Source: http://www.ibamag.com, March 20, 2014
By: Caitlin Bronson
Recent weather incidents and highly publicized environmental events have combined to raise public awareness of environmental liabilities. With it, the profile of environmental insurance and commercial demand for coverage has risen dramatically.
In fact, Bill Howard, vice president of Alexandria, Va.-based Clarke & Sampson, now believes so strongly in the importance of environmental coverage he discusses it with every commercial client as part of a regular set of initial recommendations.
“Five or 10 years ago, that maybe wasn’t the case, but now it’s something we make sure to cover,” Howard said. “Environmental is now in a category that includes employment practices, D&O and cyber—important risks that aren’t covered under general liability.”
Not every company responds to the call of environmental insurance, of course. There are still plenty of misconceptions and misgivings about the coverage that keep business owners at bay.
However, during his time as president of Denver-based Freberg Environmental Insurance, Stacy Brown has identified a few business sectors that have picked up their purchasing under the environmental umbrella.
Facilities that work with a large quantity of material have a great potential for loss through an environmental incident, and as such, could greatly benefit from an environmental impairment liability (EIL) policy.
“Any kind of fixed facility, especially those in a growth mode, are actively managing more and more materials that may give rise to a pollution claim,” Brown said. “A number of years ago, we had an incident where there was a spill of molasses. You wouldn’t think that molasses would be an environmental pollutant, but if it’s spilled in an uncontrolled way, it can create a pollution condition.”
EIL policies are designed to cover losses and liabilities arising from property damage caused by pollution, thus “filling in” the gap created by the pollution exclusion in commercial general liability (CGL) policies. Standard EIL coverage typically addresses both on and off-site cleanup, bodily injury and property damage liability, legal defense costs, business interruption, diminution of value and contracted liability coverage, the Society of Environmental Insurance Professionals noted.
Given the number of fixed facilities in the US and their ability to benefit from these protections, “the premium universe is almost unlimited” for EIL sales, Brown said.
Another market especially untapped in terms of environmental sales is the nation’s growing contractor workforce. The number of US construction jobs hit a three-year high last summer, and the value of new private construction projects reached $659.4 billion, according to the Associated General Contractors of America.
That’s a sizeable market for contractors pollution liability (CPL) policies, noted Bill Pritchard, president of environmental wholesaler Beacon Hill. CPLs cover most damages inflicted on a job site, and can be written as an annual or project-specific policy with coverage limits typically reaching $1 million per project.
“Over the last year or so, there has been a sharp uptick in our business with non-environmental contractors,” Pritchard said. “These are folks like roofers, siding contractors, excavators—they represent the fastest growing sector of our business right now.”
With the recent surge in construction comes increased activity in the real estate market. Deloitte has forecast solid returns for real estate investments in 2014, with sales of major properties rising 24% on a year-over-year basis last year.
However, Deloitte noted that the market is still stuttering in its recovery following the 2008 financial crisis. As such, additional environmental liabilities are not something banks and other lenders are prepared to take on.
That’s why lender environmental liability policies are increasing in popularity. These policies pay for any lost value caused by a previously unidentified environmental liability, as well as costs associated with cleanup, and purchase is often required for any real estate transaction to go through.
Brown believes lender environmental liability policies are preferable to another popular transaction requirement—conducting a phase-one environmental assessment.
“In many circumstances, insurance is a better vehicle because if there is an environmental incident at the property, the company will step in and clean up that contamination,” he said. “If someone had done an environmental assessment and missed a key contaminant, the only way to clean that up would be to go after the consultant and go through a lengthy process to have the consultant pay for those damages.”
The future of environmental
Bill Pritchard’s 23 years of experience in the environmental space tells him these trends are no one-hit wonder. In fact, he sees demand actually increasing in the coming years.
“When I started doing this, it was difficult to get insureds even to recognize their risk. Now clients are looking for risk transfer,” he said. “The profile is just significantly higher than it has ever been, and it has nowhere to go but up.”