On April 10th, 2024, per- and polyfluoroalkyl substance (PFAS) regulations reached a critical inflection point. The date marks the finalization of the first-ever national and legally enforceable drinking water standards to protect human health and the environment from PFAS. These regulations have been proposed and in a period of commentary since H.R. 535 was announced in 2020. Almost four years later, they are a reality and stand to pose significant changes to how we do business in the United States.
This development marks a pivotal shift in how financial institutions, such as insurance, can support businesses through risk transfer programs. The environmental insurance marketplace, which offers products with coverage such as remediation, bodily injury, and property damage for contamination, stands to see the most flux in the availability of terms.
The Origins and Implications of PFAS
PFAS are a diverse, large, and complex class of compounds that have been used since the 1950s to facilitate the heat, oil, and water resistance of commercial and household products. Examples include (but are not limited to) nonstick cookware, stain-resistant fabrics and carpets, water-repellant clothing and footwear, food and beverage packaging, and fire-fighting foams.
PFAS research and awareness (as recently as 2016/2017) have elevated the necessity for an approach to remove, mitigate, and inhibit the exposures of these compounds to human health and the environment. These chemicals and compounds are pervasive, do not naturally degrade, and are incredibly hard to break apart or destroy due to the solid bonding of the molecular structures.
Additionally, they have been found to be a carcinogen (cancer-causing), and in many cases have been found to adversely affect neurological development and potentially disrupt human systems at their base (DNA) level. There are no agreed-upon remediation techniques for impacts to the environment (specifically water), though there are many trial cleanup efforts that show promising results using one or a combination of methods such as carbon-filtering, reverse osmosis, and ion-exchange. Additionally, studies have shown that PFAS is impacting the human population at a cellular level, and data from case studies has suggested that an estimated 98% of the human population has these compounds in their blood.
Regulations In-Brief (2024)
In 2024, the United States Environmental Protection Agency (US EPA) accelerated its 2021 PFAS Roadmap with several key actions aimed at managing PFAS environmental impact and PFAS liability:
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The EPA introduced three methods to better detect and measure the types and amounts of PFAS in the environment. These methods help prepare for the standardization of drinking water limits for these compounds.
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The agency expanded its reporting rules under the Toxics Release Inventory (TRI) to include an additional seven specified PFAS compounds, requiring companies to report how these chemicals are used, stored, and disposed of.
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The EPA finalized a rule that prevents companies from starting or resuming the manufacture or processing of 329 PFAS that have not been either made or used in recent years. Companies can request exceptions from the EPA, but these will only be granted after a detailed review and risk assessment.
February 2024:
- The EPA released two proposed regulations under the Resource Conversation and Recovery Act (RCRA), adding nine PFAS to the list of RCRA hazardous constituents. These regulations outline specific regulatory obligations and remediation requirements by the EPA (or authorized state's authority) for these substances. This rule established strict liability for the nine PFAS in the proposal.
April 2024:
- The EPA established a national and legally enforceable drinking water standard for PFAS aimed at protecting 100 million Americans (1/3 of the estimated population in the United States).
"As the first-ever Safe Drinking Water Act standard for PFAS - and the first for any new contaminants since 1996 - this rule sets health safeguards and will require public water systems to monitor and reduce the levels of PFAS in our nation's drinking water, and notify the public of any exceedances of those levels. The rule sets drinking water limits for five individual PFAS, including the most frequently found PFOA and PFOS. Because PFAS can often be found together in mixtures, EPA is also setting a limit for any combination of four PFAS, including GenX Chemicals. This standard will reduce PFAS exposure in our drinking water to the lowest levels that are feasible for effective nationwide implementation."
- The White House via "FACT SHEET: Biden-Harris Administration Takes Critical Action to Protect Communities from PFAS Pollution in Drinking Water"
What's Next for Pollution Insurance?
Recent years have not only accelerated regulations for PFAS, but also the frequency with which insurers (and, as a result, reinsurers) are reviewing this set of compounds as an untenable risk. The uncertainty about the future of regulations has become less murky with the passing of the recent regulations. As a result, more insurance companies have increased understanding of the implications of PFAS in their long-term, legacy, and current capacities across an aggregation of policies. Now that there are national standards for drinking water in place and in knowing the implications of legal action for bodily injury, property damage, and remediation associated with PFAS, the litigation around these compounds is only expected to progress.
There is more certainty regarding the ability to track, report, and analyze PFAS, which enhances the ability to regulate and enforce initiatives for protecting human health and the environment. Ironically, these advancements have provided less certainty regarding the insurability of PFAS within the pollution insurance marketplace. This uncertainty has resulted in various (often inconsistent) techniques in an attempt to acknowledge the large-scale impacts PFAS are having and can have on future losses for these books of business.
Insurability of risk in this sector is largely based upon the historical performance of an insurer's appetite and approach to risks. This takes shape in a macro sphere via reinsurance support of those approaches. Therefore, the road ahead is expected to be fraught with change and the result is that most pollution markets have been increasingly restrictive for PFAS. Specifically, any coverage availability is largely non-existent when PFAS is known to have been used or is currently used in operations by policyholders.
As these new regulations take effect, insurers are anticipated to become more consistent in their approach to limit significantly or inhibit PFAS altogether when it comes to specific risk classes. However, PFAS is just one portion of potential risk in the environmental gamut of exposures and there will continue to be significant value to, and availability of, environmental products offered throughout the industry.
Using PFAS as the example, it's clear that science is an evolution and the U.S.'s approaches to protecting human health and the environment are constantly changing. There will always be a need for environmental insurance coverage, and as the future of PFAS becomes clearer with improved management of these compounds through these new regulations, the availability of PFAS insurance solutions may expand again. Now that we've reached this regulatory milestone, the story of PFAS in the insurance industry has just begun.
This post is a part of the PHLY E&S Environmental services on protections and liabilities for environmental risks. The information contained herein is for discussions and informational purposes and is not intended to be a full disclosure or complete analysis of the liabilities or risks posed to insured(s) in the marketplace. For additional resources and information, please visit the following websites:
