Praedicat’s Reville: PFAS tops list of industry casualty risks
Per- and polyfluoroalkyl substances (PFAS) are “without a doubt” the number one risk facing the casualty sector, according to Praedicat’s CEO and co-founder Bob Reville, who expressed concerns that the industry is not doing enough to look out for emerging liability risks.
Speaking to The Insurer TV, Reville explained that Praedicat, a risk analytics company focused almost exclusively on liability risks, has been looking at the long-term impact of PFAS, or so-called forever chemicals, since 2013, but positioned it as a “top risk” in 2016.
Fast forward to 2023, and Reville pointed to several large and high-profile settlements that the industry should view as a warning of the potential impacts of PFAS-related litigation.
“In the last year, you've seen the $10bn to $12bn settlement from 3M, which got a lot of insurers’ attention as they were seeing something that was able to produce that size of a loss. It’s likely that not all of that's going to go to insurance, it's unclear how much of it will be covered by insurance,” he said.
“But in addition, you saw some large settlements from DuPont and Chemours, and you've also seen a big increase in attorneys general cases, which starts to make it look not just like a bodily injury and water contamination litigation, but also a public nuisance litigation, like you had on opioids,” he explained.
While discussing the industry's level of preparedness for the incoming PFAS storm, Reville was forthright in his view that the sector was not ready.
“Well enough prepared? I'd say no,” he said.
But Reville acknowledged the majority of PFAS-related exposure resides in prior years. “I think that there are a lot of accumulations, there's a lot of legacy, a lot of which will surprise the industry, and I think that has the potential to go poorly for some companies,” he added.
Reville added that he “would like to see the industry in general preparing farther in advance for emerging risks”.
But he praised the “real innovation” he’s beginning to see around how the industry manages and views PFAS risk.
“What I'm finding with PFAS is a lot more innovative approaches to risk selection and managing the risk. I think they are doing a better job of managing this risk now than they would have done five years ago. And they're much smarter about it, and it gives me a lot of optimism about future emerging risks as well,” he added.
However, he did not view a total exclusionary approach as the way forward for the industry.
“I know of one insurer where the company wanted to put in place a broad exclusion for PFAS. And the chief underwriting officer's perspective on it was that it was just going to be rejected by the market, and that they were going to lose a lot of business,” he explained.
The way forward, according to Reville, is a greater focus on “data and modelling and aggregation management”, which in his view differentiated the PFAS issue from that of asbestos as casualty exposure modelling is now “available”.
Modelling and collaboration
While on the subject of exposure modelling, Reveille touched on Preadicat’s latest model, the Nekomodel, explaining that it brings the detail of “catastrophe modelling to casualty”, approaching “large-scale correlated” casualty risks like PFAS as if they were a “hurricane or an earthquake on property”.
Preadicat’s Nekomodel tracks over 250 emerging casualty risks. Unsurprisingly, one of the major risks that has been factored into the Nekomodel is climate change, which Reville said is presenting a number of litigation challenges.
Reville predicted that casualty climate risk will manifest in litigation related to “historic greenhouse gas emissions”, citing Oregon’s Multnomah County’s $1.55bn suit against fossil fuel industry defendants for having caused heat waves.
In June, Praedicat and Aon announced they had broadened their strategic collaboration, with the broker set to benefit from a range of new tools through the tie-up to help better inform its client base on emerging liability risks.
“There is a wide range of areas where we are collaborating,” he said. “A lot of our early work with [Aon] now is about helping to inform reinsurance buying decisions with the best emerging risk information, and being able to have a sense of how much limit you should buy.
“On top of that, though, we're engaging in a bunch of collaborations around climate, and then we're launching a collaboration in November around legacy and run-off.”
He added: “We're expecting to try to bring a bunch of modelling and analytics to legacy and run-off to increase the way in which that sector can provide a risk management option for clients who have to manage the time tail and not just the size tail risk.”
Watch the 9-minute video interview with Praedicat’s Bob Reville to hear more on:
- The part that ILS has to play in the casualty space
- How Praedicat wants to treat casualty like cat
- The 250 emerging risks the Nekomodel tracks
- The risk of climate change-related litigation