Shift in buying patterns for EIL insurance

Marsh analysed more than 700 environmental insurance policies placed for clients operating across the EU between 2006 and 2014, including the high-risk energy, waste, and industrial manufacturing sectors (as defined in Annex III of the ELD), and the low-risk infrastructure and real estate sectors. "The past decade has borne witness to a tightening of the environmental regulatory framework under which companies in Europe are required to operate, including the implementation of the EU's Environmental Liability Directive and the development of individual, member-state legislation to embed the spirit of the ELD locally." Marsh noted that in addition to the potential for businesses to cause pollution (including damage to property, bodily injury to third parties, or damage to the environment), the ELD has imposed new liabilities for environmental damage on many companies operating within the EU. As well as preventing significant environmental damage from occurring, the ELD requires operators to restore the environment back to its baseline condition in those instances where damage has occurred.hideThe ELD is therefore based on both the "precautionary" and the "polluter pays" principles, whereby operators of a potentially hazardous activity are expected to take all action necessary to prevent and, where necessary, to remediate any environmental damage they cause. The requirements to both estimate the costs that may be incurred in preventing significant environmental damage, and to remedy any damage that does occur, have led to a rise in environmental impairment liability (EIL) insurance being sought to cover potential environmental liabilities, said Marsh. "The buying patterns of those organisations purchasing EIL insurance have also changed in response to the ELD. For those businesses operating in sectors with the potential for a strict liability for environmental damage, such as energy, waste, and industrial manufacturing, the average limits of indemnity being sought increased in the time period between 2006 (prior to the implementation of the ELD) and 2014," said Marsh. Its research showed that for energy, waste, and industrial manufacturing firms carrying out dangerous activities listed in Annex III of the ELD, the annual average growth in EIL indemnity limits rose between 8%-15% during 2006-2014. Conversely, the indemnity limits on EIL insurance policies obtained by infrastructure and real estate companies, where there is fault-based liability for environmental damage (not Annex III), were either stable or reduced between 2006 and 2014. The report found that in the years leading up to, and following, the ELD's full implementation, European demand for operational EIL insurance policies increased - by a total of 13.6% across all sectors between 2007 and 2014. The annual average growth in the uptake of operational EIL insurance policies in high risk industries was 18.9% and 6.3% in low-risk industries. However, in 2013-2014, Marsh noted an increase in the indemnity limits sought by real estate clients, as firms sought to transfer more of their liability to the insurance market. Premium rates rise As for the cost of EIL insurance for businesses, Marsh said that for energy, waste, and industrial manufacturing businesses operating under Annex III, insurance premiums generally reduced between 2006 and 2009. More recently, however, Marsh noted that premiums are now increasing in all three sectors. The broker said this was indicative of an increase in the perceived risk to businesses operating within these industries. The average premiums for companies in the low-risk infrastructure and real estate sectors were stable or reduced slightly between 2011 and 2014. A recent rise in premiums in the real estate sector is reflective of the increased limits of indemnity being sought, said the report. "Companies have diverted resources following the implementation of the ELD to develop robust environmental risk management solutions that mitigate specific environmental risk issues," said Dr Cliff Warman, Environmental Practice Leader, Europe, the Middle East, and Africa, at Marsh. "This approach, together with specialist EIL insurance that transfers their environmental liabilities, makes them better placed to respond to the obligations set out in the ELD and act swiftly in the event of an incident taking place."

Shift in buying patterns for EIL insurance

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