CRE seminar to tackle the likely affects of Solvency II on captives

On November 2nd at the Steigenberger Airport Hotel expert speakers will help delegates to identify how the pan-European Directive will be implemented and the most effective strategies for captive management before and after implementation. In addition speakers will explain the latest developments that affect global programmes and update delegates on efforts by leading market players such as ECIROA, FERMA and AIRMIC to seek market agreement to deliver greater consistency, clarity and compliance on multi-national programmes. The event will give attendees the chance to quiz both regulators and insurers on these critical issues. It has been designed in consultation with ECIROA, DVS, BDI, BFV and is free for their members and Commercial Risk Europe readers. Confirmed speakers include Günter Dröse, president of ECIROA, Praveen Sharma, Practice Leader—Insurance Regulation & Tax at Marsh and Nigel Brook, Partner at Clyde & co. For further details please click here. To reserve your free delegate place email Hugo Foster at hfoster@commercialriskeurope.comhideIt is unlikely that a material damage policy will cover costs imposed by an Enforcing Authority if they are greater than those for simply repairing the damage. There have been attempts to extend traditional liability policies to cover these expenses but such cover is always limited to a sudden and accidental write back provision. In practical terms this means that there are a number of environmental exposures that remain outside the scope of the public liability policy. These include the recoverability for statutory liability for remediation of own site pollution, statutory liability for biodiversity damage and also the longstanding exclusion of liability incurred as a result of ‘gradual’ pollution where the originating cause of the incident is not a sudden and accidental event. Other insurances fall similarly short of providing comprehensive cover for environmental risks. Property policies are designed to cover specific buildings and do not necessarily cover contaminated land, particularly land other than where the property is located. Coverage for damage to buildings during the clean up process may also not be provided. Another example is the D&O market, which has differing approaches to environmental cover and may indemnify for costs incurred in defending criminal and civil environmental-related claims. However most D&O policies have traditionally included an absolute pollution exclusion. Professional Indemnity classes—surveyors, architects and consultants for example—are also impacted by environmental events but are not likely to be covered for the full range of environmental risks. As a result of such coverage omissions there is a growing and strong argument for the use of specialist environmental products for relevant risks. Yet the Environmental Impairment Liability (EIL) market has been relatively slow to take off in recent years. Why is this? The slow and staggered implementation of the ELD in EU member states has contributed, as has the lengthy economic downturn. Further, there have been relatively few incidents that have fallen within the scope of the Directive, all of which have been relatively small in scale. The October 2010 Hungarian toxic spill would have been a useful barometer of the effectiveness of the Directive, particularly in terms of assessing the restoration requirements. However, this was stifled by the late implementation of the ELD in Hungary and limited commercial insurance coverage purchased by the operator in question. Perhaps most significantly, however, is the likely belief of some insureds that their existing coverage, public liability or otherwise, is sufficient. Whilst possibly valid in some cases, risk managers need to fully appreciate the extent of the gap between the environmental liabilities that they may now incur and the cover that they have. For their part, insurers also need to be clear in outlining what additional protections are provided by environmental extensions to the existing cover. Brokers, too, have a fundamental role in ensuring that their clients are aware of the legislative changes and that they have the right cover in place. Failure to do so, particularly if clients erroneously believe that their existing general liability cover is sufficient, could potentially lead to errors & omissions claims against them. It is important that awareness of environmental risks and policy interpretation get through at operational risk management level and in the boardroom. In order to achieve this, the IUA has worked with broker associations such as British Insurance Brokers’ Association (BIBA). In addition the Chartered Insurance Institute (CII) has recently accredited a suite of environmental liability training materials, predominantly directed at brokers, developed by Chartis Insurance UK. So, despite a slowish start, there are now clear signs emerging of strong growth in the EIL market and a wide and competitive range of insurance products have emerged in the UK and European markets. An increasing number of carriers are providing cover for ELD-driven exposures such as Biodiversity Damage, with a number of major new entrants in recent months. Clearly, education on environmental risks is an ongoing process and must involve insureds, brokers, insurers and regulators. As the ELD matures, more data, coordinated by national competent authorities, on the frequency and cost of ELD claims would be highly beneficial. This is especially true for those small, high frequency, losses that are commonly faced by small and medium-sized operators and have the potential to force them into liquidation. Looking ahead, mandatory insurance cover remains firmly on the EU agenda. Indeed a number of member states (though by no means all) have already pressed ahead with mandatory financial security requirements. Such a fragmented approach is to be expected given differing cultural and legal approaches to environmental risks across the continent and differing exposures to high-cost incidents. Clients, too, come in different shapes and sizes and have differing environmental needs, perceptions and economic capabilities. It would, therefore, be difficult to create an effective EU standard. Minimum requirements also potentially lead to insureds automatically purchasing the minimum, sometimes at the expense of a more thorough risk assessment. Consequently the IUA continues to believe that market-driven solutions competitively constructed and freely available to meet client demand are preferable to mandatory financial security requirements and that there is no evidenced need for any such EU-wide standard. The French Department of Ecology, Energy, Sustainable Development and the Sea estimates that the regulatory costs of pollution under the ELD are around 40 times greater than those seen in the late 1990s. An increased emphasis on risk management, prevention and assessment—essentially changing the culture of operators—is therefore a crucial next step for the industry. This should include encouraging operators to undertake expeditious risk assessments to identify the potential scope and quantum of environmental damage and encouraging those operators to ensure that the requisite security (insurance or otherwise) is at the centre of their activity. It is also important to drive home the message that risk management applies across all entities regardless of size—the capacity to cause environmental damage is not always a function of company size, but of company activity. An increase in potential financial liabilities, the threat of negative media exposure and continuing regulatory intervention have all combined to push the issue of environmental risks up the agenda for many businesses. Insurers have responded by developing an increasingly sophisticated range of specialist environmental policies and insurance remains an important mechanism for operators to mitigate and transfer their risk. Roger Nash is Chairman of the IUA Non-Marine Environmental Committee

CRE seminar to tackle the likely affects of Solvency II on captives

Want to read this article?

Read Next

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Want to read this article?

Read Next

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Related Articles