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Global Risk predictions

Regulators around the world will continue to focus on PFAS 

Growing environmental concern and awareness of the risks associated with PFAS (forever chemicals) will lead to an increase in claims by employees, consumers and the general public. Regulators around the world need to focus on the potential health risks caused by PFAS products both to those employees manufacturing the products and the ultimate consumers. PFAS are used in a wide range of commercial and consumer products such as cosmetics, textiles, furniture and food wrappers, but do not break down in the environment. Additional risks are posed by the unsuitable control of waste material containing PFAS leading to contamination of water sources. Manufacturers are already required to remediate pollution and damage caused by PFAS across Europe and in the US, following events such as environmental contamination from firefighting foams. From a casualty claims perspective, if causal links can be established between exposure to PFAS and personal injury in the US, then discussions around possible injury claims in the UK may follow. However, the prospect of widespread large numbers of PFAS injury claims in the next year remains low, with any immediate risk of UK litigation being directed at damage caused by PFAS environmental contamination as seen in the US and Europe. 


Will there be an uptick in sports-related injury claims?

Sports-related injury claims will remain high on the agenda in 2024. Developments in medical science around the risk of sports-related brain injuries through concussion and other head trauma, as well as recent key decisions in respect of career-ending injuries, continue to draw attention to these claims. The decisions in Tylicki v Gibbons and Fulham Football Club v Jones have provided additional clarity and increased awareness about the duties to sporting competitors, and the subsequent risk of claims for injury following incidents in differing sporting arenas. Beyond competitor-related incidents, the high-profile brain and head injury group claims against rugby union’s governing authorities progressed in December 2023. Similar actions involving football and rugby league related head injuries will also likely progress throughout 2024. These matters will continue to create discussion over the responsibility of governing bodies and sporting organisations to protect sports people from long-term injury risk 


RAAC - cladding equivalent or more millennium bug? 

Despite initial panic, how many claims will actually be made against building contractors regarding Reinforced Autoclaved Aerated Concrete (RAAC) in 2024? It is a material that mimics cement rather than concrete, and was always accepted as having a relatively short life expectancy. Was it negligent to use RAAC in the 1960s and 70s? Many prospective claims will be time barred, even under the Defective Premises Act. 30 years only takes us back to 1994. Most RAAC was in place well before then and it wasn’t often used in dwellings. We predict that the issue will be more ‘millennium bug’ and not result in a significant volume of sustainable claims against those involved in the original construction. 


Further exclusions for war and cyber operations will emerge 

We predict further exclusions will be circulated and this topic will continue to generate controversy. At the time of writing, 29 ‘approved’ clauses have been published by the LMA, and we know of more to follow. In addition, there may be as many variants that have not been published. This represents a huge change since the first LMA clauses were finalised in November 2021. Despite their proliferation, the clauses have yet to resolve all issues to the satisfaction of all participants in the cyber market. While we expect convergence over time, we anticipate that further iterations will yet emerge as the issues are debated. As and when the clauses result in judicial interpretation, in whatever jurisdiction, further scrutiny can then be expected. 


UK companies and directors will remain under the microscope for the activities of subsidiaries and their supply chains 

While a parent company is not automatically liable for the wrongdoings of its subsidiary, a series of recent decisions in the Courts of England and Wales (culminating in the 2021 case of Okpabi v Royal Dutch Shell plc) have made it clear there are various circumstances where the parent company might inadvertently assume responsibility for its subsidiary. Companies are at the same time being required to monitor and address human rights and environmental risks along their supply chains. Last summer, the Dyson Group successfully resisted a novel and ground-breaking claim by Malaysian factory workers who accused Dyson of unjustly benefitting from forced labour conditions while they worked for a company manufacturing components in Dyson’s supply chain. The High Court’s finding that there was insufficient connection to England to allow the claim to continue will no doubt have come as a great relief for UK company directors, but unquestionably the obligations and responsibilities of parent companies are under intense scrutiny. 


We predict more focus on the definition of terrorism 

One of the definitions of terrorism commonly incorporated into insurance policies derives from the Terrorism Act 2000. This immediately gives rise to issues: the definition in that Act has twice been amended and this is often not reflected in clauses adopted. It is materially different from the definition in the Reinsurance (Acts of Terrorism) Act 1993 which set up Pool Re. These definitions also differ from the terms used in other jurisdictions, including the Terrorism Risk Insurance Act in the USA. Some definitions require a declaration by a government body (such as the Articles for the MIB, which require a certificate to be issued by HM Treasury). Other definitions do not have this requirement, though a government declaration would likely have evidential weight. These all predate the emergence of state-backed terrorism as a concept. Recent events may put this into sharp focus. Clarity and consistency on this topic are essential if coverage disputes are to be minimised. 


New life in old PFAS and opioid claims yet 

Coverage discussions surrounding long-standing claims notifications arising from the use of/exposure to PFAS (perfluoroalkyl/polyfluoroalkyl substances) and opioid related exposures will move forward in 2024 after years of stasis. On PFAS, the latter half of 2023 saw settlements progressing and accelerating in relation to the first phase of the Aqueous Film-Forming Foams (AFFF) Products Liability Litigation in North Carolina. Those settlements will lead to distributors and manufacturers of AFFF products calling on their insurance carriers for coverage. The settlements will also naturally prompt a shift of focus from the current wave of water supplier plaintiffs to the next wave of individual plaintiffs. At the same time, in the long running opioids saga, the US Supreme Court heard oral arguments in December on whether Purdue Pharma’s Chapter 11 Plan of Reorganization is appropriate (focusing on whether the Plan can survive with the non-consensual third-party releases that the Sackler family has insisted on in exchange for their contribution of billions of dollars to the plan). If the plan is again approved, Purdue and its creditors committee will then look to progress the extant coverage disputes with its foreign (Bermudian and European) insurance carriers that have been sat in abeyance as the plan worked its way through the US bankruptcy system.


The glyphosate debate, and litigation, seems set to continue 

Prospective regulation and litigation will continue to keep glyphosate on the agenda for insurers in the next year. Glyphosate is the world’s most widely used herbicide, despite the World Health Organisation describing it as “probably carcinogenic” in 2015. In the US, recent awards of $175mn and $300mn in compensatory and punitive damages against Bayer in California to those bringing claims in relation to its weedkiller, Roundup, will cause apprehension for manufacturers of like products and their insurers. However, proposed legislation in the US may prevent similar claims in the future. Pre-emption measures in the Agricultural Uniformity Labelling Act would make the Environment Protection Agency the sole US authority on pesticide labelling and packaging requirements, reducing states’ capacity to implement their own restrictions and subsequent prospect of litigation. While there are no significant examples of glyphosate litigation in Europe, an ongoing class action in Australia involving 800 plaintiffs may change that, with a judge-only decision likely to be more persuasive than decisions in US jury trials. 


Aloha to climate change exclusions 

The evolution of climate change litigation means the prospect of a claim for damages against a defendant for its contribution to climate change is no longer far-fetched. The immediate risk to liability insurers is the exposure to defence costs for this type of litigation, as seen in the claim brought by Aloha Petroleum against its insurer under its commercial general liability policy. The claim follows the insurer’s refusal to pay costs incurred in Aloha’s defence of the underlying action relating to the alleged impact of fossil fuel production on the Earth’s climate and communities in Hawai’i. One key question currently before the Hawai’i Supreme Court is whether greenhouse gas emissions constitute “pollutants” for the purposes of the pollution exclusion. We would expect liability insurers to start addressing this uncertainty through the use of exclusions specific to climate change. 


Biodiversity risk will move centre stage in 2024 

While it may have been waiting in the wings of the ESG space in 2023, we predict the spotlight will fall on biodiversity risk this coming year. This is based in part on the publication in September 2023 of the recommendations of the Taskforce on Nature-related Financial Disclosures, providing companies and financial institutions with a risk management and disclosure framework to report and act on nature-related issues. Biodiversity risk also sits in the slipstream of climate change risks and will benefit from a general increase in awareness, despite being a separate risk focused on the direct harm we cause our environment and nature. For liability insurers, new laws and regulation will widen the scope for claims and litigation risks. But the big question is whether we will follow other jurisdictions, such as New Zealand, Canada and Colombia, in giving legal personhood to natural objects, such as rivers and forests. The risk of reputational harm should also not be underestimated. 


Social inflation will grow in Europe 

While social inflation has been somewhat of a paper tiger in Europe in recent years, we may now see it start to affect insurance pricing across the continent. Some of the key drivers associated with the phenomenon, such as punitive damages and civil jury systems, remain largely irrelevant in Europe. However, the implementation of Representative Actions Directive increases the likelihood of class actions across an increasing number of claim types. Public sentiment on issues such as greenwashing, climate change and corporate mismanagement will generate increased awareness of and claimant involvement in class actions. Although third party litigation funding in Europe may be the subject of further regulation, this is indicative of an expected increase in its use. These factors are all consistent with increasing social inflationary trends, and insurers will need to be mindful of their exposure.


Regulation of European litigation funding will progress 

Formal proposals for the regulation of third-party litigation funding in Europe will become clearer in 2024. In October 2022, the European Parliament made recommendations to the Commission for the introduction of minimum standards for funders, including a limit on sums that could be paid from settlements or damages to funders. Progress has been slow, with the Commission needing to balance the desire to prevent abusive claims with the crucial role that funding can play in promoting access to justice. By comparison, the UK’s litigation funding market remains largely self-regulated on a voluntary basis, with funders currently focused on the implications of the Supreme Court’s decision in PACCAR. Our guess is that the regulation in Europe, when it comes, will be relatively light touch, so as not to strangle the growth of mass actions for consumer claims now provided for by the Representative Actions Directive. 


Bermuda renewal pricing will remain hard in light of polycrisis 

Several macro-economic global factors, combined with weak investment and the absence of new capital, will mean that Bermuda re/insurance renewal pricing will continue to harden in 2024. Issues such as high inflation, the lingering effects of COVID-19, extreme weather events, the war in Ukraine and escalating tensions in the Middle East are affecting investment appetite. Despite the Bermuda market being historically robust when faced with unexpected events, the complex and interconnected nature of the current global landscape will continue to pose a unique risk. We expect that underwriters’ efforts to maintain profitability will mean that renewal pricing in the next year will continue the upwards trend. 


Lithium ion batteries at sea: an ever growing risk for marine insurers 

2024 will see a continued increase in fires on container ships, with lithium ion (li-ion) batteries a main contributor. There is an inherent risk associated with such batteries being carried at sea and the rise in demand should be at the forefront of marine insurers’ minds, especially in cargo classes. Li-ion batteries can release energy after trauma, increases in temperature, overcharging, exposure to water or cell faults due to manufacturing defects. The Global Battery Alliance anticipates a year-on-year industry growth of 25% by 2030. This is expected to lead to an increased risk of untested ‘counterfeit’ battery production, with manufacturers/consignors either intentionally mis-declaring cargo to avoid trade restrictions or negligently applying the wrong label. If mislabelled batteries are stored next to other dangerous goods, any energy release can be catastrophic to the vessel, crew on board and other cargo. If larger consignments of li-ion batteries are exposed to water, the resulting chemical reaction can produce extremely combustible by-products which act as an accelerant. Sometimes, without suitable extinguishers, the only effective way of eliminating the fire is to allow the li-ion battery to self-extinguish, which can take several days. This highlights the very high level of risk associated with carrying li-ion batteries. 


Extreme weather events will continue to disrupt and divert supply chains 

As climate change continues to alter weather patterns, intensifying extreme weather conditions and causing prolonged periods of drought, global shipping routes will continue to face significant disruption as inland waterways become impassable to all but the shallowest-drafted ships. Key pinch points such as the Panama Canal continue to operate at reduced capacity. As delays increase, we will likely find some cargoes being diverted either to multimodal alternatives or via longer routes, changing (and in some cases increasing) both the cargo and hull risk for those journeys.


Political rains down in Africa 

Political upheaval on the continent may drive political risk claims. The past three years have seen multiple coup d’etats in Africa, culminating in the ousting of the Gabonese president, Ali Bongo Ondimba, in August 2022. Political change, especially when driven by populism, brings with it significant risk for foreign investors. New regimes can have differing views to those with whom investors have dealt previously – including the respecting of private rights of ownership. New regimes may also seek to justify their ousting of prior governments on the, often unjustified, basis of fraud and corruption – with successful investors seen as relatively easy targets for a quick domestic political win. These are all unwelcome developments for investors and for political risk insurers who may have insured against the risk of confiscation, expropriation, nationalisation and deprivation by host governments. 


Ukrainian shipping route indirectly increases risk of political violence in developing nations 

Political violence risk increases the longer the Black Sea corridor remains exposed. Pre-war, Ukraine was one of the world’s leading exporters of grain in the world, especially to developing nations. It provided more than 50% of the UN’s World Food Programme supply of wheat grain in 2022, to help people in Afghanistan, Ethiopia, Kenya, Somalia, Sudan, and Yemen. With the status of the Black Sea Grain Initiative still unclear, those in developing nations face significant uncertainty around food security – especially as the impact of climate change affects domestic harvests. Increased civil unrest related to a government’s (in)ability to feed its population is a significant risk as the war in Ukraine continues. Whether the corridor reopens will be watched keenly by underwriters in both the political violence space and political risk (as those seeking power may seek to take advantage of impending humanitarian catastrophe for their own ends). 


Vigilance needed regarding potential deliberate acts of food contamination 

Insureds and, by extension, product liability/recall insurers will need to ensure that robust procedures are in place across the entire food supply chain to protect against potential acts of sabotage and terrorism. The risk of spill over from geopolitical events is significant. Reactions of those watching events unfold in the Middle East and Ukraine are often visceral, especially in the social media age. With this comes the increased risk of radicalisation of individuals thousands of miles from the epicentre of events; the acts of these radicalised individuals are, regrettably, often unpredictable. The risk of terrorist action is not limited to direct attacks on individuals or property – history has shown that it is necessary to be wary of the indiscriminate targeting of civilians through the deliberate introduction of contaminates into the food chain. 


Increased global instability will exacerbate already difficult coverage assessments 

Global geopolitical instability and the increase in large scale protests around the world mean that underwriters writing terrorism and/or political violence cover should be nervous about exposures over the next 12 months. Recent events in the UK show how even peaceful protests can lead to civil disturbances by a small number of those taking part. For property damage resulting from these events, determining whether losses fall to a certain policy rather than another can be a difficult and very fact-intensive assessment. Some terrorism clauses are so broad that damage one would not expect to be considered terrorism could be caught. Similarly, an insured whose property is damaged by protesters may, depending on the specific circumstances, find losses falling outside of cover due to a strikes, riots and civil commotion exclusion. Both insureds and insurers would be well advised to check existing policies and consider whether additional cover should be sought/provided in future. 


The insurance market will continue to develop new forms of cover for war risks 

Generally speaking, insurance of war risks has been confined predominantly to marine and aviation hull, although there are classes which may be viewed as adjacent, such as political risk, political violence and terrorism. Cyber underwriters in the Lloyd’s market have been specifically directed not to write state-backed cyber-attacks. While not an absolute ban, engagement with Lloyd’s is required for such risks to be written. Developing war risk products is not straightforward. There are different ways to approach this topic. One option may be to develop a simple buy-back for policies which otherwise exclude war. Another option is to adopt a parametric trigger, based, for example, on disruption to critical national infrastructure. With the escalation in geopolitical risk, the need for insurance solutions has become more pressing. 


Is there scope for parametric triggers in cyber (re) insurance? 

We predict that a cyber loss index is only viable with cross-border co-operation and government imposed reporting obligations. There would need to be wide agreement that data should be submitted to a single entity. This would require an obligation to participate, rapid responses, processing and publication of consolidated data. A common approach to data privacy would also be essential. In light of these obstacles, another model is for a single company to assess whether cover has been triggered, based on agreed objective standards and its own metrics. Intangic has undertaken interesting work in this area and we watch their progress with interest. Another issue is whether a cyber loss index could trigger exclusions rather than cover. This might be part of the solution to alleviating regulators’ concerns about state-backed cyber-attacks. We anticipate further innovation as the market grapples with these challenges.

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