brand name may be affected if there are suites and adverse media campaign launched against it.

Availability of Insurance Coverage

In the beginning, GM Companies were covered by default under their corporate liability policies since genetic engineering was not excluded under the policy. But soon the insurers responded to the risks involving this new technology with great caution, even following careful underwriting with the co-operation of scientists and safety engineers. They started to either exclude the liability arising out of genetic engineering or limited their exposure by adding suitable conditions or warranties. Even after the acceptance of the GM risk today, there exists a large gap between the cover on offer and the level of coverage required for genetically engineered risks.

General insurers who are prepared to provide insurance for product and environmental liability for genetically engineered risks are likely to offer a specific stand-alone policy on a "claims-made" or "manifestation" basis. The wording may well exclude claims arising from changes in genetic make up of humans or animals or from second generations. The policy coverage will be similar to that available to the pharmaceutical industry restricting all serial claims arising from one common event irrespective of what period they manifest to a single policy year limit of liability.

As per Marsh’s “Limit of Liability” Report 2003, the maximum limit of liability available today is about $700 million, but lawsuits today could result in settlements in the billions of dollars. Three years ago, the limit was somewhat higher, at about $1 billion, but still inadequate.

Socio-politico-economic Influence on the Risk Profile

Widespread skepticism over genetic engineering and GM products has taken the dimension that has further worsened the risk scenario and raised questions about the acceptability of the risk from the insurers perspective. Socially, majority of the consumers prefer non-GM food even though some researches have proved this food to be safe from health point of view. Nonetheless, it has become a public issue and provokes debates in wide circles. Economically, these products are penetrating in the markets where no adverse reaction is seen today but future can’t be predicted. Politically, pressure from the general public and environmentalists could lead to laws where awards and penalties can be imposed on the GM companies which the insurance companies may not have accounted for.

Alternative Financial Risk Coverage

Genetic engineered risks as discussed in the preceding paragraphs are either currently uninsurable or unattractive to the general insurance industry. Coverage that is available is either restrictive or inadequate.

A demand for alternative coverage to traditional risk transfer has been created. Research indicates that there are a number of finite risks of alternative risk financing models being used alongside traditional forms of insurance cover. Tailor-made hedging instruments are carried and financed jointly by the policyholder and insurer/re-insurers. Companies can establish Captives either individually or as a group within the same industry. Alternatively, they can decide to self-insure by setting aside some money for themselves. But all these options are much less effective than a traditional insurance plan.


Genetically modified foods have the potential to solve many of the world’s hunger and malnutrition problems and to help protect and preserve environment by increasing yield and reducing reliance upon chemical pesticides and herbicides. Yet, like all new technologies, they possess some risks, both known and unknown. Insurers need to study carefully the controversies surrounding GM foods and crops before granting cover and focus on risks emanating from human and environmental safety, labeling, intellectual property rights, ethics, food security and environmental conservation.

Note: This article is copyright intellectual property of "Insurance Professional, i.e.". Any part of this article may be reproduced only with the express reference to the author, i.e. "Manoj Kumar, ACII, CPCU" and the website. It will be helpful though not mandatory if the author is notified about the reference.

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