Insurers need to act now to protect their bottom lines against potentially catastrophic losses from nanotechnology - that is according to insurance research analysts Advisen.

Nanotechnology, which is the manufacture and manipulation of materials at molecular and atomic levels, has the potential for higher agricultural yields, reduced pollution, renewable energy sources, and cheaper water filtration systems.

But the risks associated with these new processes and materials are still largely unknown and insurance companies and risk managers are only now starting to address the liability and safety issues surrounding them, said a report released by Advisen.

Nanotechnology, which is a new approach to meeting the demands of global population, economic growth and energy and material usage, has a limitless number of applications and is already comparable in size to the biotechnology sector, with much higher expansion rates expected in the future.

A lack of insurance coverage for this technology, however, could stifle innovation and slow down the introduction of valuable new products.

"As more nanoengineered materials are developed, there is a growing concern about the knowledge gaps that surround the safety and health hazards of these materials," the report read.

"This lack of information could negatively impact businesses and become a major barrier to innovation. The magnitude of the impact depends largely on how the insurance industry ultimately responds to these emerging risks.

"By helping businesses manage the risks associated with product development, insurers can play an important role in stimulating innovation. Conversely, a lack of support by underwriters could severely hamper innovation and the introduction of important new products into the market.

"The risks associated with nanotechnology are potentially substantial. Growing evidence suggests that nanoparticles - the basic building blocks of nanotechnology and the tiniest materials ever engineered and produced - may pose environmental, health and safety risks."

The report found that the potential health effects of ultra-fine particles highlight the need for research, with a study published in the journal Nature Nanotechnology in May 2008 suggesting that nanotubes, a type of nanoengineered material comparable in shape to asbestos, could pose health risks similar to those resulting from asbestos contamination, the fibres of which cause lung disease.

The current exposure to manufactured nanoparticles is mainly concentrated in workers in nanotechnology research and in nanotechnology companies, with an estimated 20,000 researchers working in the field of nanotechnology in the US, and about 2,000 employed in such companies and universities in the UK, according to the Institute of Occupational Medicine.

Meanwhile a Yale University study reports that 80 percent of Americans have never heard of nanotechnology, and business in the consumer market do not advertise whether their products contain nanoengineered materials because they do not want bad publicity, said Advisen's report.

"The study published in Nature Nanotechnology comparing nanotubes to asbestos, among others, is worrisome for the insurance industry," the report continued.

"Asbestos contamination in the past has resulted in large employee claims and class action suits which resulted in large losses to asbestos producers and contractors, as well as to their insurers.

"While such an outcome is not yet predicted for nanomaterials, the unknown consequences of exposure and the uncertainty surrounding delayed reporting of large claims underscores some of the risks of the new technology."

The report concludes that underwriters will be required to address the potential risks arising from nanotechnology, with lines of insurance impacted by it including the likes of workers compensation, general and products liability, product recalls, environmental liability, property, and medical malpractice.

This will lead to underwriters needing to become more familiar with nanotechnology products and processes, be able to assess and quantify the risk, and establish the cause and effect relationships between exposure and damage.