Asbestos and Mesothelioma Cause Big Losses for Property and Casualty Insurers

Illustration of legal cases for asbestos and mesothelioma

U.S. property and casualty insurers continue to suffer financially as a result of increasing asbestos losses—and there’s no predicted end to the rise. The grand total has amassed to $100 billion, up $15 billion from the previous estimate.

“The continued evolution of asbestos medical effectiveness through improved therapies, emerging drug combinations, and early diagnosis, combined with ever-evolving litigation strategies, continues to make it difficult to put finality on the ultimate costs associated with asbestos liabilities,” said an A.M. Best report.

The payouts are going to individuals who were exposed to asbestos. For many, they now have or are at risk to develop mesothelioma cancer. The most common types of asbestos exposure are military, commercial, industrial, second hand, and talc.

Mesothelioma requires drugs that can cost more than $120,000 per individual annually. The median gross income for American households is $52,000, yet many insurance companies expect families to contribute up to 30% of the total cost of cancer treatment.

The treatments are so costly because cancer is a life-threatening disease that compels patients and caretakers to act immediately. Plus, the imminent mortality (anywhere from years to months) prompts people to use the best medicine and procedures to cure the disease.

Many people also prefer brand name versus generic drugs, believing that there is a zero-sum choice between life and death with money no longer being a factor. Furthermore, rescue drugs and secondary procedures like stem cell or bone marrow transplants are often necessary to offset the negative effects of certain treatments.

Many of these cancer drugs don’t have alternatives and it’s costly for the pharmaceutical companies to make them in the first place. Getting them from other countries for cheaper is out of the question as federal regulations prohibit it.

A.M. Best thinks ultimate property and casualty insurance industry losses could reach $142 billion for asbestos and environmental (A&E). Since 2006, the industry has paid out more losses ($16.7 billion) than it has incurred ($13.5 billion).

“The P/C industry continues to incur approximately $2.1 billion in losses per year while paying out nearly $2.5 billion,” said A.M. Best.

The annual incurred A&E losses have increased and decreased in past years. For example, up 10% in 2015 and down 20% in 2014. But in 2015, asbestos losses went up 3.6% and environmental losses had a large jump up 33%.

According to A.M. Best, “With no way of knowing where the end is, and given the total funding for the industries’ asbestos losses has now reached nearly $85 billion, it is clear that the asbestos issue will continue for years to come.”

Travelers ($824 million), Chubb/INA ($311 million), and Liberty Mutual ($280 million) are the top loss payout companies. A.M. Best believes A&E reserves will be depleted within seven to eight years if no additional reserve strengthening takes place.