Insurers Refuse to Inhale the Liability Risk of Vaping
It’s hard to believe it today, but cigarettes were once lauded as a good thing. “Give your throat a vacation,” one 1930s advertisement reads. “Smoke a FRESH cigarette.”
For the first half of the 2oth century, cigarette manufacturers flourished. Then, in 1964, U.S. Surgeon General Luther Terry issued a definitive report that linked smoking cigarettes with lung cancer.
Everything changed. Not overnight, of course, but over the course of the next 50 to 60 years, cigarette smoking has waned with only 14% of the population considered regular smokers. Health risks are printed on the label. Images of disease-ridden smokers are plastered across boxes. We, as a society, know the risks.
But now we have e-cigarettes.
E-cigarette use in the U.S. is growing year over year, and as an alternative method of nicotine consumption, they are attracting a whole new generation of users as well.
According to the CDC, youth are more likely to use e-cigarettes than adults. In 2018, data showed that more than 3.6 million U.S. middle and high school students used e-cigarettes, including 4.9% of middle school students and 20.8% of high school students.
Other key stats include:
- Only 2.8% of U.S. adults are current e-cigarette users.
- Among adult e-cigarette users, 58.8% also are current regular cigarette smokers, 29.8% are former regular cigarette smokers and 11.4% had never been regular cigarette smokers.
- Data collected in 2015 by the CDC shows that e-cigarette users aged 45 years and older were either current or former regular cigarette smokers, and 1.3% had never been cigarette smokers.
- In contrast, among 2015 e-cigarette users aged 18–24 years, 40% had never been regular cigarette smokers.
Much like what happened with cigarettes back in the 1930s-50s, vaping devices — one of the more popular types of e-cigarettes — are being marketed as a good thing, a “healthier” alternative to smoking cigarettes. But recent events are starting to prompt questions on just how safe vaping actually is.
The number of lung injury cases linked to vaping has jumped to 1,299 and deaths to 26 as of Oct. 10, according to CDC data. Of the reported deaths linked to vaping, 21% are young adults, aged 18 to 21. Early symptoms of lung injuries include coughing, shortness of breath, fatigue, chest pains, nausea, vomiting and diarrhea. Several studies are underway to find what exactly is causing such cases.
The Major Risks of Vaping
Vaping is proving a huge liability risk. Lawsuits on behalf of young consumers have been filed against e-cigarette makers, Juul Labs Inc in particular, and others are expected amid increasing scrutiny, reports Reuters.
“Liability insurers are very cautious about e-cigarette manufacturing risk,” explained Joe Cellura, president, North American casualty, Allied World. “At this juncture, manufacturers will have a very difficult time convincing insurers to support the liability exposure resulting from health risk.”
Cellura predicts that as more litigation comes to light, it is likely to resemble the legal road tobacco companies faced in the 1980s and 90s, including allegations of negligent manufacturing, product liability, negligent advertising and violation of state consumer protection statutes.
It even has some retailers backing out of selling e-cigarette products all together.
“Juul, which has the majority market share in e-cigarettes, announced it is no longer selling its fruit and dessert flavors,” said Jasmine Hilario, vice president, product manager, excess casualty, AXA XL.
“An increase in lung disease and death, which has been alleged in the media in the last [few] months, is of critical concern,” said Cellura. “It has already dramatically impacted the stock of major producers and caused great concern to insurance underwriters.”
But the physical health impact is just one aspect of vaping risk concerning insurers. Mechanical product malfunction and behavioral risk are also top of mind.
Mechanical product failure can lead to severe bodily injury, explained Hilario. Some vaping and other e-cigarette products have been known to explode, harming the user or starting fires in a consumers home or vehicle.
“The explosion of some devices have led to fires. Sometimes it happens in a car or at home, potentially triggering auto or homeowners insurance,” said Hilario.
On the behavioral side, “some have suggested the use of the product while operating machinery or automobiles may lead to a higher incidence of accidents,” said Cellura. Though, more studies will have to be conducted to know to what extent impairment occurs.
Insurance and the Rise of Vaping
The good news is that the insurance industry has kept a keen eye on the rise of vaping devices and other alternative nicotine delivery technologies for years.
“A significant social, legal and public health battle has existed over the regulation of e-cigarettes from 2009 through 2015, beginning with global bans on the technology,” said Cellura.
“Eventually, over years of court battles, the regulation was weakened to a web of loose state-by-state rules, as the large tobacco lobbies were able to build a social case that e-cigarettes were a tool to help people quit smoking.”
Cheryl Krebs, vice president, product line manager, excess casualty at AXA XL, added that “several years ago, AXA realized that this is something to keep on our radar. E-cigarettes were being marketed as an alternative to smoking, and we knew we had to take the underwriting steps to keep pace with this emerging risk.”
To contend with growing litigation and regulatory changes, both Cellura and Krebs noted that the industry has been watching to see what happens next.
The CDC is currently conducting research to find the concrete link between lung disease and vaping. Several U.S. states have banned the sale of flavored e-cigarettes in the last few months, while the city of San Francisco has banned the sale of e-cigarettes altogether. President Donald Trump jumped into the fray last month, as well, stating his administration would ban the sale of flavored e-cigarettes nationwide.
“When AXA XL recognized this to be an exposure several years ago, we reviewed our portfolio for potential e-cigarette exposure and took steps to address it. We continue to monitor how the litigation evolves, as well as the actions that lawmakers are taking to address e-cigarettes,” explained Krebs.
“Within the industry, the Insurance Services Office also recognizes the potential risks associated with e-cigarettes and is introducing exclusionary policy wording,” she said. “It’s expected that insurers will assess whether to adopt or create similar policy language.”
“Liability risk mitigation is usually achieved through transparent disclosures and contractual protections,” said Cellura. “Mitigating the risk of bodily injury from use of the product will probably take more time and research to determine.” &