Europe’s insurers back ELD review but warn against mandatory coverage

The European Commission’s current review of the Environmental Liability Directive (ELD) must not undermine the availability of insurance or the growth of the environmental liability insurance market, says Insurance Europe in its response to a consultation. Insurance Europe stresses again that mandatory financial security would bring little benefit and would probably hinder the further development of the environmental insurance market. The focus should rather be on promoting better loss prevention and risk management, and making sure that the ELD is properly and uniformly implemented by EU member states, it says. “As providers of cover for environmental liability, insurers consider the ELD to be instrumental in preventing and remediating environmental damage. Insurance Europe, therefore, welcomes efforts to ensure the directive is fit-for-purpose and, in particular, adequately implemented,” states the body. “At the same time, it is important to ensure that any future changes to the framework do not undermine the availability of insurance or the development of the environmental liability insurance market,” it continues. “The review should, therefore, focus on ensuring that effective measures are being taken throughout the EU to prevent and mitigate any potential environmental accidents. In particular, the whole body of European environmental law must be fully implemented at national level and provisions should be introduced for competent authorities to oversee and, if necessary, enforce compliance with environmental provisions,” adds Insurance Europe. The European insurer association says its members consider the ELD as instrumental in preventing and remediating environmental damage. So it welcomes efforts to ensure the directive is “fit for purpose” and, in particular, adequately implemented. At the same time, it is important to ensure that any future changes to the framework would not have an adverse effect on the availability of insurance and the development of the environmental liability insurance market, stresses Insurance Europe. “Therefore…Insurance Europe recommends that the focus should primarily be placed on ensuring that effective measures are being taken throughout the EU to prevent and mitigate any potential environmental accidents. In particular, the whole body of European environmental law must be fully implemented at national level and provisions should be introduced for competent authorities to oversee and, if necessary, ensure compliance with,” states the federation. Insurers have long argued that mandatory financial security could hamper market development and Insurance Europe repeated its message in the consultation. “Mandatory financial security requirements would interfere with the development of a market for ELD insurance in the few markets where it has not yet fully matured. It would not serve as a solution to the low uptake of insurance cover because it would not solve the lack of reported incidents, sub-optimal enforcement and slower developments in emerging markets. Furthermore, sufficient insurance is available in most markets, even though most member states do not have mandatory financial security in place,” it argues. “Solutions based on market demand allow member states to assess their individual circumstances and take the approach best suited to them. This approach particularly enables member states to consider aspects such as the available cover, risk awareness, the insurance needs of the targeted industries, as well as government’s ability to assess and experience with assessing an ELD claim,” it continues. The body says that a ‘one-size-fits-all’ approach to mandatory cover would generally not work because of differences in the risk profiles between companies, such as SMEs and large firms. “The ‘one-size-fits-all’ approach restricts contractual freedom, which may increase costs and decrease insurance capacity. For mandatory insurance to work well, several market conditions need to be met, including the availability of sufficient claims data, similarity in the risks being covered, and sufficient insurance and reinsurance capacity,” explains Insurance Europe. “Introducing compulsory insurance where market preconditions are not met may have negative consequences for both insurers and consumers. In instances where there is insufficient or no insurance, insurers could be unwilling to offer cover under the restrictions imposed by a compulsory scheme, leaving individuals and businesses unprotected, as they would not be able to obtain the cover required by law,” continues the body. “There could also be increased moral hazard, as policyholders who have been obliged to purchase insurance can implement less protection, as they feel the burden is on the insurance provider. Higher premiums could also be imposed due to the uncertainty created by the lack of data needed for underwriting; the lack of a competitive market; and the additional administrative costs for insurers,” adds Insurance Europe. Another suggestion has been the creation of an EU-wide fund to support the environmental insurance market. Again, Insurance Europe says that this would have a negative effect. “Insurance Europe is concerned about the impact an EU fund would have on the risk management practices/exposures of industrial operators, as well as on the insurance market. Introducing an EU-wide fund would disincentivise operators from buying adequate levels of insurance and thereby poses a moral hazard,” it says.

Europe’s insurers back ELD review but warn against mandatory coverage

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