UK EIL market slower than expected but demand set to rise: Underwriters

Offerings from the specialist environmental market that experts say provides complete environmental solutions is fairly advanced in the UK. But take-up amongst UK companies remains relatively low, according to market participants. A gathering of leading UK risk managers for Commercial Risk Europe’s annual Risk Frontiers survey roundtable during last week’s Airmic annual conference in Bournemouth strongly suggested that most risk and insurance managers do not take the ELD that seriously unless they operate in an industry that has a tendency to cause pollution, such as chemicals or energy. But the ELD, which aims to enshrine the polluter-pays principal, raises environmental liabilities and potential cleanup costs to a ‘totally new level’, Simon White, Environmental Branch Manager at XL, told CRE.hideThe ELD operates a strict liability regime for certain high-risk activities and requires operators to proactively manage any environmental damage. They must carry out preventative measures ‘without delay’ and notify the competent authority if measures fail to dispel that threat of damage. Furthermore certain natural habitats and species are especially protected. If damaged, they will need to be brought back to their pre-pollution levels and may even require compensation payments. In a further heightening of environmental powers the Environment Agency (EA) in England and Wales can now use new enforcement powers called civil sanctions—for certain environmental offences—as an alternative to prosecution and criminal penalties of fines and imprisonment. The new powers allow the EA to take action that is proportionate to the offence and the offender. The EA can still use criminal punishments for serious offences. The government believes civil sanctions will make environmental law enforcement more flexible and effective for both regulators and businesses. Observers believe it will allow the regulator to act more decisively in cases of pollution. “For me it is the snowball effect that is probably more interesting. Already we have situations where the operator can be held to be responsible but if the operator can’t be found the owner can be held responsible. Now you are getting the civil sanctions, which give the regulator the ability to act in a more streamlined fashion when it comes to enforcement,” said Stephen Andrews, Senior Vice-President and Environmental Liability Manager for Europe at Chartis. “It’s been a long road but now we have the legislation in place to say it is either the operator or the owner, and now we enter the real phase—execution and enforcement of regulations. My view is that this is what civil sanctions are about. It will be a big topic for the next year or two,” he added. Insurance solutions to the ELD and the new environmental liabilities are two-fold. Buyers can either cover the risk via their general liability policies or buy specialist environmental impairment liability (EIL) cover. Mr White, who ran a break out session on environmental risks during the Airmic conference, said buyers need to be aware that traditional policies can only provide partial solutions to the new risks. “Traditional general liability policies only cover damages suffered by a third party, following a sudden and accidental event. These policies usually fail to respond to statutory liabilities such as cleanup notices from the Environment Agency. A property cover will have similar environmental exclusions.” But, in terms of buying habits, the UK market is less advanced than countries such as Ger-many, Spain, France and Portugal, experts say. “Surprisingly, the UK is in the ‘market developing’ category. The EIL cover has been successful and there is a lot of uptake, but you have to appreciate the scale of the UK marketplace—in particular the London market—and therefore take-up probably lags behind expectations. We see resistance, people still feel relatively comfortable with partial solutions in their general liability (GL) solution,” said Mr Andrews. “The most advanced markets already have a language to talk about the separation of the two polices—GL and EIL. When you come to the London market, there is tremendous potential and it is an area of significant investment for us, but perhaps not enough voices are trying to help people to understand how it should and could work,” he added. UK-based multinationals do, however, realise that they cannot make GL policies work for these new risks. “It’s definitely improving and accelerating in the UK but a standard practice has not formed yet. But we are almost there now in the UK and there are a lot of clients that are about to pull the trigger. They are getting hold of their information and getting their data ready,” concluded Mr Andrews.

UK EIL market slower than expected but demand set to rise: Underwriters

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