Emerging Risks With Long Tails

Brokers and risk managers should prepare for possible claims many years from now related to climate litigation and "forever chemicals."

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In recognizing some of the latest emerging risks, it would be wise for risk managers to review their policy retention practices. The obvious consideration is how long policies should be kept. Other considerations include whether all policies should be kept the same amount of time, how accessible they should be and what is the best way to store them. Risk managers should consult with their legal and compliance colleagues as well as their brokers and professional associations to determine what is best for their situation. 

Imagine what it was like in the '70s and '80s when the courts were changing the intended meaning of “sudden and accidental pollution” in commercial general liability (CGL) policies. Companies were being sued and having to remediate years of environmental harm from pollutants that had been seeping from their industrial sites.

Risk managers needed to amass the company’s insurance policies dating back over many years so they could make claims to one or various insurers from whom they had coverage during those years. If they did not retain their policies or these were hard to find, they would turn to their broker. However, the brokers involved were not always able to find these old policies, either, due to having been involved in numerous mergers and acquisitions over the years or due to their own ineffective retention practices.

It was quite an uncomfortable, expensive, and time-consuming time for companies, brokers, and insurers. Ultimately, the industry adopted the absolute pollution exclusion in CGL policies, and insurers started offering stand-alone environmental covers. Asbestos claims created the same type of need to gather policies from years past. Out of this debacle, a relatively new type of service firm came into being: insurance archaeology.

There are two new risk phenomena that could create the same type of need to gather policies from years past. 

The first phenomenon is climate litigation. With the growing acceptance of "attribution science," it looks likely that companies of all sorts could be litigated against for having had a detrimental effect on the climate, resulting in floods, fires and other catastrophes. For those unfamiliar with attribution science, one explanation is, “Climate attribution science aims to establish the relationship between anthropogenic emissions and specific extreme weather events. Progress in this field is allowing claimants to better pinpoint and quantify the environmental impact of projects, policies and laws.”In other words, “Attribution science really is this idea that you can go in and examine the climate models and you can run different essentially alternate universes that ask, “What would have happened in our normal climate before global warming? How often would you see a Category 5 storm hit the Gulf Coast? Or how often would you get a million-acre wildfire in California?” Thus, a plaintiff will posit that if were not for CO2 emissions from XYZ company’s operations, or other potentially climate-affecting actions, a loss event would not have happened. 

An S&P Global paper states, “We believe the volume of climate litigation may continue to grow, as may the impact of associated juridical decisions in the policies, commitments, finances -- and even business models -- of defendant organizations. Investors are likely aware of the growing body of climate litigation and how it could affect the value-at-risk in their portfolios."

The second risk phenomenon is forever chemicals, also known as PFAS. PFAS is short for perfluoroalky and polyfluoroalkyl substances and includes chemicals known as PFOS, PFOA and GenX, created as early as the 1940s. These chemicals do not easily break down and last for long periods in whatever they are treated with or ingested by. 

According to CNN, “A study from 2007 by the U.S. Centers for Disease Control and Prevention estimated that PFAS chemicals could be detected in the blood of 98% of the U.S. population.”

See also: Navigating the Future of Risk Management

They were used in some food packaging, pots and pans, paints, water repellents, cosmetics and other commonly used products. Today, they can be found in water, in soil and in us. Studies conducted in mice have indicated that such chemicals can cause a variety of health issues.

If or when there is a clear link between these chemicals and specific human health cases, not only the chemical manufacturers but also those that sold the products made with the chemicals could be sued, thus unleashing a tsunami of insurance claims by affected parties. 

The emerging risks will create a need to gather policies for the years leading up to the litigation to see what coverage may apply.  Hence, the need for making sure these documents will be available for review is real and present.


Donna Galer

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Donna Galer

Donna Galer is a consultant, author and lecturer. 

She has written three books on ERM: Enterprise Risk Management – Straight To The Point, Enterprise Risk Management – Straight To The Value and Enterprise Risk Management – Straight Talk For Nonprofits, with co-author Al Decker. She is an active contributor to the Insurance Thought Leadership website and other industry publications. In addition, she has given presentations at RIMS, CPCU, PCI (now APCIA) and university events.

Currently, she is an independent consultant on ERM, ESG and strategic planning. She was recently a senior adviser at Hanover Stone Solutions. She served as the chairwoman of the Spencer Educational Foundation from 2006-2010. From 1989 to 2006, she was with Zurich Insurance Group, where she held many positions both in the U.S. and in Switzerland, including: EVP corporate development, global head of investor relations, EVP compliance and governance and regional manager for North America. Her last position at Zurich was executive vice president and chief administrative officer for Zurich’s world-wide general insurance business ($36 Billion GWP), with responsibility for strategic planning and other areas. She began her insurance career at Crum & Forster Insurance.  

She has served on numerous industry and academic boards. Among these are: NC State’s Poole School of Business’ Enterprise Risk Management’s Advisory Board, Illinois State University’s Katie School of Insurance, Spencer Educational Foundation. She won “The Editor’s Choice Award” from the Society of Financial Examiners in 2017 for her co-written articles on KRIs/KPIs and related subjects. She was named among the “Top 100 Insurance Women” by Business Insurance in 2000.

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