GIRO conference and exhibition 2011Robert Brooks, Andy Whiting, Sophie St John and Rhiannon Seah
© 2010 The Actuarial Profession www.actuaries.org.uk
F10: Update from the UKasbestos working party
11-14 October 2011
IntroductionWhat has the Working Party done?
• Since 2009 market estimate - entered working party passivephase
• Continued to collected survey and government data
• Comparing data against estimates• Comparing data against estimates
• Maintained contact with HSE and Prof. Peto
1© 2010 The Actuarial Profession www.actuaries.org.uk
Agenda
• Experience in 2010
• HSL / HSE latest work
• Legal and Other Developments• Legal and Other Developments
• Next steps
2© 2010 The Actuarial Profession www.actuaries.org.uk
Experience in 2010
3© 2010 The Actuarial Profession www.actuaries.org.uk
Experience in 2010
• Update of Summary Claim data as at 1Q 2011
– Asbestos Related Claims data from 13 companies
• New Claim Recovery Unit (CRU) data as at 2Q 2011
– Mesothelioma data at claim and claimant level
4© 2010 The Actuarial Profession www.actuaries.org.uk
– Mesothelioma data at claim and claimant level
– Male and Female
– EL, PL and Other
– Live, settled and withdrawn
– Non-State, Government and Local Authority
2,500
3,000
Actual vs. Projected Experience 2010Mesothelioma
Number of Claims(excludes nils)
Average Claim Size (£)
(excludes nils)
£100,000
£120,000
-
500
1,000
1,500
2,000
Scenario 23 Actual ¹
5
¹ 1Q 2011 survey data assuming the survey covered 80% and nil rate of 20%
£0
£20,000
£40,000
£60,000
£80,000
Scenario 23 Actual Incurred ² Actual Settled
² Assuming nil claims rate of 20%
© 2010 The Actuarial Profession www.actuaries.org.uk
£50,000
£60,000
£70,000
350
400
Actual vs. Projected Experience 2010Lung Cancer
Number of Claims(includes nils)
Average Claim Size (£)(includes nils)
£0
£10,000
£20,000
£30,000
£40,000
£50,000
Cost scenario 2 Actual Incurred Actual Settled ²0
50
100
150
200
250
300
Number scenario 2 Actual¹
6
¹ 1Q 2011 survey data assuming the survey covered 80%
© 2010 The Actuarial Profession www.actuaries.org.uk
² Assuming nil claims rate of 33%
1,400
1,600
1,800
Actual vs. Projected Experience 2010Asbestosis
Number of Claims(includes nils)
Average Claim Size (£)(includes nils)
£20,000
£25,000
0
200
400
600
800
1,000
1,200
1,400
Number scenario 2 Actual ¹
7
¹ 1Q 2011 survey data assuming the survey covered 80%
£0
£5,000
£10,000
£15,000
Cost scenario 2 Actual Incurred Actual Settled ²
© 2010 The Actuarial Profession www.actuaries.org.uk
² Assuming nil claims rate of 33%
700
800
Actual vs. Projected Experience 2010Pleural Thickening
Number of Claims(includes nils)
Average Claim Size (£)(includes nils)
£20,000
£25,000
0
100
200
300
400
500
600
Number scenario 2 Actual ¹
8
¹ 1Q 2011 survey data assuming the survey covered 80%
£0
£5,000
£10,000
£15,000
Cost scenario 2 Actual Incurred Actual Settled ²
© 2010 The Actuarial Profession www.actuaries.org.uk
Shift from Asbestosis on post 2010 yearsas well compared to previous surveys
² Assuming nil claims rate of 35%
Actual vs. Projected Experience 2010
200
250
300
9© 2010 The Actuarial Profession www.actuaries.org.uk
0
50
100
150
Mesothelioma Lung Cancer Asbestosis Pleural Thickening
£m
Projected (Scenario 23 & Cost 2 / Number 2) Incurred (Grossed up in 1Q 2011 Survey)
Notif ied in 2010 * Settled in 2010 (Grossed up 1Q 2011 Survey)
Claimants to Deaths Ratios - Mesothelioma onlyGrossing up using CRU
• Survey data for UK EL Insurance Market
• Need to allow for:
– Female claimants
– Claims from Northern Ireland
10© 2010 The Actuarial Profession www.actuaries.org.uk
– Claims from Northern Ireland
– Government share of claims
• Female claimants based on detailed survey data
– Much lower propensity to make a claim than males
• Northern Ireland mesothelioma deaths from HSENI (The Healthand Safety Executive for Northern Ireland)
Claimants to Deaths Ratios - Mesothelioma onlyCRU - Government share
14%
16%
18%
20%
22%
24%
11© 2010 The Actuarial Profession www.actuaries.org.uk
0%
2%
4%
6%
8%
10%
12%
14%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
AWP 2009 CRU 2010 - Employer Liability claims only
Claimants to Deaths Ratios - Mesothelioma onlyCRU – Female (to Male) percentage
5%
6%
7%
8%
12© 2010 The Actuarial Profession www.actuaries.org.uk
0%
1%
2%
3%
4%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
AWP 2009 CRU 2010 - Employer Liability Non-State claims only
Claimants to Deaths Ratios - Mesothelioma onlyClaimant Death Ratios - Males only
80%
100%
120%
13© 2010 The Actuarial Profession www.actuaries.org.uk
0%
20%
40%
60%
<45 45-54 55-59 60-64 65-69 70-74 75-79 80-84 85+
2007 2008 2009 2010
Claims per claimantMesothelioma only
2.2
2.4
2.6
2.8
Nu
mb
er
of
cla
ims
per
cla
iman
td
eath
14© 2010 The Actuarial Profession www.actuaries.org.uk
1.0
1.2
1.4
1.6
1.8
2.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Nu
mb
er
of
cla
ims
per
cla
iman
td
eath
2009 - Scenario 23 2011 Data
HSL / HSE latest work
15© 2010 The Actuarial Profession www.actuaries.org.uk
HSE update
• New report produced by the HSL published in July 2011
• Contents of the report:
– Female deaths projections
– Develop alternative models for male projections:– Develop alternative models for male projections:– Revised Risk Model
– Two-Stage Clonal Expansion model
16© 2010 The Actuarial Profession www.actuaries.org.uk
HSL 2011 projectionsFemale projections – based on HSL 2009 model
300
350
400
450
500
Nu
mb
er
of
GB
fem
ale
me
so
the
lio
ma
de
ath
s
17© 2010 The Actuarial Profession www.actuaries.org.uk
0
50
100
150
200
250
1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049
Nu
mb
er
of
GB
fem
ale
me
so
the
lio
ma
de
ath
s
Actual Deaths (all ages) HSL 2011 F1 - (Ages 20 to 89)
HSL 2011 projectionsFemale vs. Male projections
1,500
1,750
2,000
2,250
Nu
mb
er
of
GB
me
so
the
lio
ma
de
ath
s
18© 2010 The Actuarial Profession www.actuaries.org.uk
0
250
500
750
1,000
1,250
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050
Nu
mb
er
of
GB
me
so
the
lio
ma
de
ath
s
HSL 2009 Non-clearance (Males) - (Ages 20 to 89) HSL 2011 F1 (Females) - (Ages 20 to 89)
HSL 2011 projections - MalesComparison to prior HSL projections
1,250
1,500
1,750
2,000
2,250
Nu
mb
er
of
GB
ma
lem
es
oth
eli
om
ad
ea
ths
19© 2010 The Actuarial Profession www.actuaries.org.uk
0
250
500
750
1,000
1,250
1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049
Nu
mb
er
of
GB
ma
lem
es
oth
eli
om
ad
ea
ths
HSL 2009 Non-clearance - (Ages 20 to 89)HSE 2005 Non-clearance - (Ages 20 to 89)HSL 2011 Revised risk model R1 - (Ages 20 to 89)HSL 2011 TSCE T2 - (Ages 20 to 89)Observed deaths (all ages)
Two-Stage Clonal Expansion (TSCE) ModelOverview
• First proposed by Moolgavkar and Kudson in 1981
• Motivated by biological considerations
• Model assumes that cell undergoes two mutations prior todevelopment of a tumour:
Healthy CellIntermediate
CellMalignant
CellTumour
20© 2010 The Actuarial Profession www.actuaries.org.uk
Initiation
Promotion
MalignantTransformation
Growth
Asbestosexposure
Two-Stage Clonal Expansion (TSCE) ModelModelling steps
Lung burdenDose
responseequations
HazardFunction
Classification of the population
21© 2010 The Actuarial Profession www.actuaries.org.uk
equations
Two-Stage Clonal Expansion (TSCE) ModelModelling steps - Classification
• Population is classified between high and low exposed
– Occupational vs non-occupational exposure
• High exposed are sub-classified based on:• High exposed are sub-classified based on:
– Age at which exposure started
– Duration of the exposure
22© 2010 The Actuarial Profession www.actuaries.org.uk
Two-Stage Clonal Expansion (TSCE) ModelModelling steps – Lung Burden
• Lung Burden:
– Measure of the amount of Asbestos fibres in an individual’slungs
• Use of UK Asbestos imports to estimate the lung burden
Main parameters:
– Clearance of the lungs
– Stock removed and released
– Risk factor of one type of fibres relative to another one
23© 2010 The Actuarial Profession www.actuaries.org.uk
Two-Stage Clonal Expansion (TSCE) ModelModelling steps – Hazard Function
• Hazard Function
– Probability of developing a tumour
– Lag of 10 years assumed between tumour and death
– Derived from the dose response equations– Derived from the dose response equations
– Applied to the GB male population
24© 2010 The Actuarial Profession www.actuaries.org.uk
Two-Stage Clonal Expansion (TSCE) ModelResults / Observations
Modelled deaths by age group
14%
16%
18%
20%
Pro
po
rtio
no
fp
roje
cte
dd
eat
hs
The TSCE model projects lessdeaths at older age (85+ band) thanthe HSL 2009 model.
25© 2010 The Actuarial Profession www.actuaries.org.uk
0%
2%
4%
6%
8%
10%
12%
0-15 16-19 20-44 45-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89
Pro
po
rtio
no
fp
roje
cte
dd
eat
hs
TSCE 2011 HSL 2009
1.000
10.000
Death
sra
teper
100,0
00
(logscale
)Two-Stage Clonal Expansion (TSCE) ModelResults / Observations
Death rate per 100,000 for the 1960 - 1964 birth cohort
0.001
0.010
0.100
20 25 30 35 40 45 50 55 60 65 70 75 80 85
Death
sra
teper
100,0
00
(logscale
)
Age cohort
Actual TSCE 2011 HSL 2009
26© 2010 The Actuarial Profession www.actuaries.org.uk
The TSCE model’s projected death ratesare lower for the later birth cohorts inparticular for the 1960 cohort.
Two-Stage Clonal Expansion (TSCE) ModelSummary
Pros:
• Good fit to the historical data
• Based on biologicalconsiderations
Cons:
• Lots of parameters (morethan population model) –difficult to parameteriseconsiderations
• More flexible as a result of itsmany parameters
• Allows different death rates
• Takes into account exposureexplicitly
• May underestimate thenumber of deaths from 80+year olds
• Sensitivity to the post-1980exposure level
27© 2010 The Actuarial Profession www.actuaries.org.uk
HSL 2011 projections - MalesComparison to AWP 2009 projections
1,250
1,500
1,750
2,000
2,250
2,500
Num
bero
fGB
malemes
othe
liomade
aths
28© 2010 The Actuarial Profession www.actuaries.org.uk
0
250
500
750
1,000
1,250
2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049
Num
bero
fGB
malemes
othe
liomade
aths
HSL 2011 TSCE T2 AWP 2009 Adjusted HSL model
AWP 2009 Latency model AWP 2009 Alternative birth cohort model
Legal and Other Developments
29© 2010 The Actuarial Profession www.actuaries.org.uk
Legal and Other Developments
• EL trigger
– Does Bolton apply to EL policies?
• Sienkiewicz and Willmore
– Does Fairchild apply?– Does Fairchild apply?
• Scottish damages
– Are claims now more expensive?
• Pleural plaques
– An update on all UK territories and Supreme Court ruling
30© 2010 The Actuarial Profession www.actuaries.org.uk
EL Trigger LitigationBolton and Consequences
• Bolton v MMI, 2006 (Public Liability Case)
– Injury Occurring = Mesothelioma victim sustains injury whentumour starts to develop, 10 years before manifestation
• 4 insurers with EL policies worded in a similar way to the PL• 4 insurers with EL policies worded in a similar way to the PLpolicy in Bolton
– Responded if the injury was sustained or contracted duringthe term of the policy
– They declined EL claims on the Bolton principle
• Led to ‘black holes’ in insurance cover
31© 2010 The Actuarial Profession www.actuaries.org.uk
EL Trigger LitigationRound One
• Claims against the 4 insurers pursued Trigger Litigation
• Burton J held that “injury sustained or disease contracted”wording = liable when fibres inhaled
• Pragmatic commercial view of EL policies:• Pragmatic commercial view of EL policies:
– rejected technical legal arguments
– acknowledged that the insurance industry had traditionallypaid such claims on an exposure basis for over 50 years
• Accepted Injury didn’t occur at point of inhalation
– Approximately 5 years before symptoms
32© 2010 The Actuarial Profession www.actuaries.org.uk
EL Trigger LitigationCourt of Appeal
Rix LJ Burnton LJ Smith LJ
Overturned High Court JudgementSome principles agreed:
• “Sustained” = Policy in force when starts to develop
• “Contracted” = Policy in force at exposure (“caused”)
Rix LJ
• Contracted whencaused
• Mesothelioma notsustained oninhalation
• Policies from 1972respond if causedduring policy
Burnton LJ
• Insurers entitled tochange practices asMesotheliomabetter understood
• Bound by Bolton
Smith LJ
• Policies should beinterpreted onunderstanding ofparties when written
• Not Bound byBolton
© 2010 The Actuarial Profession www.actuaries.org.uk33
EL Trigger LitigationWhat now?
• If Rix LJ not bound by Bolton:
– Actionable injury from date of inhalation
– Liability created when employer materially contributed to therisk
– Decision led to “an unfortunate conclusion”
34
– Decision led to “an unfortunate conclusion”
• Troubling for the Market:
– Public Authorities need provision for 1974 & prior
– Private Sector Businesses will have to meet their ownliabilities if pre-1972 sustained policy
– Insurers and defendants will need to fill ‘black holes’ underjoint & several
34© 2010 The Actuarial Profession www.actuaries.org.uk
Sienkiewicz & WillmoreReminder of Fairchild
• Special rule for cases brought by persons who contractmesothelioma
• House of Lords Decision (Fairchild v Glenhaven FuneralServices Ltd) in 2002
– Joint & Several = ‘materially increases the risk’
• Relaxes the usual requirement:
– More likely than not that harm caused by the defendant
• Medical Science cannot determine which fibre(s) caused themesothelioma to develop
35© 2010 The Actuarial Profession www.actuaries.org.uk
Sienkiewicz & WillmoreSienkiewicz v Grief
• Karen Sienkiewicz daughter of Enid Costello
• Mrs Costello died of Mesothelioma
– 21 January 2006, Aged 74
• Worked for Grief (UK) Limited• Worked for Grief (UK) Limited
– Found to have wrongly exposed her to asbestos
– ‘very light’ exposure - Increased her exposure by 18%
• Initial verdict:
– Fairchild did not apply
• Reversed by Court of Appeal
36© 2010 The Actuarial Profession www.actuaries.org.uk
Sienkiewicz & WillmoreKnowsley Metropolitan Borough Council v Willmore
• Mr Barre Willmore husband of Diane Willmore
• Mrs Willmore died of Mesothelioma
– 15 October 2009, aged 49
• Found to have been exposed to asbestos at her secondary• Found to have been exposed to asbestos at her secondaryschool
• Judge applied Fairchild
– Awarded damages of £240,000
• Decision upheld by the Court of Appeal
37© 2010 The Actuarial Profession www.actuaries.org.uk
Sienkiewicz & WillmoreResults and Impact of Sienkiewicz and Willmore
• Supreme Court - Fairchild still applies when only one defendantas well as environmental exposure
• It may now be easier to establish liability
• Implication for insurers• Implication for insurers
– PL / uncompensated claims compensated occupationalclaims
– Potential knock-on effect to lung cancer claims
38© 2010 The Actuarial Profession www.actuaries.org.uk
Scottish Damages
• Damages (Scotland) Act 2011 - Royal Assent in April
– In force from 7 July 2011
• Consolidation of existing laws
• Replaces the 1976 Act• Replaces the 1976 Act
– Doesn’t affect proceedings brought before it’s in force
• Consequences in relation to loss of support claims:
– Increase in awards for loss of support claims;
– Higher awards for past loss of support; and
– Wider category of claimants entitled to claims.
39© 2010 The Actuarial Profession www.actuaries.org.uk
Pleural plaquesBefore Supreme Court judgement
Scotland
• Scottish Parliamentintroduced a bill toreverse the House of
Northern Ireland
• Northern IrelandParliament introduced abill to reverse the House
England and Wales
• Former ClaimantsPayment Schemeclosed on 31st July 2011
House of Lords ruled pleural plaques were not compensable (Oct 2007)
reverse the House ofLords ruling in Scotland– Act in force from June2009
• Insurers’ appeal to TheScottish Court ofSession rejected
• Supreme Court ruling12 Oct 2011
bill to reverse the Houseof Lords ruling inNorthern Ireland
• Received Royal Assenton July 2011
• Attorney General forNorthern Irelandreferred the NIlegislation to theSupreme Court
closed on 31st July 2011• No further court action
pending• Potential for Forum
shopping
40© 2010 The Actuarial Profession www.actuaries.org.uk
Pleural plaquesSupreme Court judgement
• The Supreme Court dismisses the insurers appeal
– All seven Lords in agreement
– “judgment of the Scottish Parliament was not withoutreasonable foundation”reasonable foundation”
– Accepts that the 2009 Act pursues a legitimate aim
– Should respect the judgment of the elected body and notoutside the legislative competence of the Scottish Parliament
41© 2010 The Actuarial Profession www.actuaries.org.uk
Pleural plaquesSupreme Court judgement
• Reasonably proportionate to the aims sought to be realised as:
1) Claims can only be brought if asbestos exposure wascaused by the employer’s negligence;
2) Insurers obligation to indemnify inevitably entailed a risk that2) Insurers obligation to indemnify inevitably entailed a risk thatunforeseen circumstances would increase the burden oftheir liability; and
3) Preserving the status quo prior to the Rothwell judgement.
• No verdict on quantum
• Appeal to EU?
42© 2010 The Actuarial Profession www.actuaries.org.uk
Key points and Next steps
43© 2010 The Actuarial Profession www.actuaries.org.uk
Key points
• Two years of experience little cause for changes
– Mesothelioma number of claims and costs in-line withestimate (Claimants to Deaths Ratios are stable)
– Shift between Asbestosis and Pleural Thickening claims– Shift between Asbestosis and Pleural Thickening claims
• Claim to claimant ratio is higher than the 2.0 assumed
• Government share lower than 20% estimated
• TSCE projections close to those using the 2009 latency model
• Pleural plaques & EL trigger - Still uncertain
44© 2010 The Actuarial Profession www.actuaries.org.uk
What will the AWP do now?
• Release a excel copy of the TSCE model
• Continue to collect market data on a yearly basis
– Next due for March 2012
45© 2010 The Actuarial Profession www.actuaries.org.uk
Questions or comments?
Expressions of individual views by membersof The Actuarial Profession and its staff areencouraged.
The views expressed in this presentationare those of the presenter.
46© 2010 The Actuarial Profession www.actuaries.org.uk