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The risky biotech business
(Wednesday, Dec. 3, 2003 -- CropChoice news) -- Kristen Philipkoski, Wired, 12/01/03: The genetically modified food industry has battled opposition from consumer
and environmental groups to get its food on the table. Its lobbyists have
cajoled skeptical politicians; its scientists have produced studies
contradicting other studies suggesting the food is somehow tainted.
Now the industry faces another hurdle with long-range, dire consequences: It
may be uninsurable.
The reason, industry representatives say, is that the Food and Drug
Administration does not regulate GMO products. Without government
regulation, no one knows the rules, and that troubles insurers.
"When it comes to a drug or medical device, what underwriters look to as
most important is FDA oversight," said Thomas Greany, senior vice president
and national practice leader for medical technology at Marsh, a
risk-management firm. "It gives a great deal of comfort that FDA has high
standards, and if something happens, a method or standard operating
procedure is in place to handle adverse outcomes."
The genetically modified foods currently on the market are likely safe, said
Michael Taylor, a senior fellow at Resources for the Future. But with the
industry evolving toward more significant genetic changes, he said, FDA
oversight would help ensure safety as well as encourage wider public
acceptance. A recent study found that 89 percent of Americans believe the
FDA should regulate genetically modified foods.
Groups concerned about the long-term health and environmental effects of
genetically modified organisms agree, and empathize with insurers.
"Insurers should be concerned about this," said Craig Culp, a spokesman for
the Center for Food Safety in Washington, D.C., promoting organic and
sustainable agriculture. "It doesn't take much in terms of the regulatory
landscape for them to suddenly find themselves in a position of paying out a
lot of money because of genetic contamination."
Now, when agricultural biotech companies can get coverage, it's limited and
expensive. Even if genetically modified crops prove to be safe for humans
and the environment, the perception of risk can be enough to do damage,
because insurers know all too well how that can influence a jury.
The top five insurers in Great Britain recently declared they'll have
nothing to do with the genetically modified crop industry. Despite fewer
protests by American consumers against agricultural biotech products than
Europeans, U.S. insurers also express fears about class-action suits against
GMO producers.
"Genetically modified foods are among the riskiest of all possible insurance
exposures that we have today," said Robert Hartwig, the chief economist for
the Insurance Information Institute, an industry trade association in New
York. "And there's a good reason. No one company knows where this path of
genetically modified foods is ultimately going to take us in terms of either
human health or environmental contamination."
Agricultural biotech companies say insurers should treat their products in
the same way they do conventionally grown crops.
Researchers worldwide recognize GMO products as "substantially equivalent to
their conventional counterparts," said Lee Quarles, a spokesman for
Monsanto, a leading agricultural biotech company based in the United States.
"Therefore, there is no justification that would establish why the insurance
model should be any different for a biotech versus a nonbiotech product --
when both are recognized as safe and substantially equivalent to one
another."
The FDA's website says its job is to "see that the food we eat is safe and
wholesome, the cosmetics we use won't hurt us, the medicines and medical
devices we use are safe and effective, and that radiation-emitting products
such as microwave ovens won't do us harm."
That's no small order, and a labyrinth of legislation determines how these
tasks are executed. The agency must first determine what is a risk and then
whether the product requires approval of a product before it hits the
market.
The FDA decided in 1992 that genetically modified foods are "substantially
equivalent" to regular food, and therefore do not require pre-market
approval. Instead, companies voluntarily provide the FDA with a statement
that their products are safe.
In January 2001, members of the FDA filed a proposal calling for some
pre-market FDA oversight of genetically altered foods, but it was never
enacted.
"The FDA is still looking into mandatory reporting," said Michael Herndon, a
spokesman for the agency.
Without the FDA setting guidelines for consumers and insurers, critics
believe insurers are more likely to face large payouts in various scenarios.
Cross-contamination of conventional or organic crops from genetically
modified fields is one potentially litigious scenario. Some farmers have
already filed such lawsuits. In other cases, Monsanto has sued farmers for
patent infringement.
Others fear genetically modified foods could pose a health threat to humans
when eaten directly, or when consumed indirectly from livestock fed with
genetically modified grains.
Every insurance company is in the business of risk, but it's not a topic
companies enjoy talking about with the press. Representatives from Chubb
insurance, which has a large life science unit, and Prudential declined to
comment for this story. A representative from American International Group,
which covers some biotechs as well as malpractice, flood, and terrorism, did
not respond to requests for comment.
"Some insurers view it as potentially one of the biggest long-term problems
this industry might face," said the Insurance Information Institute's
Hartwig.
Genetically modified foods can be found in 75 percent of processed foods --
everything from cornflakes, bread, pasta and soy sauce to ice cream and
candy, making the potential reach of a class-action lawsuit far-ranging.
Millions of people eat genetically modified foods every day without knowing
it -- because the FDA considers them "substantially equivalent" to regular
foods, they're not labeled. But a recent study found that only 24 percent of
Americans believe they have eaten GMO foods.
Companies cannot count on juries to rule in their favor, even taking into
account that most Americans' knowledge of GMO foods remains low.
"The real risk that you're running is the capricious and arbitrary behavior
of a jury," Greany said.
In 2000, the industry got a glimpse of what biotech companies could face in
terms of liability. A genetically modified corn product called Starlink,
made by Aventis CropScience, was approved only for animal feed, but it
accidentally made its way into Taco Bell tortillas. Courts awarded farmers a
$110 million settlement, and a $6 million settlement to individuals claiming
they suffered severe allergic reactions.
Meanwhile, a man who won $10,000 in a Starlink lawsuit claiming he suffered
allergies is apparently not allergic to the corn after all, according to a
study published recently in the Journal of Allergy and Clinical Immunology.
"In today's litigious climate, where people seem to sue for things both real
and imagined, (liability) can be a very costly proposition for companies and
their insurers," said David Zoffer, an attorney in Chapel Hill, North
Carolina, who runs a litigation management and outsourcing consulting
practice.
In other cases, farmers claiming their fields have been contaminated by
nearby genetically modified crops have been unable to win judgments.
Monsanto sued Percy Schmeiser, a Canadian canola farmer, for growing its
genetically modified version of the grain, although Schmeiser says the seeds
drifted onto his land from a neighboring farm, ruining a crop he spent 40
years perfecting. Monsanto won two lower court rulings in Canada on the
matter. The Canadian Supreme Court will hear the case in January.
The high court's decision "could be precedent-setting for North America,"
the Center for Food Safety's Culp said.
With the number of acres of genetically modified crops worldwide up to 145
million in 2002 and growing, cross-contamination -- and the potential for
lawsuits resulting from it -- will likely increase in the coming years. The
burden of liability could be heavily influenced by the outcome of these
early lawsuits.
With so much uncertainty, it's not surprising insurance companies are
skittish.
When risky businesses get insurance, a significant gap exists between how
much coverage they can get and the amount of damage they may incur, Greany
said.
A company the size of Monsanto would likely buy insurance with coverage for
between $200 million and $300 million in assets. But lawsuits could result
in settlements in the billions, experts said.
One option for difficult-to-insure companies is to self-insure by setting
money aside for themselves. Or they can set up what's called a captive
insurance company, often in Bermuda, where the tax situation is particularly
favorable. Companies can establish captives individually or as a group
within the same industry. But these options are much less efficient than a
traditional insurance plan, Greany said.
There is always a limit to the amount of insurance coverage available to an
industry at any given time. Marsh tracks those numbers closely. It can
change day to day, and has been steadily decreasing over the past three
years, according to the company's 2003 "Limits of Liability" report.
"For biotech, the most that would be available today is about $700 million,"
Greany said. "Three years ago it would have been about $1 billion."
Despite the concerns from insurance industry representatives, Monsanto
officials insist coverage is not a problem.
"Monsanto has had no difficulty getting commercial insurance," spokesman
Quarles said. "This is not something that we are concerned about at this
time."
Source: http://www.wired.com/news/medtech/0,1286,61096,00.html?tw=newsletter_topstor
ies_html
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