To compete in a marketplace flooded with options, environmental-insurance carriers, to better stand out from the pack, are developing new products—built on a growing familiarity with and sophisticated grasp of the unique coverage requirements of specific industry classes.
“There has been innovation toward certain [industry] groups as our understanding of clients and their specialized needs grows,” says Rich Corbett, president of environmental operations in North America for XL Insurance.
Chartis, for example, has launched a relatively new suite of environmental-insurance solutions, called NextGen Protection. Each of the products is designed explicitly for select industries such as healthcare, municipalities, commercial real estate and waste management.
“This approach is a lot easier for insureds,” says Lana Keppel, executive vice president of corporate accounts for Chartis. “We’ve manuscripted the policy for them. Endorsements do not need to be negotiated.”
In order to develop this new line of products, Chartis, which has an in-house engineering department, intensively studied all of the losses it has seen in each industry to better grasp the associated risks, Keppel says.
The new product offerings have gained traction with “a lot of brokers we haven’t done business with in the past,” she says. “It’s a nice way to broaden their book of business.”
Chartis has plans to release many more industry-specific products based on the degree of need in the marketplace.
“We get our best ideas from agents and brokers,” Keppel adds.
Zurich Financial Services also has an approach targeted to industry sectors and is currently on a road show to meet with brokers to discuss current issues and trends in environmental insurance and other coverage classes in order to learn how Zurich can step in and mitigate risks.
Ken Ratajczyk, head of Zurich’s environmental practice in North America, says in one recent move the company has aligned its environmental and construction units to better serve contractors.
In the past, the amount of environmental work a contractor did determined whether the business was insured by the environmental or construction division. Now, the process is streamlined by lining up the divisions, Ratajczyk says.
Opportunities in the ever-evolving environmental-insurance market are always emerging, says Mary Ann Susavidge, chief underwriting officer for environmental at XL.
Some opportunities may arise from a better understanding of risk once deemed untouchable.
“No one wanted to touch mold 10 years ago,” she notes as an example of a now-common coverage once deemed too risky.
Earlier this year XL unveiled a product developed exclusively for technology-waste recyclers. As electronics are discarded, these millions of units of computers, cell phones, monitors, etc.—which can contain lead, mercury, cadmium and other pollutants—are causing growing concern.
Worry over the risks embedded in these e-objects is strong enough that 24 states have enacted legislation banning these items from the waste system.
Therefore, an industry of recyclers has been formed—and they have very specific insurance needs.
“These types of businesses need to be prepared to handle not only the toxic chemicals—but also the private information contained within the electronics,” says Corbett.
So XL’s one-of-a-kind insurance solution protects the business and gives the customer assurances that the data will be destroyed properly, the carrier says.
“The unique needs of these recyclers would not be addressed [in a standard environmental policy],” Corbett explains.
Another burgeoning business opportunity: Mergers and acquisitions activity, which generates many placements of environmental-liability contracts, is heating up again, or at least, “showing signs of a bounce back,” Keppel says—with XL’s Susavidge agreeing that M&A has picked up in the first half of this year.
Corbett and Susavidge both point to hydro-fracturing as an emerging risk. The controversial process is used to get to natural-gas sources. (See a full story on the insurance opportunities and challenges associated with “fracking” on page 26.)
Though no one wishes for disasters, they can create opportunity. Remediation contractors hired to clean up and fix messes left by natural (like the recent tornadoes) or man-made catastrophes often need environmental coverage to get the job, says David Brereton, environmental-impairment liability (EIL) program manager for Freberg Environmental Insurance (FEI).
CROWDED FIELD; WHITHER PRICING?
For the past few years, many in the industry saw environmental coverage as The Next Big Thing. As a result, carriers flooded into the space.
And now, Zurich’s Ratajczyk says 2011 “probably has the most amount of carriers providing environmental insurance” than at any time since this line of insurance was created in the early 1980s as legislation regarding clean water and air was adopted.
Despite all these players competing for business, prices are stabilizing, says Brereton of FEI, a managing general agent that writes coverage through Endurance Specialty Holdings’ U.S. operations. “There has been an uptick in pricing with certain carriers,” he says.
XL’s Corbett says the soft market persists, although “spotty areas are more flat, based on the loss histories of individual clients.”
Competition could increase when a group of multi-year insurance contracts expire, observes Ratajczyk.
OneBeacon Insurance Group has recently entered the market and is seeing business from insureds that have not purchased environmental coverage before, says Devin Claypool, vice president of OneBeacon Environmental.
Claypool believes that “there are still a lot of accounts out there” to be had. Many companies are currently shopping. “There’s a lot of movement,” he adds.
CONSTRUCTION & CONTRACTUAL REQUIREMENTS
Most of the current action is coming from contractual requirements to carry environmental coverage in construction or public-entity projects (road or sewer), Claypool says.
Chartis’s Keppel also expects a lot of environmental business to arise from the construction sector—once projects still “sitting in the bid process” start to move forward.
“A lot of those [construction] contracts are pending right now while they wait to get funded,” Keppel adds.
The good news for insurance providers is that lenders today are requiring borrowers involved in construction or development deals to have environmental insurance, whereas “five years ago they were so competitive, the banks wouldn’t think of asking,” she says.
This fact may come into play when commercial real estate loans are refinanced, says Ratajczyk, whose Zurich offers coverage for financial institutions involved in financing risky construction projects, to protect them against default and pollution conditions.
Contractors must also be prepared to deal with risks associated with Environmental Protection Agency standards dealing with lead paint in older buildings and homes, Brereton adds.
MORE ADVANCED & AFFORDABLE—BUT STILL DISCRETIONARY
Overall interest in environmental insurance is “definitely growing,” says Keppel, with products becoming more advanced and affordable.
Companies are looking more closely at their environmental liability, and insurers are working on education in the brokerage community, adds Susavidge.
However, the purchase remains mainly discretionary. Customers are sometimes “hesitant to spend the money on optional insurance,” says Susavidge. “Economic conditions are still pretty chilling.”
Adds Ratajczyk: “Everyone has some environmental risk; it’s a matter of determining how big you perceive yours to be. But every operation at some level generates some waste.”