In the food, beverage and agriculture sector, there are some obvious risks, such as spillages of sewage or slurry. But there are other risks to consider too – for example, food and drink such as orange juice or milk can be pollutants if they escape into water supplies, can affect the oxygen levels in water, and can kill fish and cause other biodiversity damage. Noelene McKenna, senior underwriter, environmental retail property and casualty UK, and member of the food, beverage and agribusiness industry practice group at AXA XL, explains how these risks are evolving and the role that brokers and insurers can play in helping clients manage and transfer them.
Can you talk a little more about the environmental risks in the food, beverage and agriculture sector?
While the claims frequency for environmental liabilities in the food, beverage and agriculture sector tends to be low, the severity is high – when losses occur, they are potentially very expensive to deal with.
The risks for clients may be operational, concerned with the day-to-day running of their business. For example, potential risks include the storage or handling or hazardous materials, like diesel for backup generators, above- or below-ground storage tanks, or the bulk storage of oils or milk for the manufacturing process. Agricultural contractors often carry out crop-spraying or groundworks, which entail an element of environmental risk. Gradual environmental risks are a notable and often overlooked area in which clients see losses; for example, the failure of an underground line may trigger a loss and even the best risk management is unlikely to address this hazard.
In recent years, there has been an increased risk associated with damage to natural habitats and biodiversity. Claims can arise from activities such as routine watercourse maintenance or flood risk mitigation works, which might cause hydromorphological harm or damage to protected species and habitats. Events such as fire, flood or storm can cause large-scale environmental incidents, as can other events beyond the client’s control, such as thefts of oil or fly tipping.
Are there other emerging areas of concern?
An emerging area of risk for agriculture business is the processing and disposal of waste. There has been a spike in the illegal importation and processing of waste and it is worth noting that if perpetrators cannot be identified, landowners become liable for this cleanup and open to prosecution and third-party claims.
In the UK, for example, the prosecution of waste offences has been at the forefront of the government’s enforcement of environmental regulation, following the establishment of the Joint Unit for Waste Crime in 2020. Recent figures confirm that more than £60m has been spent in relation to cleanup costs in respect of waste offences since 2012, and there has been an almost 50% increase in breaches of environmental waste permits.
How can brokers and insurers play a role in helping clients assess, manage and transfer these risks?
There has been rapid diversification in many agricultural businesses in recent years and it is important that the change in the profile of clients’ businesses is assessed correctly. Brokers have an important role to play here in making sure they are aware of changes in their clients’ risk profiles, to be able to source and offer the appropriate cover. Often, we find that clients believe they already have environmental coverage under their general liability policies. But there might be significant gaps in coverage, or differences in coverage, that could leave clients exposed if an event occurs. Communication between broker, client and insurer is key here to ensure that these exposures are managed and transferred.
Environmental impairment liability (EIL) policies cover regulatory claims, first-party cleanup costs, gradual releases and emergency costs – all areas that a typical public liability policy will likely exclude. An environmental impairment liability policy can also cover investigation and monitoring costs and habitat restoration costs resulting from impacts to natural habitats, for instance. While fines are not covered under EIL policies, often the cleanup costs far exceed fines and this is where an EIL policy can really help clients. Having an insurance partner with the expertise to deal with an incident quickly and efficiently can also reduce the need for regulatory intervention and prevent a significant spill becoming a major incident.
The reputational risks associated with an environmental incident can be hugely damaging to business if an incident is not dealt with swiftly and effectively. Communication between client, broker and insurer is vital here to ensure that experts are alerted and get to work quickly to minimise the reputational impact.
How can brokers and insurers help clients to bounce back after an environmental event?
Dealing with an event quickly and getting the right experts involved is the key element in reducing the impact of an environmental loss – both to the surrounding environment itself and to businesses more generally.
We offer a pollution response service to our clients, which is a number to call that will give access to 24/7/365 service and emergency response. We also have specialist environmental loss adjusters who work with our in-house claims team.
The tripartite relationship between client, broker and insurer is especially important in assessing and transferring environmental exposures. We run industry-specific training sessions with brokers to give them information about our coverage as well as the potential risks their clients face. We also have access to an experienced environmental lawyer, who can help brokers and clients understand the legal environment and the implications to their business.
If communication between client, broker and insurer is good, and the risks are understood, then we can all work together to help a client recover quickly from a potential loss.
Contributed by Noelene McKenna, senior underwriter, environmental retail property and casualty UK, AXA XL