This past month, the Biden administration announced a three-year plan to regulate and reduce the use and spread of PFAS, while also doubling down on cleaning up PFAS already released into the environment. These toxic chemicals are widely used in many consumer and industrial products and are linked to numerous serious health conditions. Due to their broad use and damaging effects, PFAS pose a significant risk and liability concern for the companies associated with them and the insurance industry.
Some industry experts herald the growing PFAS exposure as a liability risk that will rival that of asbestos (which represents over $16 billion in claims and over $11 billion in losses for property and casualty insurers over the past 5 years). Though it is too early to accurately project the long-term financial impact of PFAS, if we use asbestos as a reference point, the risk—and subsequent cost—will be significant.
What are PFAS?
PFAS (per and polyfluoroalkyl substances) are man-made chemical substances used in the manufacturing of products resistant to fire, water, and stains. PFAS is an umbrella category that encompasses thousands of different chemicals (including PFOA and PFOS) used in the United States since the ‘40s to make many of the products we use daily: food packaging, cosmetics, steam-resistant rugs and furniture, cookware, firefighting foams, sports gear, and much more.
Why should consumers be concerned?
PFAS are often called “forever chemicals,” because they degrade very slowly in the environment. Due to their very broad application in everyday products and their resilient nature, PFAS exist in varying concentrations virtually everywhere around us—our soil, groundwater, water sources, and food supply.
What’s most concerning is that once PFAS are introduced into a person’s bloodstream, they never break down but instead continue to accumulate over time. Some estimate that up to 98% of people have some level of PFAS in their bodies, and this exposure is linked to many health concerns, including certain cancers, infertility, reduced birth weight, high cholesterol, thyroid disease, and Type 2 diabetes.
Individuals, cities, and states filed numerous PFAS-related lawsuits over the past several years against chemical companies and product manufacturers. Lawsuit claims range from pollution and environmental impact to sickness, disease, and other health issues.
What’s being done about PFAS?
Concerns about the safety of PFAS are not new, and environmental and public health advocates have long-called for regulators to pay closer attention to the mounting crisis that PFAS pose. The recent Biden Administration announcement is a long-awaited response to those calls for action. The plan proposes a joint-effort from the EPA, Defense Department, FDA, and Agricultural Department to tackle PFAS on multiple fronts—from regulations on PFAS usage, rules against PFAS dumping, national testing strategies for food and water supply, and cleanup efforts for contamination sites.
Although these new regulations will curtail the introduction of more PFAS into the environment, the long-lasting nature of PFAS will have significant impact for decades to come.
What effect does this have on the insurance industry?
Insurance companies can expect to see the number of PFAS-related claims rise, as more government regulations and restrictions go into effect and more litigations hit the courts. Insurance companies will also continue to face the difficult decision of how to best assess and place these “forever chemical” risks, while PFAS become more challenging to underwrite.
Financially, the potential impact to the insurance industry isn’t clear, but if PFAS really are “the next asbestos,” as some predict, the cost would be significant. The estimated litigation costs alone to chemical companies is at least $2 billion, which doesn’t include potential liability for companies who used PFAS in the manufacturing of their products or companies that sold or used products made with PFAS.
“Once these regulations are propagated, there will be a tsunami of litigation,” says Canaan Crouch, Managing Director of Jencap Specialty Insurance Services. “In terms of toxicity, the proposed regulation model is around 70 parts per trillion. To give you an idea, that’s like one drop of PFAS in an Olympic-sized swimming pool.”
How can PFAS impact the insured?
Given the widespread use of PFAS, companies with any sort of connection to these chemicals—chemical companies, manufacturers, retailers, etc.—could be held liable for the negative impacts PFAS have on health and the environment. As regulators and courts start paying closer attention to PFAS and their long-term effects, these companies will be scrutinizing their existing insurance policies and guarding themselves as best as possible against any potential for litigation.
General Liability policies often have exclusions for pollution. Given the broad-reaching impact of PFAS, a growing number of carriers are introducing exclusions for them as well. Environmental and pollution-specific policies vary from carrier to carrier and may include coverage for things such as remediation and clean-up. However, even some environmental carriers are also choosing to specifically exclude PFAS from policies to avoid costly risks, making it more difficult for companies to find appropriate coverage.
Carriers will need to consider policies on a case-by-case basis to help clients explore their options. In some instances, depending on risk, exclusions may be unavoidable, but there still may be the possibility for cost-cap policies that cover pollutants, within certain parameters.
Jencap’s specialty brokers and underwriters have industry-leading knowledge about PFAS and know how to properly navigate the current marketplace landscape and keep our clients covered. Our teams have environmental engineering backgrounds and have dedicated their insurance careers to the environmental marketplace. Contact us today to tap into the power of the Jencap platform.
