With e-cigarette use on the rise in the UK are the risks associated with these products a pressing issue for the general insurance industry?
When an east London flat caught fire in April because of an e-cigarette exploding, the London Fire Brigade issued warnings on the use of the devices in the home. Following an investigation into the incident, it was concluded the explosion, and subsequent fire, was caused by the e-cigarette being charged with the incorrect charger.
The brigade’s fire investigation team called on e-cigarette retailers to ensure they were selling the correct charger with the devices, as well as warning that e-cigarettes should not be left charging overnight.
It also advised the devices should not be used near open flames or in close proximity to oxygen tanks, after an elderly woman in Manchester was burned having used her e-cigarette while she was attached to an oxygen cylinder in hospital, just a few days prior to the east London fire.
These incidents raise interesting questions for the general insurance industry, particularly around household cover and commercial product liability insurance. With claims arising from e-cigarette use yet to emerge, it is important for insurers and brokers to be aware of the risks surrounding these products.
In fact, as Hill Dickinson insurance practice group partner Lisa Fletcher says: “The issue of them exploding and the press associated with that means that people will be more likely to claim. Insurers might be thinking about this.”
Still considered an emerging risk, uncertainty was commonly highlighted as a challenge for insurers in recognising the unique issues associated with e-cigarettes when Post asked the market about this emerging issue.
Allianz casualty insurance head Chris Dee explains: “It is currently difficult to define the risks associated with e-cigarettes. The very fact there are no real regulations means the impact of e-cigarettes is unknown.”
For Fletcher, it is the lack of research and data around the chemicals used in e-cigarettes that is a concern. As an industrial disease claims expert, Fletcher has seen first-hand how a product can cause unforeseen health issues many years after a person is exposed to it.
“We have seen how a new product can be deemed safe and then as epidemiological evidence or evaluation takes place over time you really don’t know what will come out of the woodwork,” she says.
“There doesn’t seem to be a great deal of studies being done on the effects of the propylene glycol that is in the e-cigarettes on the body or over time.”
Public health concerns are also top of mind for RPC senior associate Kerry Chant, who highlights government concerns around minors using e-cigarettes and the ease with which they can be purchased online.
Product contamination is also a risk, she says. “A lot of these [products] are manufactured in China and a lot of the retailers here are not going to be going over to China to make sure they are being manufactured in a safe way [so as to avoid contamination].”
Fletcher too raises manufacturing as a concern for insurers to be aware of, particularly around the testing of chargers and their relation to domestic fires.
“Some of the chargers may not have gone through rigorous testing,” she says, adding that insurers are likely to be considering these products from a household insurance perspective, meaning they may be concerned about an increase in claims. Overstated risks However, Peter Hajek, director of the Tobacco Dependence Research Unit at the Wolfson Institute of Preventive Medicine, considers the risk of e-cigarettes exploding is being overstated.
‘Explosions’ of e-cigarettes are largely caused by the lithium battery within the device – as Hajek explains: “Lithium batteries can malfunction, but this is extremely rare. Some 15 cases were reported by media in the UK and US out of the tens of millions of units sold.”
He adds this is likely to be similar to the rate of battery mishaps in products such as laptops or mobile phones.
Despite this, commentators identified a need for insurers to take stock of what products would cover claims associated with e-cigarette use.
Dee says: “In theory, standard product liability policies would suffice. However, there are certainly limited markets for traditional cigarettes and I suspect many insurers are taking a conservative approach to them.”
Chant agrees insurers are likely to be cautious when it comes to covering e-cigarette risks.
“There is a degree of caution and the market is pretty underdeveloped at the moment, but this could potentially create a good opportunity for insurers to enter into this market,” she says.
“[However,] there is a lack of knowledge in understanding the risks and there is a lack of historic data. Insurers are reluctant to write risks at the moment in the e-cigarette market.”
Employers’ liability is regarded as an area that could be susceptible to claims. As Chant explains, due to e-cigarettes falling outside anti-smoking legislation, employers are permitted to allow employees to smoke e-cigarettes in the workplace, although this decision is at their discretion.
“I suspect the majority of employers won’t allow employees to smoke in the workplace but it is not forbidden, as tobacco cigarettes are,” she says, which could give rise to confusion over what’s covered.
Other types of EL claims could come from employees being in contact with the devices. Fletcher gives the scenario of an e-cigarette exploding on a bus next to the driver. A real-life example is the Yorkshire barmaid who, in April, suffered minor injuries after an e-cigarette was left charging behind the bar where she was working.
“Those unforeseen accidents are where underwriters and actuaries need to be looking at these sorts of potential [for claims],” Fletcher says.
Insurers offering product liability policies that would include cover for e-cigarettes were identified as the products most likely to emerge in this area.
Chant predicts new products will be developed. “As knowledge increases in this area then insurance products tailored to the specific retailer or manufacturer will equally be developed,” she says.
Products will likely be developed to cover areas such as product contamination, legal defence costs, and product recalls, she predicts.
Chant echoed Fletcher’s earlier concern that many of the claims around e-cigarette use are likely to be long-tail.
“Some of the losses, such as health problems, may not come to light until later down the line so insurers may suddenly be faced with claims.”
One way to overcome uncertainty in this area would be to write product liability risk on a claims-made basis, Dee says. “This would mean it is easier for insurers to limit liability to just one policy period and potentially exit individual risks or the market should problems arise, but this leaves manufacturers at risk of inadequate cover,” he explains.
Another challenge identified by Dee is that users of e-cigarettes also typically smoke tobacco cigarettes. Indeed, research published by Action on Smoking and Health in April shows two-thirds of e-cigarette users are current smokers.
“This could lead to e-cigarette producers and suppliers being brought into legal actions and having to share costs of defence, even if they many not be ultimately liable for injuries or diseases,” Dee says, adding the cost of such legal action can be substantial.
Chant says: “It is interesting that the big tobacco companies are now selling their own brand of e-cigarettes or they are buying out the smaller manufacturers of e-cigarettes. I have seen many reports that we are going to be in the situation where large manufacturers of cigarettes are going to be selling alongside e-cigarettes.” Smokers or non-smokers? This development is interesting for health insurers and whether they should deem users of e-cigarettes as smokers or non-smokers. According to Chant, most insurers treat e-cigarette smokers as they would tobacco smokers.
“Until recently there was one insurance company that treated e-cigarette smokers as non-smokers in terms of rates, but that company has reviewed its processes and is treating e-cigarette smokers as traditional tobacco smokers,” she explains.
While most insurers across the board contacted by Post were reluctant to give insight on their approach to covering e-cigarette risks, medical insurance provider Axa PPP was certain in its stance.
A spokesman says: “We do not take the use of e-cigarettes into account when setting the price of our medical insurance plans. There is a great deal of debate at present as to the role of e-cigarettes, which we have followed with interest, and we may review our position in the future as more evidence on their use emerges.”
Regulation remains crucial in providing certainty to insurers around e-cigarette risks and UK government agencies are taking steps to regulate e-cigarette use. The products are soon to come under the control of the Medicines and Healthcare Products Regulatory Agency, which will see them become regulated medicines in the UK in 2016.
Announcing this shift in regulation in June 2013, chief medical officer Sally Davies said: “More and more people are using e-cigarettes, so it is only right these products are properly regulated to be safe and work effectively.”
Hajek provided a qualifier to the announcement saying the agency will only regulate brands that make an application. “The [rest of the brands] will still be available under EU regulation. So, in an appalling display of misguided regulation, [this will] protect the much more dangerous product from being replaced by a much safer one,” he says.
Last February, the European Commission updated its rules around tobacco products, which included governance for e-cigarettes. It admitted that a number of decisions would be left to member states, including age limits, but included best practice guidance for both e-cigarette consumers and manufacturers.
Supportive of tighter regulation, Dee predicts insurers will be more willing to get involved in managing e-cigarette risks if this eventuates.
“If regulation can improve the safety of the product itself or – at a minimum – improve consumer knowledge about the product, then the impact may just be to drive out of the market producers who do not comply. In which case, while this will be seen as a positive, the insurance impact is likely to be low, assuming most manufacturers do comply,” he says.
“However, if regulation improved safety so consumers could be sure of a safe product, then it is likely insurers would be far more inclined to offer solutions.”
What is in e-cigarettes?
According to Electronic Cigarettes, a report commissioned by Public Health England, the two principal components in e-cigarettes are nicotine and propylene glycol. The government agency said propylene glycol is not known to have adverse effects on the lungs but has not been tested in models that simulate the repeated inhalation of vapour over many years, which users of e-cigarettes will experience. There is evidence e-cigarettes can contain toxic substances, such as small amounts or formaldehyde and acetaldehyde, and that in some cases the vapour can contain traces of toxic metals such as nickel and lead. While levels of these substances are much lower than in conventional cigarettes, regular exposure over many years is likely to present some degree of health hazard – but the magnitude of this is difficult to estimate