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Critical Environmental Exposures Move Indoors, and 5 Other Risks to Watch

Loss trends indicate that indoor pollutants impacting air and drinking water quality will be top concerns.
By: | February 28, 2019 • 6 min read

In 2018, many liability lines of insurance experienced increases in both claim frequency and severity. According to Jon Peeples, Vice President of Underwriting, Philadelphia Insurance, the environmental market was no different.

“Last year, the industry saw an uptick in claims related to several historic environmental risks, including mold and Legionella, as well as an increase in the value of those claims,” he said.

“In general, concern over indoor pollution issues like poor air quality and tainted drinking water are taking prevalence over concerns about outdoor pollution. That’s the biggest change I’ve seen reflected in loss trends over the past few years.”

In the year ahead, he expects that shift to remain a force determining environmental underwriters’ top exposures. Here are the top five environmental risks underwriters will be watching this year:

1. Mold Gets Harder to Mitigate

“We saw a significant increase in the frequency and cost of claims associated with mold damage,” Peeples said.

It’s a problem especially prevalent in multi-habitational facilities, hospitality and healthcare sectors in 2018.

Wet weather is a primary culprit behind the uptick. The hurricanes of 2017 followed by record-setting rainfall through the summer of 2018 made for a very damp year. If such severe weather continues, mold claims will likely continue to increase in frequency.

According to Peeples, the hotel industry has also become more aware of how its environmental coverage can be triggered to pay for expenses related to widespread mold remediation. Unlike apartment complexes, hotels can cordon off entire banks of rooms to inspect for mold and recover cleanup costs from a pollution policy.

“One mold event can result in multiple claims if an entire wing is closed for inspection. When you factor in the potential business interruption loss associated with that closure, mold claims can become big ticket items,” Peeples said.

“In general, concern over indoor pollution issues like poor air quality and tainted drinking water are taking prevalence over concerns about outdoor pollution. That’s the biggest change I’ve seen reflected in loss trends over the past few years.”
— Jon Peeples, Vice President of Underwriting, Philadelphia Insurance

2. Legionella Will Become a More Difficult Risk to Insure

Jon Peeples, Vice President of Underwriting, Philadelphia Insurance

Legionella continues to be an issue, especially in healthcare. Facilities like hospitals and nursing homes require large, complex water systems, which can become breeding grounds for highly transmissible Legionella bacteria. Patients with weakened immune systems are particularly susceptible to developing Legionnaire’s disease, which can be fatal.

While the risk isn’t new, it is becoming more challenging to underwrite as consolidation continues to reshape the healthcare sector. “Mergers and acquisitions over the past five to 10 years have resulted in mega-health organizations that include a mix of operations, from primary care physician offices to senior care facilities and emergency clinics to dental offices.”

For environmental insurers with one of these organizations in their portfolio, aggregated exposure to Legionella claims could stretch their appetites, especially since “these claims can be catastrophic if death occurs,” Peeples said. If M&A activity keeps up its current pace, underwriters may be forced to curtail coverage.

3. Consequences of PFAS Exposure Have Only Just Begun

The adverse health effects of decades-long use of per- and polyfluoroalkyl substances (PFAS) are now evident, and bodily injury claims are spurring landmark lawsuits against parties known to have produced or discharged these substances. Touting heat-, water- and grease-resistant properties, PFAS have been used in the manufacture of a number of household goods, as well as firefighting foam.

“These chemicals seep into the groundwater when sites like military bases and airports discharge fire repellant,” Peeples said.  “People ultimately ingest these substances through drinking contaminated water.”

PFAS exposure bio-accumulate, which can result in birth defects, immunological disorders, disease of the liver and kidneys, hormone imbalances and even cancer. The EPA hosted a national leadership summit in May of 2018 to begin developing cleanup strategies, though no agreed-upon techniques have been put forth.

Though the pathways of liability are still being determined, increased awareness of the issue will likely drive more lawsuits and more companies seeking recourse from environmental insurers.

4. New Construction Spurs New Round of Asbestos Claims

The long tail of asbestos-related claims may be getting longer. Economic recovery over the past several years precipitated a boom in renovation and redevelopment.

“When you tear down old, walls, you’re likely to find something inside,” Peeples said.

Many existing structures still have asbestos-containing materials in their walls, ceilings and floors. Left undisturbed, they pose no threat. Demolished in the course of a renovation, however, these materials quickly become toxic dust.

“Most asbestos claims today arise from someone inadvertently damaging that material and releasing asbestos into the air. In a multi-unit building, every other tenant becomes a potential third-party claimant,” Peeples said.

5. Lead Contamination is Tough to Contain

Flint was just the beginning of America’s water contamination crisis. Lead is turning up in drinking water across the country thanks to the degradation of lead pipes supplying smaller municipal, commercial and residential buildings. Several major cities including Detroit, Philadelphia and New York have already reported high levels of contamination after tests of their school districts’ drinking water.

“In older structures that are under three stories tall, the feeder pipes connecting the plumbing to the water main are typically made of lead. If alkalinity builds up in the water, it erodes the lining of the pipe and lead seeps into the water supply,” Peeples said.

“They’re being replaced slowly but surely, but in the meantime it’s unknown how many people are potentially drinking lead-contaminated water. It’s likely that lead-related claims will see a resurgence.”

What does this mean for insureds?

Like other lines suffering significant losses, environmental underwriters may react by raising deductibles or self-insured retentions, introducing exclusions for specific contaminants, or in some cases, exiting the market altogether.

But it’s not all about terms and conditions and policy pricing. Environmental insurers will also be purveyors of critical risk management resources that help clients minimize the likelihood of a loss.

“We have environmental awareness training modules that are available online for our clients, as well as sample preventative plans for mold and Legionella,” Peeples said. “We also have two outside consulting firms available, at preferred rates, to review our clients’ potential exposures and offer prudent advice on how to handle these concerns.

“But most importantly, we have internal experience and expertise. With about 30 dedicated underwriters, we are one of the larger teams writing environmental coverage. And we’ve been growing as a rate of about 10 percent per year for the last four years. That makes us flexible, nimble and accessible,” he said. “Regardless of how other markets react, we have the resources and knowledge to stay committed to this space as trends develop.”

To learn more about Philadelphia’s environmental products and services, visit https://www.phly.com/Environmental/default.aspx.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.




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