Mandatory cover for environment still not needed—Bell

Mr Bell used his speaking slot at a recent Risk Frontiers seminar in Brussels, Belgium, organised by Commercial Risk Europe in partnership with national risk management association Belrim, to remind the European Commission of the CEA’s position. This is necessary because the EC is now starting to prepare for a review of the Environmental Liability Directive planned for 2014. The ELD currently does not mandate that all European companies should buy some form of insurance or financial guarantee but leaves the decision up to member states and only a small number have decided to opt for mandatory coverage, such as Spain. Hans Lopatta, Policy Office for Legal Affairs, Environmental Liability, Better Regulation, IMPEL, at the European Commission was also a speaker at the CRE seminar, sponsored by Chartis and Marsh, and confirmed that mandatory coverage was one of the issues up for discussion in the 2014 review.hideValerie Fogleman, Consultant at Stevens & Bolton LLP and Professor of Law at Cardiff University, reminded risk managers in the audience that the shift to mandatory coverage could not be ruled out. She said that only that week the Spanish government had for example planned to adopt regulations that would mandate financial guarantees for companies that operate in Spain. The matter of compensation is particularly important in Spain because the government was forced to pay out some €250m on clean-up operations after a dam containing toxic waste from a mine burst in the south of Spain in 1998. The dam released a massive wave of toxic sludge that eventually reached the Doñana Natural Park and poisoned soil and water and killed wildlife with which in came into contact. Cliff Warman, Environmental Practice Leader at Marsh, pointed out that Bulgaria has also adopted compulsory insurance but with very low limits. And outside of the European Union Argentina has adopted compulsory insurance in this area too, he pointed out. According to Mr Bell, however, any fresh calls for compulsory coverage across Europe would be unnecessary because the private insurance market is developing ahead of, and in response to, demand. He said that ideas for a compulsory system are only really driven by politicians who do not really understand how insurance works. Mr Bell said the question of compulsory Europe-wide coverage had been investigated back in 2002–2003 and it was concluded that it would not work in a universal way at that time as coverage was limited with specialist products only really available in the London market. Since then, however, Mr Bell said that a number of products had been developed by a far wider group of insurers that operate across the EU. Mr Bell said that this market had partly been fostered by the CEA, which had created the group he chairs and involves market participants including the buyers, represented by Pierre Sonigo, General Secretary of Ferma. The insurers have to be ‘mindful’ of competition law as they cooperate in such complex areas to create common standards on which to base products, said Mr Bell. “It’s up to the individual insurers to take what we produce and turn it into their own products. What we do is help the market understand the issues,” he said. Mr Bell also pointed out that the ELD gave member states considerable freedom to implement the ELD as they see fit. This has produced a wide variety of approaches that, again, would make some form of compulsory coverage difficult to deliver. For Mr Bell, political ignorance is part of the problem. “There is an increasing tendency towards political interference. It is assumed that the insurance industry will simply come up with solutions almost like we are an extension of the social welfare system even though EIL policies are designed to benefit the wrongdoer! Are social security systems supposed to do that?” he asked. “Do we need an industry solution? Solution to what? We don’t have a harmonised European liability system. It should be for customers to decide what they want, but, at the moment I don’t see a great deal of demand for it [coverage]. People are not knocking on the door for ELD coverage,” he continued. One reason for the relative lack of demand so far is because so few insured losses have occurred that fall under the ELD remit and the economic downturn has, of course, constrained insurance budgets across the board, said Mr Bell. Stephen Andrews, Senior Vice President, Environmental Liabilities at Chartis, did point out, however, that while demand for EIL coverage has perhaps been slower to emerge than many brokers and insurers expected there has been a recent upsurge in interest. “The amount of new (EIL) policyholders is dramatically increasing,” he said. But regardless of the perceived need for compulsory coverage among some politicians, Mr Bell remains adamant that even the creation of a system that may involve a European pool would not work. “Pools work best when there is no other solution, nowhere else to go. It is also quite against the culture of the insurance market. For example the UK industry would regard a pool as a very last resort. The insurance market in the UK would do everything it could to find a way of doing it [without a pool],” he said. “Indeed we did have a discussion in the UK 15 years ago about a European pool. There was one meeting because of the lack of interest. Pools can do a good job but it stifles innovation because products that are compulsory cannot work for what you need...it is not viable,” continued Mr Bell. The environmental expert reiterated that the solution needs to be demand-led, backing the assertion made earlier by Gaetan Lefevre, President of Belrim and Group Risk and Insurance Manager at CMI SA, that the key is to raise the level of awareness of the ELD among corporate management. “I believe that you should let markets innovate and create what customers want rather than seek industry solutions. Plus insurers have different business models. Some insurers specialise and are smaller, some are global businesses that compete with each other in different areas. With these models insurers will look to develop products that customers want to buy. Therefore real innovation comes from customers saying this is what we want and need and insurers respond,” said Mr Lefevre.

Mandatory cover for environment still not needed—Bell

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