While news stories about the environment are frequently filled with apocalyptic doom and gloom, the market outlook on environmental insurance remains healthy and consistent. Regardless of the business type or impact on climate change, organizations can readily secure environmental insurance protection.
Here are five tips to help secure the broadest environmental coverage for your organization.
Tip 1 ― Check Your Policy for PFAS Exclusions
What if your organization’s Environmental Liability Insurance policy had an exclusion that nullified coverage for its essential business needs? While pollution exclusions are nothing new, there has been an emerging but unheralded trend of underwriters quietly inserting PFAS exclusions to Environmental Liability policies. If the holder of such a policy were to incur a loss, the carrier could deny coverage if the claim involves any of these everyday chemicals found all over the world.
Perfluoroalkyl and polyfluoroalkyl substances, known as PFAS, have been in wide use since the 1940s. PFAS break down slowly over time and can cause irreversible damage to people, animals and the environment. The EPA webpage “Our Current Understanding of the Human Health and Environmental Risks of PFAS” reports that PFAS can be present in our drinking water, soil, air and food, as well as in materials found in our homes or workplaces. Other locations cited by the EPA include:
- Fire extinguishing foam
- Manufacturing or chemical production facilities
- Food packaging
- Household products and dust
- Personal care products
- Biosolids, which are used as fertilizer.
Read your policy terms, conditions and exclusions carefully with your broker, and avoid any PFAS exclusions. Once a PFAS exclusion is on your Environmental Liability policy, it’s virtually impossible to remove.
Tip 2 ― Request Defense Costs Outside of the Liability Limits
Legal defense fees can be costly and can erode your policy limits when you really need them. Separate limits provide broader protection against losses. For site-pollution policies, request separate defense limits that are 25% or more of the policy limits. For contractor’s pollution policies, request defense costs 100% outside of the liability limits.
Tip 3 ― Pursue a Multi-Year Policy
A multi-year policy will lock-in your rates and coverage terms at a premium discount. Your organization will also save time and human resources when it only needs to pursue the renewal process every two or three years.
Tip 4 ― Increase Limits to Cover ‘Spade in the Ground’ Surprises
A common trigger for environmental liability claims is when an organization discovers unforeseen environmental conditions during redevelopment. Until a spade pierces the ground, you never know what’s lurking in the soil. And once you unearth an environmental condition, remediation is your responsibility.
If your organization is directly or indirectly involved in redevelopment, review your Environmental Liability policy limits, and consider increasing your protection. Remediation can cost millions, and state and federal regulators thoroughly monitor contamination until it clears mandated levels.
The AXA XL environmental whitepaper “Site redevelopment: understanding and managing environmental risks” shares several actual loss scenarios including a client claim that exceeded $2 million for investigation and remediation expenses after contaminated groundwater was excavated during redevelopment and discharged into a nearby waterway.
Tip 5 ― Partner with an Experienced Environmental Insurance Broker
There’s no singular off-the-shelf policy to protect your organization from environmental risk. Carriers offer Pollution Legal Liability Insurance, Cost Cap Insurance, Premises Environment Insurance and more. Environmental insurance programs are designed for different business types and the industries they serve, and carriers may specialize and excel in various niche areas.
So where do you start? Partner with an insurance broker experienced in the environmental insurance world who has access to leading environmental insurance carriers. Absolute Markets Insights lists 15 key carriers influencing the environmental insurance market today. To properly negotiate an environmental program with carriers, your broker must thoroughly understand your organization and then negotiate with carriers that write coverage aligned with your operational needs.
A broker represents your interests to insurance carriers with the goal of maximizing placement for the best coverage forms, policy limits and pricing. A knowledgeable, experienced broker with environmental expertise can also explain the process and guide you at a granular level to help you understand the available options. This includes the underwriting process and how to disclose known exposures in the coverage application. These disclosures then become part of the insurance contract.
With a solid partnership, you can rely on your broker for risk management consultation and guidance during the claim process, should you experience a loss.
Reviewing the Market Outlook
In December 2022, Alera Group released its 2023 Property and Casualty Market Outlook. Here’s what we said about Environmental Liability Insurance:
“The Environmental Liability Insurance sector is healthy and strong overall, with adequate capacity and stable markets for most areas. A notable exception will be industries contributing to climate change.
- “Pricing increases for both primary and excess layers will be modest in 2023. Accounts viewed by underwriters as ‘best in class’ may see slight reductions in price while other well-performing accounts will be priced at 5%-8% higher than expiring policies. More poorly performing and higher-hazard risks will experience increases of up to 20%. High-hazard classes facing higher pricing in both primary and excess layers include oil and gas, chemical, habitational and hospitality.
- “Availability and capacity for most business classes remain consistent with market appetites in 2022. High-hazard classes facing increased pricing in both primary and excess layers include oil and gas, chemical, habitational and hospitality, and could require purchasing separate layers from multiple carriers to meet required limits.
- “Anticipated exclusions beyond those commonly found in current forms are contaminant exclusions for perfluoroalkyl and polyfluoroalkyl substances (PFAS), chemicals commonly found in food wrapping and other products.
- “Underwriting disciplines in 2023 will largely mirror those currently experienced. Complete applications, loss histories, and risk evaluations by loss-control persons will be required for new accounts and many renewals. Given the limited number of carriers in the Environmental Liability space, widespread shopping at renewals is not expected. Risks are encouraged to ascertain the adequacy of a carrier’s loss control and claims expertise, and to familiarize themselves with coverage terms and conditions.”
Six months after the Market Outlook’s publication, the Environmental Liability Insurance market remains healthy and consistent. The major insurance carriers in the environmental space continue to operate with positive loss ratios and broad appetites for new business. Pricing is favorable to buyers, with some best-in-class accounts renewing at a small rate decrease.
New Trend in Business Contracts
One new trend is the requirement of Environmental Liability Insurance as an entry point for doing business. For example, if an accounting firm hires a concrete company to pour a new walkway, the business contract will stipulate that the concrete company must carry Environmental Liability Insurance with minimum limits. If the concrete contaminates the ground, the concrete company’s insurance would respond to the claim.
For a broader look at navigating insurance market conditions, read Alera Group’s 2023 Property and Casualty Market Outlook. Learn about factors driving the current P&C market, as well as an analysis by industry and lines of coverage. To obtain the report and its supplement, the March 2023 Commercial Property Update, click on the link below.
About the Author
Commercial Insurance Consultant
HMK Insurance, an Alera Group Company
Gene Nosovitch has more than 37 years of experience consulting with and providing insurance solutions for contractors and other businesses. He has been nationally recognized for his expertise on Environmental Liability Insurance by industry publications including Business Insurance and PropertyCasualty360.