Growing need for multinational environmental impairment insurance programmes: Chubb

When it comes to multinational environmental impairment insurance programmes, while a Freedom of Services-issued policy in the EU may have been good enough in the past, businesses now need to be more aware of the individual regulations and applications of insurance in different territories, according to Chubb.

In its new environmental risks report, Global Management of Environmental Risk, created in collaboration with global law firm Clyde & Co, Chubb says that increasing regulation, greater complexity of laws, the variations across the globe and the growing focus on enforcement, make it more important than ever to have a multinational insurance programme in place “in order to build in the local expertise required when operating across numerous territories and jurisdictions.”

The report states: “Such a programme helps the corporation to ensure that the correct coverage is in place across all jurisdictions, and that the coverage is appropriate and consistent. This protects the company’s reputation in the event of a loss and helps the board to have oversight of the risks and how they are managed from a centralised location.”

It is not just about having appropriate and adequate insurance cover in respect of local laws and regulations. The report stresses that a properly structured programme also helps in being able to quickly and properly respond to an environmental disaster in the event of a claim. “What a properly-structured multinational insurance programme provides is specialist knowledge to help deal with the regulations required in that particular jurisdiction, whether it be specialist lawyers, loss adjusters, engineers or crisis managers,” it says.

The report goes on: “A multinational insurance programme provides reassurance that the insurer understands the local legal systems in which you operate, so the product is tailored for those environmental regulations. The most important aspect of handling an environmental insurance claim, however, is to get the emergency response on site as quickly as possible. The end costs are a function of how rapidly they can reach the disaster site and get the right specialists to help contain the event and reduce the extent of the damage.”

Another issue with environmental insurance is that of limits. Chubb notes that while some companies do not understand the extent or how quickly the cost of environmental claims can rise, they may believe a £10m limit is sufficient to cover their risk exposure. But Chubb also says that this limit can get quickly used up in the event of a claim if it is not managed promptly and properly. “As such, it is important to ensure risk is placed with a company that can act swiftly, because businesses that don’t control claims can quickly become underinsured. But if they promptly deploy specialists then the insurer is able to reduce the cost of the claim and keep it within the limits of the policy,” says the report.

Compulsory insurance to cover environmental damage is a requirement in certain jurisdictions if companies operate in particular regions or industries. As well as ensuring that these minimum requirements are met by the multinational programme, the report also recommends that the programme covers first party remediation costs, as most environmental laws stipulate that the policyholder can be required to clean up its own land, even if the damage doesn’t spread to neighbouring land.

Finally, the report advises: “It is important to build a multinational environmental impairment insurance programme from the local policy level up, and then look at individual limits – keeping in mind that you are building a global programme with aggregated limits. Think about where your overseas operations are based and if a single master policy from the UK on a Freedom of Services basis is the best way to cover those exposures, or if you need a more specific local language policy for countries within the EU.”