Property & Casualty Insights
Social Inflation’s Impact on Environmental Risk Management
SEPTEMBER 3, 2024
Social inflation refers to the rising costs of insurance claims due to shifts in societal attitudes, an uptick in the frequency and severity of lawsuits, and higher jury awards. This growing trend has far-reaching implications for environmental liabilities, manifesting in several critical ways:
- Surge in litigation — There is a notable increase in lawsuits pertaining to environmental issues as communities and advocacy groups become more proactive in holding corporations accountable for environmental harm. This heightened litigation results in escalating legal costs and larger settlements.
- Increased public awareness — With public concern for environmental issues on the rise, companies find themselves under greater scrutiny from consumers, investors, and activists. This societal demand for accountability can lead to a surge in legal actions and claims against businesses.
- Emerging environmental concerns — New issues, such as plastic pollution and contaminants like phthalates and polyfluoroalkyl substances (PFAS), have taken center stage in public discourse. Companies may face liabilities associated with these emerging threats as public sentiment drives legal actions.
- Reputations at stake — The instant nature of social media means that companies can quickly encounter public backlash over environmental missteps. This can significantly elevate their financial exposure.
Social inflation fosters an environment where environmental liabilities are more common and costly, prompting businesses to adopt more rigorous environmental practices and risk management strategies, along with secure risk transfer solutions.
Environmental Risks Across Industries
Environmental liabilities can differ significantly across industries due to variations in operations, waste generation, and environmental impacts. Holistic coverage tailored for specific sectors is increasingly available. For mid-sized businesses, general liability and pollution coverage solutions are growing areas in environmental insurance, providing essential protection against uncovered liabilities at manageable costs.
Key Environmental Risks in 2024
While traditional environmental risks like leaking underground storage tanks and oil spills remain prevalent, new contaminants are emerging as significant contributors to overall claim volume and severity. Here are some critical issues to watch in 2024:
Phthalates are chemicals found in a wide range of consumer and industrial products, including food packaging, toys, construction materials, textiles, and cosmetics. Their ubiquity has led some to nickname phthalates “everywhere chemicals,” and they are facing heightened scrutiny. Regulatory bodies such as the Environmental Protection Agency (EPA) and Food and Drug Administration (FDA) are implementing stricter regulations, and recent lawsuits underscore the legal risks associated with these chemicals. Organizations must proactively reduce exposure and ensure compliance with evolving standards.
Vinyl building products, primarily made from PVC, are raising concerns due to the release of toxic substances throughout their life cycles. Businesses are encouraged to assess their use of these materials and adopt risk management strategies that align with new regulatory expectations.
Polyfluoroalkyl substances (PFAS), also known as “forever chemicals,” are synthetic chemicals that have been widely used in industrial and consumer products for decades. During production and use, PFAS can migrate into the air, soil, and water — and because of their persistence in the environment, they continue to be a major concern. Organizations must identify sources of contamination and implement strategies to mitigate risks associated with these substances. The tightening regulatory environment around PFAS makes proactive management essential.
Ethylene oxide is a colorless gas used in the manufacturing process of various products. It poses significant risks, particularly in the medical industry, due to its carcinogenic potential when airborne. Recent EPA regulations on air emissions intensify the need for vigilance and compliance in industries utilizing EtO.
The Path Forward
These trends in environmental liability underscore the urgent need for best practices across all industries. With stricter regulations and a more informed public, organizations face greater potential liabilities, and the growing threat of social inflation is compounding the problem. The trajectory of environmental insurance in the U.S. reflects a timely response to these changes, providing companies with a safety net against environmental hazards. By prioritizing risk management strategies and addressing potential liabilities, organizations can enhance their environmental stewardship, safeguarding both their financial health and reputation.
How USI Can Help
At USI, we empower our clients through:
- Comprehensive environmental profiles — Identifying operational exposures to help quantify and qualify their impact, guiding appropriate risk management and insurance solutions.
- Customized risk mapping — Delivering formal risk maps that outline the frequency and severity of fines, penalties for noncompliance, spill events, and toxic tort liabilities.
- Advanced risk modeling — Utilizing sophisticated Monte Carlo analytics to forecast potential liabilities over extended periods.
- Strategic insurance solutions — Developing effective environmental risk insurance strategies for acquisitions or divestitures, facilitating transactions while protecting corporate assets.
For further information, reach out to your USI representative or email us at pcinquiries@usi.com.
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