CEA to spread ELD claims data but expert downbeat on Solvency II

But Phil Bell, group casualty director at Royal Sun Alliance and chairman of the European (re)insurance federation’s general liability steering group told Commercial Risk Europe that because the directive does not work retrospectively claims are thin on the ground and may take a while to filter through. Mr Bell was broadly positive about the development of the insurance market to meet ELD risks. But he did raise concerns over the effect that Solvency II will have on its development. He also noted that the insurance industry is not necessarily the salvation of every political ambition. The frequent changing of EC officials responsible for the ELD only adds to the difficulty of informing civil servants that insurers do not have a bottomless pit of money with which to solve all issues, he added.hideWhilst products have emerged to meet ELD liabilities, development remains relatively slow because there is not a great rush to buy cover, explained Mr Bell. Education is key to increasing demand, and the CEA continues the long process to ensure that stakeholders understand the issues, he continued. The best way to stimulate interest is for the buying community to realise that they will get ‘hit in the pocket’ when environmental damage occurs, he added. In response to this the CEA has set up a system to collate claims data from across the EU. The data will then be pulled together and circulated across all of the insurance associations across Europe. “We have set up this facility because we have identified this as a really important piece of communication. That data can then be used to educate and inform business as well as show underwriters’ losses that have arisen and how the remediation was worked out,” said Mr Bell. The problem currently is that there are not that many claims, continued the insurer. “But this is because the ELD is not retrospective and so you are starting off with a clean sheet from day one—the claims are mostly future-orientated.” On the supply side Solvency II may hinder the development of ELD-related products, continued Mr Bell. The regime, which is expected to increase capital requirements and thus costs for insurers across the board, may particularly affect insurers looking to meet ELD liabilities, he added. “As we do not know the costs of potential future losses from the ELD the danger is insurers will be asked to hold too much or very high amounts of capital. It is worrying because there is uncertainty as to how long tail all of this might be and the whole approach to Solvency II appears to be caution upon layer of caution,” Mr Bell warned. Environmental claims could now, under the ELD, take years to settle. Claims could hang around for as long as 50 years, which could, under Solvency II, tie up higher amounts of capital for that prolonged period. “If you are going to have a higher capital allocation and your return on capital targets are what they are it means you will have to charge higher premiums. I think there will be a direct consequence on availability of cover and premiums,” added Mr Bell. Another concern amongst some insurers is the lack of understanding that some regulators and civil servants have of the insurance industry. The EC wants to see a directive that tackles environmental damage, which in part means ensuring money is available to meet the costs of rehabilitation. Insurance is a natural choice to help achieve this. However many civil servants tend to have a view that anything is insurable and that insurers have a bottomless supply of money, both of which are clearly untrue, noted Mr Bell. “I think it is a real problem because within the EC there are all these different directorate generals and they move around frequently, so just as soon as you get someone on the same wavelength as you they move on,” said Mr Bell. “And so it is a never-ending stream and I am not so sure that they talk to each other as much as I would like. It is a permanent challenge trying to help people to understand that the insurance industry is not necessarily the salvation of every political ambition,” he added. Educating the transposing authorities, or civil servants, on insurability-related issues is part of the CEA’s dual role. It also continues to work on improving the insurability of ELD liabilities, as it promised the EC. This involves work with underwriters and has included the publication of three separate studies in 2007, 2008 and 2009 on the new directive. Whilst the association cannot develop policy wordings or control price of premium it does carry out work and research on behalf of insurers in order to stop the reproduction of such tasks. CONSISTENCY QUESTIONS A lot of the focus has now switched back onto the differing transpositions across the member states. This has created a myriad of systems and there is real uncertainty as to how each version of the directive will be applied and how consistently it will be enforced, said Mr Bell. “It is a bit of a confused position,” he explained. “Whilst insurers are quite used to this difficulty, if you are trying to develop a brand new product to apply across these myriad of systems it just makes it a bit more complicated.” For example, in some countries the ELD operates under joint and several liability, whilst in others a proportional system is used. Other key variations include the definition of land damage, the sorts of habitat covered, the species protected and defences open to operators. Stephen Andrews, senior vice president and environmental liability manager for Europe at Chartis told Commercial Risk Europe that insurers have done a ‘pretty good’ job in lowering the barrier of entry for ELD cover. This has enabled clients to purchase the product more easily. It is now about raising the value of the product, he continued. Huge steps have been made to reduce the vast amounts of information required from buyers, to reduce cost and simplify wording, he explained. “Cover is available at a reasonable price but now we need to work with clients to raise the value of the product. We need to help them to understand if they need cover, how much they need and what the cover does,” he said. In order to achieve this we need to understand the scale and frequency of loss, the complexities of the ELD and the global nature of environmental legislation, added Mr Andrews.

CEA to spread ELD claims data but expert downbeat on Solvency II

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