Praedicat CEO: Emerging risks keep casualty lines under pressure

By George Abbott

Feb 14 - (The Insurer) - A sharp rise in interest rates has led to a slowdown in new mass tort litigation, according to Praedicat CEO Bob Reville.

However, emerging risks such as PFAS exposure, hair relaxer lawsuits and claims related to addictive software design continue to present challenges for casualty insurers, Reville told The Insurer TV.

Between 2016 and 2022, Reville said two to three new mass torts emerged each year, fuelled in part by the low interest rate environment. However, no new mass torts were initiated in either 2023 or 2024 after interest rates began climbing.

“In 2016 when all of this first started, there was a low interest rate environment, and the last couple of years, interest rates have gone up significantly,” Reville said. “While those original mass torts are going to continue to play out for several years, the risk environment is reduced a little bit.”

Despite the decline in new mass torts, Reville cautioned that litigation funding and increased sophistication among plaintiffs’ attorneys remain significant drivers of social inflation.

“There is an increased sophistication in the plaintiffs' bar and I do think that and litigation funding is driving a lot of this,” said Reville.

Emerging risks: PFAS, hair relaxers and addictive software design

Reville also outlined several key emerging risks that could continue to drive losses for the casualty market. These include:

• PFAS litigation: Claims linked to per- and polyfluoroalkyl substances, commonly found in products such as Teflon, Scotchgard and Gore-Tex, continue to rise. “Last year, we saw the largest number of PFAS claims ever, you’ve got more industries being hit and the number of claims increasing year over year,” Reville said.

• Hair relaxers: Lawsuits related to hair relaxers surged at the end of 2022, with more than 11,000 claims filed against a broad range of companies. “This is hitting a wide range of industries, whether it's personal care products or retail,” Reville noted.

• Addictive software design: Initially focused on social media companies, litigation targeting addictive software has expanded into online sports betting and video gaming. “You're seeing new industries that are getting caught up in these new mass torts that have no history losses,” Reville warned.

Sports and leisure claims drive reserve strengthening

Reville also highlighted the role emerging casualty risks have played in recent reserve strengthening moves by (re)insurers. He highlighted Everest’s $315mn adverse development in its sports and leisure book as an example of how casualty carriers are struggling to account for emerging risks using traditional actuarial methods.

“Everest mentioned in their announcement that some of their reserve strengthening was tied to their sports and leisure business,” he said. “Sports and leisure business is exposed to the increased repetitive head injury concussion claims.”