The standard rap on Environmental insurance is that organizations only purchase it when they have to—required either by regulatory bodies or lenders to secure the coverage. That, in fact, was precisely the assessment of the line recently conveyed to PC360-NU by the chief underwriting officer at a top Pollution carrier.

But it’s a different story for at least some of the clients of Marsh, the dominant Environmental brokerage. “I can see why [that] perception would be there, but it’s a dated statement” that insureds rarely make discretionary buys, says Chris Smy, managing director and global practice leader for Marsh’s Environmental practice. “A lot of organizations now are focusing on the potential for their operations to cause environmental damage and on their potential to experience loss—and they are proactively managing that using insurance.”

One of the secrets in getting its clients to consider their Environmental exposures is the way Marsh handles the delicate conversation around the “P” word: Pollution.

“If you went to an elementary school and tasked a group of seven-year-olds to draw pollution, you might see pictures of factories with smokestacks,” Smy says. “And that vision of pollution means for a lot of entities that they really don’t perceive they’re going to impact the environment to the extent that they would need a Pollution policy.

“Whereas, can they have mold? Absolutely,” he continues. “Could that mold affect people and create losses? Yes, it can. So it’s almost like you have to take the term pollution out of the discussion, because pollution makes you defensive: ‘Oh no, of course we don’t pollute—we’re a very respectable organization.’”

So Marsh structures the dialogue around terms like “environmental impairment” and “environmental impact.” And this approach is working.

“When I look at our own statistics, what we’re seeing is quite satisfying,” says Smy. “Our strategy is to engage all our clients in thoughtful discussions around their operations and what their Environmental risks are and give them insight into how Environmental losses can occur—and it is working.”

In addition to the traditional businesses that have long secured coverage—real estate investment trusts, contractors and waste-management firms—Marsh’s book of Environmental business today “runs the whole gamut of industries,” says Smy: health-care, higher-education, hospitality, pharmaceutical, technology, life-sciences and communication entities all have elected to purchase the coverage.

DAY-TO-DAY DANGERS

in addition to certain industries showing increased interest in the coverage, another trend is helping expand placement possibilities.

Historically, Environmental has been a transactional-driven coverage, often related to a merger and acquisition. Potentially contaminated property was changing hands, and the parties to the deal wanted protection against future Pollution Liability associated with the transfer.

While the need for this type of coverage still drives many a placement, “we are very deliberately looking for ways to have the conversation with our clients around their operational risk,” says Smy.

That is, businesses not only need to realize that what they did in the past has created potential liability, but they also need to think about “what they are doing today and how does that pose liability for them,” he says. “That has been a [focused] strategy of ours—and one that has really changed the dynamic of our book from what was predominantly transactional-based to what is now predominantly operational-based.”

As one example of this operational risk, Smy pointed to universities. “The dorms where students are living can have mold issues; colleges can have waste-management issues and fuel-storage issues; their labs may be handling radioactive materials. There are really an awful lot of Environmental risks. They may not be catastrophic exposures, but they can be significant.”

Another example of operational risks moving toward the fore can be found in big-box retail stores—for which, in years past, Environmental coverage would only have crossed their radar if they were developing a piece of real estate that might have had a past contamination.

“Regulators are going after them really hard,” says James Vetter, a senior member of Smy’s team with a special expertise in the retail, wholesale and food-and-beverage industries. “There have been a large number of high-profile fines levied against these retailers for how they manage waste—like what do you do with the gas in a lawn mower when it has been returned? [Those fines] have just been earth-shaking, relative to losses in an industry you typically wouldn’t think of as having a lot of Environmental exposure. But they’ve been dealing with literally multimillion-dollar claims and cleanups.”

THE CULTURE QUESTION

in terms of how marsh differentiates itself from the competition, Smy doesn’t discount the benefits of his group’s size.

“We are one of the largest producers of Environmental insurance,” he notes. “We’ll [handle] more than 1,500 placements a year—that’s a lot of placements, and there’s a lot of learning in there” about trends in pricing, terms and conditions, and endorsements.

“Based on the size of our book, we have some unique relationships with insurance carriers that enable us to get the best deals for our clients,” says Smy.

Another unique value proposition: Marsh has a centralized placement facility based in Chicago that handles a large proportion of its transactions and enables markets to come to Marsh and access business they want to write in a very centralized way. “That creates a very competitive environment, and our clients benefit from that,” Smy says.

And with 40 or so professionals in its Environmental practice, Marsh has one of the largest Environmental staffs in the industry—and one populated with executives with extensive experience (and advanced degrees) in environmental science.

But Smy says he is always reminding himself that biggest doesn’t automatically mean best. “If I’m a client sitting in Philadelphia, it may be nice to know that Marsh has 40 people—but really I’m talking to one person. So the experience I’m receiving is in that one person’s head, and they’ll know what they know and won’t know what they don’t know.

“So what we do as a practice—and what I’m particularly proud of—is we’ve created a culture where you’re never speaking to that one person,” he notes. “We’ve eliminated the barriers [that can be posed by internal] competition so that we’re truly operating in a collaborative environment. The learning and experience is shared so we know what the best deal looks like from a client’s perspective. People are not afraid to say, ‘I don’t know the answer to that, but I can find it fast.’”

IN-HOUSE EXPERTISE

a big edge for marsh, in its view, is that clients can access its dedicated, in-house environmental-consulting firm, Faulkner & Flynn (F2).

“Nobody else has this, and it lets us put not only insurance in front of our client—but real Environmental risk-management programs that enable them to better manage their [exposures] and help them decide if they even need insurance,” says Smy. “This really elevates us above our competition.”

“Everyone in the advisory firm has boots-on-the-ground experience dealing with client technical issues,” says Drew Flynn, executive vice president of F2 and a certified geologist. In any client engagement, he adds, “we first identify and quantify what the risks are that they’re dealing with. Then we advise clients to either help them better manage those risks or work with our colleagues within the Environmental practice to figure out an appropriate risk-transfer mechanism—insurance or otherwise.”

Flynn points to a consulting engagement performed on behalf of a client considering buying a manufacturer with multisite operations in Canada.

“We came in and [analyzed] the two categories of risk involved,” explains Flynn. “First, for operational risks, we looked at the facility permitting and the history of violations and spills, and we were able to advise the client as to how the practices of this target acquisition stacked up against its peers.

“Second, because this was an older operation, we looked also at the legacy risks. The [target company] had incidents of pollution on-site, and they had been a waste generator contributing to landfills and other disposal sites. So we were able then to help the client quantify what the legacy risks were and what the options were for dealing with those.”

While other brokerages could partner with an outside consulting firm to offer similar services, Marsh sees two advantages to having this capability internally.

When seeking strategic risk advice, “many clients have a preference to get that from one source and not have to try and take the deliverables from multiple entities and somehow weave that together into a perspective on what they need to do,” says Smy.

Adds Elizabeth Bannister, a senior member of Marsh’s Environmental practice who specializes in construction-related risks: “Many times the very specific technical data that clients are getting from a consulting firm is required for deals we need to turn around very quickly. So having this in-house capability means if a nondisclosure agreement is already in place, then F2 can be covered by that, avoiding the delays that bringing in a disassociated third party can cause.”

Special Reports /

Marsh: Rethinking Environmental

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