As we have become a more eco-friendly society—focusing on ways to protect and preserve our environment—the market for environmental risk coverages has emerged as one of the clear growth-oriented areas of the insurance industry. Although the product has been available for some time in the surplus lines market, recent disasters like the April 2010 Deepwater Horizon oil spill have brought increased attention from brokers, carriers, and consumers.
“Environmental insurance first became available almost 30 years ago,” explains Jim Hamilton, a vice president with Crump Environmental Brokerage, a division of Crump Insurance Services. “In the late 80s and early 90s environmental insurance coverage was expensive because it was fairly new and there was not a lot of actuarial data on which to base rates. Much of the underwriting then was done by environmental engineers who set prices subjectively. But as we got into the mid- to late-90s, more actuarial data became available, and as a result the pricing for environmental insurance became much more objective.”
“Generally speaking, most people would assume oil companies need this coverage, but it is everyone from real estate agents to contractors and developers to even pig farmers who also need to have it,” explains Laura Warren, president of State Insurance Group in Stuart.
“The spectrum of buyers is very broad,” Sebesky agrees. “It is more than just those who deal with hazardous materials at their facilities. Media coverage of environmental disasters is making business owners ask whether they are protected, and many are finding that they are not.”
As businesses have started to turn a keener eye toward assessing their need for environmental insurance and as claims-handling experience along with volumes of hard data have contributed significantly to a more fact-based underwriting process, environmental insurance has become more affordable. However, because the exposure each business faces is unique, the price range still varies greatly.
Chartis’ Sebesky says that a lower-risk business might be able to get $300,000 in coverage for only about $1,500 per year, although she cautions that the “typical limits are about $1 million, and pricing will depend on the specific client’s exposure.”
“Clients normally try to match their coverage to what they perceive their financial exposures to be. Alternatively, the amount of coverage can also be driven by applicable government regulations or the requirements of private contractual counter-parties,” adds Richardson from ACE.
In addition to tailored coverage and more affordable pricing, regulatory enforcement is playing a key role in the increased importance of environmental insurance policies.