Measurement of U.S. Tobacco Liabilities. A Burning Issue or Just Smoke?

The purpose of this paper is to provide background information about tobacco use, litigation and related diseases. It also provides a conceptual framework for developing an exposure-based model to estimate insurers" U.S. exposure to tobacco liability. A description of the model building process, the parameters required and sources of data that can be used in the analysis are included. The analysis focuses on modeling the underlying costs for individual smoker illness and death. Considerations for including other types of litigation amounts (e.g., health care reimbursement and class actions) are discussed less extensively. Issues affecting potential insurance coverage are addressed, as well as those surrounding the reflection of reserves in financial statements. The paper stops short of developing the specific model and values for its parameters.