We introduce a continuing series exploring emerging risks and their potential impact on property/casualty insurers with an in-depth look at the complex issues raised by the increasingly popular e-cigarette (also called vapes). Be sure to read the other articles in the series. You'll learn about the potential risks posed by legalized marijuana and 3D printing.
Knowing the risks e-cigarettes may pose
E-cigarettes have begun to garner attention for both the new and the old risks they pose as they gain popularity in the United States and worldwide. Often marketed as smoking-cessation tools or smokeless alternatives to cigarettes, e-cigarettes are battery-operated devices that vaporize liquid mixtures of nicotine, flavorings, and other chemicals into an aerosol to be inhaled.
Unsafe varieties of the devices are often manufactured inexpensively in China, where they're not produced in conformance to international safety and quality standards.
Cheap e-cigarettes may even carry pirated symbols to falsely represent compliance with the European Union's Restriction of Hazardous Substances Directive or the U.S.-based UL seal.
E-cigarettes pose numerous and still-developing perils and coverage issues. Below are a few potential areas of concern:
- Most e-cigarette products are powered by lithium-ion batteries. This battery may present a fire hazard, either because it's of a cheap variety or because it's overcharged. The hazard has been deemed significant enough that the U.S. government has made it illegal to stow an e-cigarette in a commercial airliner's cargo hold.
- The liquids vaporized by e-cigarettes can be toxic if directly ingested. There have been reports of children being sickened by drinking these juices.
- Vaporizing the liquids doesn't appear to make them completely safe, as often the process releases harmful chemicals. While the dosages of toxins may be less than those consumed by smoking conventional cigarettes, they can still pose health risks. The chemicals may include benzaldehyde (an organic compound containing the carcinogen benzene) and diacetyl, which has been linked to lung disease.
Plaintiffs' lawyers and regulators have begun to take notice of the potential risks. There have already been reports of lawsuits and settlements related to the health and safety risks posed by using e-cigarettes. And the Food and Drug Administration (FDA) has recently extended its regulatory authority over e-cigarettes and their manufacturers after deeming e-cigarettes tobacco products.
Complex issues are raised with respect to shops that sell e-cigarettes, especially because of various potential risks and the regulations governing e-cigarettes. Some businesses not only sell these products but also blend their own varieties of e-liquids, in which case they may be regulated as both retailers and manufacturers.
The potential for a confusing, dual regulatory regime mirrors the unanswered questions facing insurers and their customers as to appropriate ways to classify such businesses when issuing a policy: Is it a manufacturing facility, a retail establishment, or both? And if a commercial policyholder such as a car wash operator sells e-cigarettes yet tells its insurer that it sells small electronics in addition to washing cars, will an underwriter know to ask the right questions to establish that the business is selling e-cigarettes?
It's not clear yet whether vaping will prove to be a fad or a long-term trend eating into the traditional tobacco market. But in the years since sales began, 3.7 percent of the U.S. adult population has reported trying e-cigarettes, of which 20 percent were Americans aged 18 to 24. Sales topped $2 billion in 2014.
A market this big and growing this quickly won't evaporate overnight despite the risks and regulations. And it's likely to cause liability concerns for the foreseeable future.
William (Billy) Mauro is director of Commercial Casualty Product Development at ISO, a business unit of Verisk Insurance Solutions. He can be contacted at William.Mauro@verisk.com.