Reinsurance News

PFAS posing a number of challenges for casualty re/insurers: KBW

27th October 2023 - Author: Jack Willard

A growing concern for some re/insurers is the rise in PFAS chemicals, with water supply cleanup costs potentially set to exceed the $400 billion figure, which suggests that it could become the industry’s “next asbestos” according to AI insurance tech firm, Praedicat’s CEO and co-founder, Robert Reville.

KBW LogoThis stems from a KBW report on a webinar they recently held with Praedicat’s Reville and Senior Scientist Adam Grossman, where they discussed the challenges that PFAS pose to casualty re/insurers.

PFAS are a group of human-made chemicals, typically including carbon-fluorine bonds, with widespread use in many modern products.

Although they have been used for years, re/insurers have increasingly been focusing on PFAS in recent years, with a significant influx of new litigation since 2016, which comes in light of the chemical’s reported environmental and health impacts.

Moreover, PFAS chemicals have been increasingly associated with bodily harm, including cancers, high cholesterol, diabetes, and obesity.

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In the report, Reville cited Praedicat’s estimate of $24 billion of bodily injury claims over the next 20-30 years, with a 1% PML of $148 billion, although the P&C industry’s insurers’ share of those claims remains unclear.

Reville also explained that water supply cleanup costs could potentially exceed $400 billion, which led him to suggest that PFAS is potentially the industry’s next asbestos. He also noted that most PFAS should fall under general liability and environmental liability coverages, with a much smaller number of expected claims against D&O policies.

Moving forward, Reville listed a number of potential lines of industry defense against PFAS-related claims, which includes pollution exclusions and statutes of limitation.

According to KBW, these, as well as other defense’s will likely vary considerably based on individual claims and individual policies’ language and in their view, predicting the resulting court decisions verdicts is “close to impossible” although the firm noted that it expects millions of dollars of defense costs.

KBW also stated that it expects insurers to incorporate tougher policy exclusions, including specific product exclusions.

The investment banking firm also explained how although quantifying the industry’s exposure and ultimate costs will take time, one near-term manifestation of PFAS-related concerns is a “tightening casualty reinsurance market”.

KBW suggests that this reflects reinsurers’ increasing concern over primary insurers’ potential exposure, and how they see this as a prominent example of many reinsurers’ concerns about social inflation.

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