Q: It's hard for me to believe but it's been 10 years since you launched Praedicat. How have emerging risks changed since since you began the company?
Bob Reville: It's not clear that emerging risks have changed as much as the environment in which emerging risks are emerging have has changed. In many ways, the same risks or same types of risks are out there as were there 10 years ago. Some of the things that we were tracking 10 years ago are emerging today or are still waiting in the wings. There's still a lot of issues associated with how companies have engaged in business practices, or there are products or chemicals or substances that might result in bodily injury and property damage or environmental damage. Science is continuing to investigate these things. They get to a point of maturity, and then sometimes they emerge as litigation. So the story is the same. But what has changed is that the emerging risk environment — the frequency with which new mass torts, new mass litigation is initiated — is much more serious than it was 10 years ago. When we started in 2012. I remember we would talk to people and they would say, we don't really think issues like asbestos will ever occur again, that today, they were more worried about things like Deepwater Horizon, or they were worried about Lac Megantic, Quebec, the train derailment, that those were the types of risks the casualty was facing. Then starting in about 2015-2016, you started seeing the rise of the roundup litigation and the opioid litigation, the repetitive head injury litigation, and talc and now PFAS. One after another, almost annually, pretty large scale mass litigation emerging. That's a very different environment. It's raised the profile of liability — emerging risks. It's raised the urgency of addressing it and and it's raised the importance of what Praedicat to the market for the clients we work with.
Q: What do you see as the major emerging risks facing the industry today?
The number one casualty emerging risk right now is definitely PFAS. That is the per- and polyfluoroalkyl chemicals that you know as things like Scotchgard, Teflon and Gore-Tex. It's the chemicals and polymers that are used to create stain resistant fabrics, nonstick pans, and food packaging, and even things like cosmetics. Scientists have in fact been tracking them for four decades. That goes back to your question earlier about what's changed. PFAS was a problem. We had it in our first 10 risks in 2013 as one of the things to be worried about. But about 2018, it really accelerated as new litigation. It was the firefighting foam litigation initially, which is one of the applications of PFAS. And that combined with with some water contamination issues in a few places have accelerated to increasingly involve water contamination in more places all around the country, with more defendants affecting more industries — and also products starting with things like firefighting gear, but into other kinds of products as well. Given the size of the industrial footprint associated with the with the types of chemicals and polymers involved, and the number of years in which they've been produced, the potential to produce very large scale losses for the insurance industry is a very significant issue, that we're working with all of our clients on how to understand how much exposure they have in their portfolio and how to address it going forward in underwriting.
Q: Are there emerging risks that you're following that aren't on most companies radar yet?
There's always emerging risks that we're following that aren't on company's radar yet. The way our system works is we're looking to try to identify emerging risks in the scientific literature at the earliest possible stage — when the first few articles are being written by scientists that are investigating that some chemical or product might cause bodily injury or environmental damage — we then try to bring them onto our clients radar. So one, for instance, that we have been looking at recently is Fipronil. It's an interesting emerging risk.
Fipronil is a broad based insecticide. It's used in agriculture, turf products, and the like. It's most prominently used for veterinary treatments for things like flea treatments. The larger background here is that in recent years, even before COVID, more and more people were adopting household pets. Then during COVID, the number of people adopting household pets accelerated. Along with more household pets, comes more fleas, and with more fleas, comes more flea treatments. And all of a sudden, we're finding more and more Fipronil in the environment.
Last year, the United States Geological Survey came out with a report that found elevated levels of Fipronil in water in 20% of the locations where they were testing it. It was the first time they detected this in their history of testing for it. That is a very worrisome emerging risk. The science is relatively new around what Fipronil might do if we're exposed to it in water or in food. There seems to be some science suggesting it could be developmentally toxic, or neurotoxic. If this issue continues, there could be litigation over the water contamination or potentially product contamination or a number of different areas. So Fipronil would be an example of something that's almost certainly not on anybody's radar yet.
Another issue that we're tracking that is on more and more companies radar — and is a much larger scale issue, but still, before litigation, and not necessarily an area where a lot of insurers have prioritized it as a major emerging risk — is the issue of microplastics. Microplastics are the breakdown material from plastics. As of about 10 years ago, there was a lot of science that was beginning to investigate microplastics in the ocean. That was the earliest research and concern about what we're going to do about the growing amounts of plastics in the ocean. That led to research about well, gee, it's found also in seafood. And seafood is then consumed by birds and birds are consumed by animals, and maybe it a bioaccumulates. So maybe it gets in our bodies — and then the science began to find, oh, if it gets in our bodies, it may cause bodily injury. The first human study just came out about a month ago, that found evidence that microplastics were associated with irritable bowel syndrome. That's on top of a lot of animal studies investigating other ways in which microplastics might cause bodily injury. Then they find that microplastics are actually in the air and not just in the ocean. And they find that that's actually caused by tire dust, and brake pad dust are major causes of urban air microplastics. So they start to investigate — is there an issue of microplastics in our lungs? And lo and behold, they begin to find some evidence in animal studies that there's issues in lungs too. Then they begin to find that it gets picked up from air, and not just from urban areas, but also from ocean action, where the waves can cause the microplastics to get picked up by wind and then carried all over the globe. They're finding microplastics in the Arctic, basically everywhere, and they're finding it in our bodies. And recently, a study came out that found microplastics in the placenta.
And all of this is basically the fastest moving science over anything that we've been tracking since we began just to give you a sense of this. Since inception, the literature has had about 5,000 studies that are investigating the environmental presence of microplastics and the potential for bodily injury associated with microplastics. Out of that 5,000 studies, 2,500 of those studies were published last year. So that is an incredibly fast moving scientific literature which creates real risk of potentially needing to hold the companies liable for the environmental damage they've done by creating a lot of plastics that can't be handled well through recycling and end up in our environment. Then also through contamination of products from microplastics.
As well, there was a recent study, for instance, that found that the sludge that is leftover after sewage treatment ends up containing high amounts of microplastics. And that sludge is then used as fertilizer and agriculture, and trees, pick up the sludge, and it ends up with microplastics in apples. So the scope of the plastics issue is something that a Praedicat we've been referring to as the next climate. It's something that is a very widespread environmental risk that has, in fact, put more potential for insurance losses associated with it — because of the way in which it's driving direct bodily injury, potentially. I would say PFAS the major risk that's in litigation and microplastics is the major risk that's waiting in the wings.
Q: Could you address ESG? Is that do you see that as an emerging risk?
I see ESG as an emerging risk in one sense, it certainly is an emerging risk in D&O because a lot of companies are increasingly making promises that they will meet certain goals for carbon emissions in future years. They're being increasingly forced to disclose their carbon emissions as well, and they may not meet those targets. They may then be accused of greenwashing, and that may lead to litigation in the future over the failure to meet the environmental targets. So that's a risk. But really, more than anything else, I see ESG as an opportunity for the insurance industry. That is because more and more insurers are trying to think about how to use ESG to guide the P&C insurance business. What that to me indicates is an an opportunity to align better the insurance business with what are actually long standing practices of casualty underwriting. One of the things that we talk about Praedicat is that the original ESG is casualty underwriting.
Casualty has been for decades trying to understand what it is that corporations are doing that might be hurting their customers or hurting the public or workers and they use that in underwriting to determine how much limit to offer, what kind of premiums to charge. And then along comes ESG, which really is driven initially from investors, when ESG starts to come into insurance to drive first of all investments, but other ways in which it can drive the business. All of a sudden, I think insurers are rediscovering that they have a lot of insight relative to ESG and their casualty businesses. And the more that can steer the business as a whole, the more it becomes an opportunity for P&C insurance overall. So I look at ESG as a big opportunity for insurance and not as a risk.
