Costs to Remediate PFAS Water Contamination Could Hit $175B

A new report by Milliman estimates that PFAS remediation costs for U.S. water districts could reach as high as $175 billion, helping companies and insurers quantify the potential exposure.
By: | July 31, 2024
drinking water and PFAS

The total cost to remediate perfluoroalkyl and polyfluoroalkyl substances (PFAS) from drinking water systems in U.S. water districts could be as high as $175 billion, according to a new report by Milliman that delves into the challenges that these so-called “forever chemicals” present for insurers and corporations.

PFAS, a class of chemicals discovered in 1947, have gained significant attention lately due to their persistent nature and potential health impacts. PFAS are found in a wide range of products, from firefighting foam to nonstick pans to raincoats, thanks to their ability to resist heat, water, and stains. However, the strong carbon-fluorine bonds that make PFAS so useful also allow them to persist in the environment and migrate to drinking water and human bloodstreams, according to the report.

Exposure to PFAS has been linked to various adverse health outcomes, including cancers, liver damage, endocrine disruption, and immune system effects. Despite ongoing scientific debates, a substantial body of research has established these connections, resulting in extensive litigation, Milliman noted.

Since the first major PFAS-related lawsuit in 1999, the number of complaints has skyrocketed to over 10,000, involving almost 500 companies across many industries, the report stated. Known settlements to date exceed $16 billion, a figure that is expected to grow substantially as more complaints surface.

In April 2024, the U.S. Environmental Protection Agency (EPA) took a significant step by establishing a nationwide regulatory standard for PFAS in drinking water. The agency set maximum contaminant levels (MCLs) for various PFAS compounds, with the lowest MCL at 4 parts per trillion (ppt) for perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS). Water districts are now required to test for PFAS and remediate drinking water if levels exceed the MCLs.

Many water districts have already brought suits against chemical producers and other manufacturers, with significant settlements reached in the multi-district litigation (MDL) centered on contamination from aqueous film-forming foam (AFFF). As of July 2024, settlements with corporations related to water remediation in the AFFF MDL include:

  • 3M: $10.5 billion to $12.5 billion (final Approval in March 2024).
  • DuPont: $1.185 billion (final Approval in February 2024).
  • Tyco: $750 million (preliminary Approval in June 2024).
  • BASF: $316.5 million (preliminary Approval in July 2024).

As more water districts discover PFAS contamination and pursue litigation, the amount of affected districts and subsequent lawsuits is expected to grow, even for those that have already settled with the chemical giants but find other parties partially responsible for the contamination.

Challenges in Quantifying PFAS Liabilities for Insurers

Many insurers have been hesitant to quantify potential PFAS liabilities and set aside reserves for PFAS claims, often suggesting that PFAS liabilities are inestimable due to the difficulty in producing reliable estimates using industry-accepted methodology, according to Milliman.

Traditional actuarial methods, both triangle-based and those tailored for asbestos, pollution, and health hazards (APH), rely on stable historical claims data to predict future liabilities.

“The evolving nature of PFAS claims means there is insufficient historical data to apply these traditional methods effectively. PFAS-related injuries take time to manifest and possible exposure dates span decades, further complicating the use of conventional actuarial approaches,” the report’s authors stated.

Reluctance to quantify and reserve for PFAS liabilities also stems from uncertainties in the legal and scientific domains, Milliman stated. The development of case law regarding PFAS coverage is ongoing, with outcomes varying based on jurisdiction and the specific policy language.

“The Insurance Services Office rolled out forms that broadly exclude PFAS from various coverages, including commercial general liability, umbrella, and business owners in 2023 and some insurers had already developed their own exclusions a few years earlier,” the report stated. “While many policies today include PFAS-specific exclusions, older occurrence-based policies may only contain general pollution exclusions, or none at all, leading to disputes over coverage applicability.”

These ongoing coverage disputes make it difficult for insurers to estimate potential liabilities accurately. Additionally, the scientific understanding of PFAS exposure and its health effects continues to evolve, adding another layer of uncertainty.

Estimating the Cost of Drinking Water Remediation

To address these challenges, Milliman built a dedicated team that has spent years developing a proprietary model for estimating PFAS liabilities, following actuarially accepted approaches.

The model estimates the total expected cost to be between $120 billion and $175 billion, considering the presence of around 30 different PFAS compounds and relying on contamination thresholds utilized in the AFFF MDL.

The simulation results vary widely due to uncertainty surrounding key assumptions, such as the frequency of PFAS contamination and the cost of remediation systems. Factors that could materially impact the model assumptions include efficiencies gained in remediation technology, demand surge for remediation technology, water districts pursuing alternative strategies to meet remediation needs, and improved sampling methods that are more sensitive to detecting PFAS, according to Milliman.

It is important to note that this estimate should not be viewed as an insurance industry ultimate liability for PFAS, as some insurance policies are likely to be impacted by multiple types of claims that are not fully captured in this water district estimate, the report cautioned.

Milliman stated that by quantifying potential PFAS liabilities today, companies can develop strategies to mitigate the risk:

  • Understanding PFAS risk and the potential threat it poses to company value through ERM modeling.
  • Avoiding new PFAS exposure through effective pricing and underwriting on prospective policies and retrospective reinsurance coverage.
  • Reducing the likelihood of significant adverse reserve development in the future by considering PFAS liabilities in reserve estimates.

To view the full report visit Milliman’s website.

The R&I Editorial Team can be reached at [email protected].

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