08/05/2013

Update from UK asbestos and deafness working parties

Robert Brooks, Brian Gravelsons and Gabriela Macra

02 May 2013

Agenda
Update from the UK asbestos working party
Background and Introduction Recap on 2009 UK Asbestos Working Party Projections Legal and Other Developments

Update from the UK deafness working party

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UK Asbestos Background and Introduction

Background and Introduction Mesothelioma experience

4,500 4,000 3,500 Deaths / Claims 3,000 2,500 2,000 1,500 1,000 500 0

HSE (non-clearance) Gross-up claims (AWP 2007)

Gross-up claims (AWP 2004) Observed deaths

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Background and Introduction What has the Working Party done?

Since 2009 market estimate - entered working party passive p phase Continued to collected survey and government data Comparing data against estimates Maintained contact with HSE and Prof. Peto Consultation responses such as Pleural Plaques & ELIB

UK Asbestos Recap on 2009 Projections

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2009 UK Asbestos Working Party Estimates Approach

Data
Market survey Sample of claimant settlement costs of mesothelioma claims CRU and IIDB

Number of claims
Adapted models developed by other Developed own models Judgement

Expert judgement based on discussions with

Claims handlers NHS / Doctors Legal profession Special interest bodies

Average costs (including inflation)

Developed own model for mesothelioma Judgement

2009 UK Asbestos Working Party Estimates Total Insurance Market Estimates

18,000 16,000 14,000 Cost of all types (m) C 12,000 10,000 8,000 6,000 4,000 2,000 Number scenario 1 Number scenario 2 Number scenario 3
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Insurance Market cost estimate of 5 3bn and a highest of 33 5.3bn 33.9bn 9bn

Inflation scenario 1 Inflation scenario 2 Inflation scenario 3

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2009 UK Asbestos Working Party Estimates Mesothelioma Deaths and Claimants

2,250 elioma male deaths / claiman nts Mesothe 2,000 1,750 1,500 1,250 1,000 750 500 250 0 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 Observed Insurance Claimants (inc Government) Scenario 23 - Insurance Claimants (inc Government) Ob Observed d male l d deaths th ( (ages 20-89) HSE / HSL (2009)

AWP1 - 2009

UK Asbestos Experience since 2008

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Actual vs. Projected Experience Mesothelioma deaths

3,000 2,500 2,000 1,500 1,000 500 0 AWP (2009) Alternative birth cohort model HSL Non-clearance (2009) HSL (2010) - Revised risk model R1 HSL (2010) TSCE T2 Observed deaths (ages 2089) AWP ( (2009) ) Adjusted j HSL model AWP (2009) Latency model

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Actual vs. Projected Experience Mesothelioma: Number of claims

3,000 Number r of mesothelioma claims s (excluding nils) 2,500 2,000 1,500 1,000 500 0 2009
2012 survey data assuming the survey covered 80% and nil rate of 23%

2012 Survey Scenario 23

2010

2011
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Actual vs. Projected Experience Mesothelioma: Average cost of claims

120,000 Average co ost of mesothelioma claims (excluding nils) 100,000 80,000 60,000 40,000 20,000 2009
2012 survey data assuming a nil rate of 23%

Actual Incurred Actual Settled Scenario 23

2010

2011
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Actual vs. Projected Experience Lung Cancer: Number of claims

600 Numbe er of lung cancer claims (including nils) 500 400 300 200 100 0 2009
2012 survey data assuming the survey covered 80%

2012 Survey Number 2 / Cost 2

2010

2011
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Actual vs. Projected Experience Lung Cancer: Average cost of claims

70,000 Average c cost of lung cancer claim ms (including nils) 60 000 60,000 50,000 40,000 30,000 20 000 20,000 10,000 2009
2012 survey data assuming a nil rate of 33%

Actual Incurred Actual Settled Number 2 / Cost 2

2010

2011
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Actual vs. Projected Experience Total costs 2009 to 2011

1,200m 1 000m 1,000m 800m 600m 400m 200m 0m Mesothelioma Lung cancer Asbsetosis Plueral Thickening Projected (Scenario 23 & Cost 2 / Number 2) Incurred (Grossed up in 1Q 2012 Survey) Notified in year * Settled in year (Grossed up 1Q 2012 Survey)
2012 survey data assuming the survey covered 80%

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UK Asbestos Legal and Other Developments

Legal and Other Developments

ELTO Trigger Ti Liti ti Litigation Jackson International Energy Group Ltd v Zurich Insurance plc [2013]

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Legal and Other Developments Employers Liability Tracing Office (ELTO)

Set up to provide access to a database of EL policies (EL Database or ELD) ) ELTO has contract with Tracing Services Ltd, a subsidiary of the Motor Insurers Bureau (MIB) February 2011, new regulations that change the way that insurers and intermediaries record EL policy data
From January y 2011, , all members required q to upload p new and renewed policies, and old policies with new claims made against them From April 2012, all members required to upload new and renewed policies and also supply subsidiary company information

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Legal and Other Developments Employers Liability Tracing Office (ELTO)

60 members, with around 8 million records
Split evenly between new policies and historical policies (post 1990)

Two searches:
Simple - one search function to all users; and Extended - completed once a month where the members are asked to trace records not on the database.
If simple p search is unsuccessful an extended will be undertaken

ELTO keeps a list of the individuals using the database and about 65% are Claimants / Solicitors. Around 70% of traces are finding an insurer to pursue
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Legal and Other Developments Pleural plaques

House of Lords ruled pleural plaques were not compensable (Oct 2007)
Scotland Scottish Parliament introduced a bill to reverse the House of Lords ruling in Scotland in force from June 2009 Insurers appeal was heard in July 2010 12th October 2011, the Supreme Court rejected the insurers' appeal England and Wales Government announced it will not be legislating to make PP claims compensable Extra-statutory Payments of 5,000 for unresolved cases Northern Ireland Consultation paper published by Dept of Finance and Personnel (NI) Oct 2008; recommended claims made compensable The Damages (Asbestosrelated Conditions) Act (Northern Ireland) 2011 came into operation on 14th December 2011

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Legal and Other Developments Employers Liability Trigger Litigation

Seeking to clarify what triggers a policy to pay a claim to victims of mesothelioma Bolton Metropolitan Borough Council v MMI and CU
Public liability policies Injury occurring wording

Durham v BAI (run-off) and others (Trigger Litigation)

Employers E l li liability bilit policies li i Injury sustained or disease contracted wording

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Legal and Other Developments Trigger Litigation: Court of Appeal Judgement

Court of Appeal judges took divergent approaches Following F ll i principles i i l emerge
Sustained wording policy responds when tumour starts to develop Contracted wording synonymous with caused, policy responds to exposure Policies post 1972 (when EL became compulsory) will meet mesothelioma claims based on date of inhalation

Leave to appeal to the Supreme Court was granted

Recommended that this appeal be expedited

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Legal and Other Developments Trigger Litigation: Supreme Court

On the 28th March 2012 the Supreme Court handed down its judgment j g based on a 4-1 majority: j y
Reflecting the wider commercial purpose of employers' liability cover, that disease is said to have been "sustained" or "contracted" in an employers' liability policy when it is caused and not when the disease manifests itself many years after the exposure Applying the principles established in Fairchild

Employers' Employers liability policies respond on an exposure basis regardless of wording (unlike public liability policies) Return to the basis used prior to the litigation

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Legal and Other Developments Jackson reforms

A10 year review looking into the costs in civil litigation completed p by y Lord Justice Jackson in January y 2010 After consultation UK Government published its response in March 2011 They agreed to implement the majority of reforms within the Jackson review Legislation passed in May 2012 - the Legal Aid Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) LASPO came into force on 1 April 2013

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Legal and Other Developments Jackson reforms

Success fees payable on CFAs and ATE premiums no longer gp party y recoverable from the losing
The winner must therefore pay its lawyers' success fee This could render some claims uneconomic to pursue

Court of Appeal guidance after Simmons v Castle [2012] General damages in all civil claims 10% higher Damages-based agreements or DBAs can be entered with claimants
Agree to accept a share of their clients' winnings Maximum cap of 50%
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Legal and Other Developments Jackson reforms

Additional penalty on unsuccessful defendants under Part 36
payable when claimant claimants s reasonable offer rejected Capped on large awards

File disclosure reports listing potentially relevant documents File budgets for approval by the court and other parties Exclusion of mesothelioma claims from the reforms
After-the-event insurance and success fees still apply Lord Chancellor investigating

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Legal and Other Developments INE v Zurich Insurance plc [2013]

Claimant died from mesothelioma Exposed E dt to asbestos b t i in G Guernsey f from 1961 t to 1988 1988. Guernsey law applied: UK Compensation Act 2006 did not apply INE settled claim for damages and then sought recovery from the insurer
Employers' E l ' li liability bilit policies li i provided id d 1982 t to 1988

Commercial Court ruled insurer's liability under an EL policy limited to period under which the claimant had been insured Insured appealed this verdict
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Legal and Other Developments INE v Zurich Insurance plc [2013]

Court of Appeal ruled in February 2013 Insurer I to t provide id a complete l t indemnity i d it
On risk for 6 out of the total of 27 years of exposure Basically an All Sums verdict

Followed the approach of the Supreme Court in the Trigger litigation - mesothelioma was "caused" by his exposure No contribution by solvent insured to insurer - contrary to the ABI guidelines Supreme Court?
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UK Deafness

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UK Deafness Introduction
Why are UK Deafness claims a current issue?

What are noise induced hearing loss claims?

A claims history lesson

What is driving the recent claims experience?

UK Deafness Working Party GIRO Paper

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Why is it a Current Issue?

120,000 100,000

80,000

60,000

40,000

20,000

Total Number of Insurance Claims Notified

Data source: Deafness Working Party Data Survey Sept 2012, with 2012 updated from March 2013 survey. Survey covers 12 market participants in last 10 years, fewer in earlier years, history has been rescaled to be consistent across all years.

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What are Noise Induced Hearing Loss (NIHL) Claims?

Hearing loss arising from prolonged exposure to high noise levels almost always in the

work place and therefore impact Employers Liability policies

Dates D t employers l d deemed dt to b be aware vary b by i industry d t key k date d t of f knowledge k l d i is 1963 Successive regulations in 1989 and 2005 reduced actionable noise levels and stipulated

employer actions (noise surveys, reduction, protection etc.)

Serious cases involve tinnitus alongside hearing loss Latency arises because NIHL becomes apparent around age 60-65 when hearing

typically starts to deteriorate through age

Current claims predominantly from 1970s to 1980s exposures UK Insurance industry is currently paying around 50m per year based on working party

data
Major component of claim cost is claimant solicitor fees with damages only representing

around one quarter of total spend

Similar mix of insurer compensators as asbestos
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UK Deafness Claims History Lesson

120,000 Impact of 1989 regulations and recession T t Litigation, Test Liti ti Textile Industry targeted Rise of CMCs and further recession CFAs introduced April 2000 40,000 Economy recovers, trade union influence reduces

100,000

80,000

Rising unemployment in early 1980s

60,000

20,000

Total Number of Insurance Claims Notified

Data source: Deafness Working Party Data Survey Sept 2012, with 2012 updated from March 2013 survey. Survey covers 12 market participants in last 10 years, fewer in earlier years, history has been rescaled to be consistent across all years.

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What is Driving Recent Experience?

Legislation
The impact of LASPO (April 2013) is likely to have fuelled an increase in claimant solicitor

activity ti it Claims Management Companies (CMCs)

Claims Management Companies have increased rapidly from a couple of hundred to a

couple of thousand* over the last five years

Significant increase in advertising raising awareness in the general population of the

potential to make a claim

After the Event (ATE) insurance allowed solicitors to run a case risk-free if the ATE

insurer accepted the case Recession

Impact of recent recession has increased unemployment, albeit mainly at younger ages Redundancy has historically been a trigger to make a claim against

an employer
*Source: Motor Third Party Working Party

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UK Deafness Working Party Paper for GIRO 2013

Includes
Background to help interested party understand the emerging

deafness claims experience

Market data collection and survey results Analysis of influencing factors Key items for the reserving actuary to consider

Does Not Include

Insurance Market Projections
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Questions

Comments

The views expressed in this presentation are those of the presenter

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