Companies turn to environmental cover as regs take hold and rates fall: Marsh

Many middle-market companies that historically may not have bought environmental insurance are showing interest in the coverage, the research found. Following implementation of the European Union's (EU) Environmental Liability Directive (ELD) in 2010, increased regulation is one of the drivers of this surge in interest, according to Cliff Warman, environmental practice leader for the EMEA region at Marsh. Mr Warman said that across global markets, buyers are prompted to purchase environmental liability coverage for different reasons.hideIn the US, for example, insurance buyers are often motivated to purchase environmental cover because of fears about litigation, he explained, while in Asia-Pacific environmental threats are often are viewed as operational risks. But in Europe, buying is more often driven by regulation and changes in legislation, said Mr Warman. Companies in industries deemed at high risk of environmental or pollution events - such as those in the power and gas sector, for example - have long bought environmental liability protection, said Mr Warman. However, more companies in less high risk industry sectors - such as real estate, logistics and transport - increasingly now buy coverage, he added. There are three main drivers of this growing interest in cover, Marsh explains in the report. Firstly, pollution had been the historical trigger for many environmental insurance coverages. There had often been elements of pollution cover in other insurance policies, meaning it was not always necessary for risk managers to buy specific environmental protection. But the ELD made the environment a third party and mandates that if an operator causes damage to the environment it must provide funds to remedy that damage. Companies also are expected to try to prevent environmental damage, Mr Warman noted, and those costs, as well as coverage for other risks such as business interruption, can now be included in an environmental liability policy. Secondly, as regulators across Europe have grown more powerful, so the size and number of potential claims have increased, Mr Warman said. The Marsh report, entitled Environmental Market Update, cites an example of a fire in a sodium chlorate plant that caused pollution to a river and destruction of the surrounding natural habitat. The cost of cleanup for that event was about €10,000, Marsh said. A similar event today would cost about €4m, it argued. "Clearly, under the current environmental liability regimes put in place to protect the environment, the liabilities of businesses have increased by between ten to 40 times, with costs of cleanup being defined with reference to an environmental baseline of environmental quality," the report states. The third reason for growing interest in specialist environmental insurance is that buyers increasingly understand the potential gaps in their coverage, Mr Warman noted. For example, while other policies might include coverage for sudden and accidental pollution, the wider scope of the ELD compared with previous regulatory regimes means that buyers may feel their existing coverage is not extensive enough for the potential risks, he said. "We are seeing an uptick in the uptake of environmental liability insurance," explained Mr Warman. Clients are looking for larger limits because they perceive the risk to have increased and are able to take advantage of stable or soft market conditions to get good value for their money, he added. Most environmental liability policies are written on a claims-made basis, rather than occurrence-based, Mr Warman explained. Often, he said, when buyers come to renew a policy they buy a larger limit. A significant number of buyers are choosing to purchase multi-year policies of three or five years' duration, rather than buying annually renewable coverage, added Mr Warman. In recent years, the number of insurers underwriting environmental coverage has increased, Mr Warman said. Marsh now has a base of 16 markets with which it can place coverage. There is a competition in the market and additional capacity is helping to drive rates down, Mr Warman said. For many renewals of multiyear coverages, for example, rates are going down by "up to tens of percent," he added. It remains to be seen how Britain's exit from the EU will affect the ability of buyers to have all their sites throughout Europe covered by a single policy, Mr Warman said. Under the current EU freedom of services regulations, buyers can have all operations throughout the EU covered by a master policy. When the UK leaves the EU, the freedom of services rules may no longer apply to the UK, Marsh notes in its report, and the UK's access to the single market may need to be renegotiated. Multi-year policies are bound on day one, Mr Warman noted, so in theory those policies would not immediately change, and many such policies contain coverage for changes in regulations, he added.

Companies turn to environmental cover as regs take hold and rates fall: Marsh

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Related Articles