When it comes to environmental losses, one clear trend is “we are seeing a lot more claims,” says Chris Smy, a managing director and the global Environmental practice leader at Marsh. “Historically, Environmental insurance is perceived to be a high-severity, low-frequency [risk]. But as the business has moved toward more insureds buying operational coverage, as opposed to insurance for long-term transactional deals, more risks have been realized. This might be in part because, with regulatory developments, there’s more enforcement focus—particularly in the U.S.

“As a general observation,” Smy continues, “this product has been conceived and perceived as a third-party liability issue. What I’m hearing from the carriers is actually there’s a lot more first-party claims [from property owners] than they would have expected.”

Overall, brokers and officials at environmental-consulting and pollution-remediation firms say losses are pretty equally distributed among different types of Pollution coverage.

“It’s hard to break it down from one product to another,” says Rich Wagner, New York-based executive vice president and division head of Pollution underwriting for the United States and Canada for AIG.

New York-based broker Catherine O’Leary, vice president of the Environmental division at Frenkel & Co. Inc., agrees: “I think they’re pretty evenly split.”

Marcel Ricciardelli, Philadelphia-based senior vice president of Environmental at Allied World National Assurance Co., says the “number-one cause of loss” is typically a fire or some other peril that causes a “sudden and accidental” leak or rupture at a chemical-plant tank farm.

“With an event like Sandy, there is large potential for mold claims,” adds Scott Herzog, practice leader, health & safety, and senior environmental scientist at Hydro-Environmental Technologies Inc. in Boston.

Ricciardelli adds that mold also is “becoming a bigger issue with hospitality risks, particularly in the Northeast.”

Smy, too, points to mold as a cause for more claims.

At Hydro-Environmental Technologies, which provides environmental-consulting services nationwide, “we see all types of claims—not one more than another,” says President Hayden Solomon. The number of contaminant spills and the frequency of mold claims are stable, in Solomon’s judgment.

Solomon also notes that his firm has seen fewer legacy Pollution claims over the past five years—but those that have been reported have been substantial.

Liberty International Underwriters’ William McElroy believes both frequency and severity of claims are on the rise.

“There’s no doubt in my mind that the frequency and severity of claims—particularly regarding Contractors coverage—are growing,” says McElroy, a New York-based senior vice president with Liberty International Underwriters, a unit of Liberty Mutual Group.

“But it’s a relative thing,” McElroy continues. “Even with more and larger claims, you still can get a decent return” as an insurer. “We’re not bragging about the returns, but they’re acceptable.” While they do not hit the insurer’s target, they still exceed the “bare minimum” needed to continue writing the coverage, he adds.

Mary Ann Susavidge, chief underwriting officer for XL’s North American P&C Environmental unit, says she has not observed an increase in pollution incidents. However, she has noticed an uptick over the last five to six years in losses actually reported by policyholders, as all units of an organization become aware that their parent company has a policy in place.

“I don’t really think [Environmental] risk has changed, but there certainly are more reports of incidents,” she adds.

––Additional reporting by Bryant Rousseau

Special Reports /

The Environmental Claims Picture

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