Ineffective Oversight and Safety Enforcement Lead to Insurers’ Losses

by: Gloria Vogel, CFA

The debacles visiting BP plc (NYSE:BP), Toyota Motor Corp. (NYSE:TM), and Massey Energy Co. (NYSE:MEE) have one thing in common: lethargic oversight by federal agencies and their feeble attempts to enforce safety regulations.

Federal agencies intended to provide oversight and safety are routinely staffed with individuals that have or will be employed by the very industries they are supposed to be regulating. Additionally, there is no meaningful enforcement of existing regulations because of limited resources, a shortage of expertise, and most especially the lack of political will.

The unfortunate consequence of this is that insurers will be prime targets for the plaintiffs bar.

Insurers Need to be More Proactive in Loss Prevention

Insurers have always considered certain industries to be more hazardous than others, and they have consequently charged higher premiums for those areas. But, perhaps insurers need to review all risks again based on current safety experience and reputation. The recession has caused firms in many industries, more often than previously, to neglect safety standards. It appears that lax regulation and the absence of any enforcement of existing laws runs rampant within many industries.

Even where meaningful regulations exist, fines have been set so low that corporations treat them as an annoyance of doing business and just pay them. History has proven time and time again that large corporations are financially motivated to pay off their mistakes rather than take steps to prevent them.

Ultimately, in the absence of meaningful regulation, there will be regulation by litigation. Such litigation will unfortunately be costly to the insurance industry.

One area of loss prevention that has flown under the radar and will greatly impact insurers is the “wireless ecosystem.” This should not be confused with the much smaller commercial telecom industry. The wireless ecosystem encompasses all FCC licensees (federal, state, local, and commercial), site owners, property managers, contractors, third party workers, the utility industry, hospitals, school districts and universities, church organizations, REITs, and the insurance industry. In totality, it involves every person or entity that may be physically or financially harmed by RF radiation.

Right now insurers believe they have no problem, since there is presently a lack of conclusive evidence linking health risks from cell phones to cancer. However, RF exposure from cell phones and RF exposure from wireless antennas (hundreds of times more powerful), are two completely separate issues. There is already peer-reviewed scientific research (.pdf) linking RF radiation from wireless antenna systems to cognitive injuries -- and there is already established legal precedent for claims (AT&T Alascom v. Orchitt).

The insurance industry believes it has carved out telecom RF radiation exposure with exclusionary clauses, but this perception is wrong. Every stakeholder in the wireless ecosystem that may be financially harmed from RF radiation is on the hook, especially insurers.

Those claims will come from third-party workers – roofers, painters, electricians, etc. – who are regularly put in jeopardy by having to work in close proximity to wireless antenna systems (500,000 governmental and commercial in the U.S.) without the means to protect themselves from RF radiation. Unfortunately, third-party worker over-exposure will ultimately cost the insurance industry dearly.

To protect the financial interests of the insurance industry against long lasting RF radiation over-exposure claims, litigation, and large payouts, all participants within the wireless ecosystem must first be protected from the physical or financial harm of RF radiation.

To accomplish this goal, insurers should support a new paradigm: a comprehensive national RF safety protocol that will ensure all workers have the necessary training, certification and dynamic site specific safety information to protect themselves from RF radiation at every wireless transmission site in the United States.

Indeed, insurers need to be more proactive in loss control measures for all high-risk industries – transportation, mining, energy, telecom, pharmaceutical, etc. They need to take an active role in establishing better safety procedures and monitoring methodologies that will more effectively prevent losses. The insurance industry needs to do more to protect workers, customers, and shareholders.

Disclosure: No positions