Five years after the Deepwater Horizon disaster, blackened beachesresulting from the worst oil spill in U.S. history have since beencleaned up—but the potential remains for businesses to wreak havocon the environment.

Each of the past five years has seen numerous news reportsinvolving pipeline leakage, industrial and agricultural discharge,and other pollution events. Just this past August, theEnvironmental Protection Agency accidentally released millions ofgallons of chemical-laced water into the Animas River, highlightingthe fact that even the most careful operations aren't immune frominadvertently creating a crisis.

“We obviously don't like it when the environment gets polluted,but quite frankly, it shows that coverage is needed,” says DavidBrereton, program manager for environmental impairment liability atFrebergEnvironmental Insurance. “High-profile incidents on the newslead to people seeking coverage.”

Demand for cover builds in construction

As the economy's gradual recovery continues, increasedconstruction activity and contractual liability demands faced bybuilders have driven growth in both site pollution and Contractors'Pollution Liability (CPL).

“We are seeing a dramatic uptick in non-environmentalcontractors buying Environmental polices,” says Bill Pritchard,president of wholesale environmental brokerage Beacon Hill Associates Inc., in Charlottesville, Va.“At least 30% of our new business involves plumbers, roofers,electricians and other 'regular' contractors who are either beingrequired to buy it or are buying it on their own.”

Related: Environmental risk: Exposures and solutions forgeneral contractors

Brokers are also reporting that owners and general contractorsare increasingly less willing to waive contractual languagerequiring Environmental coverage and approve higher limits ofinsurance. “We're seeing limits of $10 million requested—even fromcontractors performing pretty innocuous work, and that demand isbeing pushed down by the project owner,” says Pritchard.

The only area of construction where demand for CPL is droppingis in the energy sector, where a free-fall in oil prices has had adramatic impact on facility construction. “In some cases, we seemidterm policy cancellations as energy-sector contractors try todeal with a declining revenue stream,” says Bill McElroy, seniorvice president of environmental at Liberty International Underwriters.

The increase in policy buying has been followed by an uptick inclaims. Marcel Ricciardelli, senior vice president of environmentalat Allied WorldAssurance Company Limited, reports that most site pollutionclaims involve three key areas of loss: fires and explosions wherecontaminants are spread, accidental tank leakage, and mold. “As theeconomy continues to expand, we've seen growth in construction inthe hospitality sector addressing delayed renovations and updates,which has contributed to a spike in mold claims,” Ricciardellisays.

However, the big driver of claims costs is not the actual claimpayment, but the dollars spent on defense. “More claims are beingreported, even if coverage does not apply, because there is simplya better awareness of environmental issues and pollution policies.There hasn't been a sea change in the technical aspects of claimsthemselves,” McElroy says.

Despite the increase in claims and demand for coverage, pricingcontinues to decline in both site pollution and CPL for most risks.“Over the past five years, we have seen a general slow erosion inthe rate environment,” McElroy says.

That erosion has been caused by a flood of capacity. “Almostevery month we see a new company writing environmental coverage.There are in excess of 50 companies, by our count, writing somesort of coverage today, which has really driven down price anddriven up the amount of coverage available,” Pritchard says.

Competition is particularly fierce in CPL. “If an environmentalunderwriting company writes only one line of pollution coverage,it's likely that line of coverage is CPL. It's the most popular andcongested space in the pollution marketplace, with the number ofcarriers offering it probably doubling in the past five years,”says Bill Hazelton, division president in construction andenvironmental risk in ACE Group's New Yorkoffices.

Coverage is downright dirt cheap, even for companies that have ahigher risk of loss—such as those that maintain underground storagetanks. “The average cleanup for a storage tank [leak] is $200,000,but premiums start at just $500,” says Stacy Brown, president ofFreberg Environmental Insurance.

Carriers also continue to broaden coverage, including addingdefense costs outside the limits on CPL policies, offering blanketnon-owned site coverage automatically, and converting claims-madepolicies to occurrence forms.

Related: 6 tips for safely cleaning up household hazardouswaste after a storm

Unearthing opportunity for producers

“Any agent is crazy not to put time in to understand theopportunity of providing pollution coverage,” Pritchard says. “Itincreases revenue, strengthens relationships with your client andenhances professionalism.”

To seize opportunity in the market, agents and brokers need tostart by understanding that every account they insure has apollution exposure. “Things like indoor air quality, mold, odorsand off-gassing may seem like they're not an issue, but if you ownan office building and you get sued for the air making someonesick, there is no defense for that under GL,” says Ricciardelli.“Many businesses have emergency generators with backup tanks.Apartments have pool chemicals. Everyone has an exposure.”

In a competitive market, agents and brokers need todifferentiate themselves, beginning with developing expertise.Speed also plays a critical role in making a successful sale inpollution coverage. “We find that if we're the first quote in thedoor, that quote tends to bind more often than not,” says Breretonat Freberg.

Brokers should also be aware of the need tocoordinate between pollution and GL. Some carriers offer combinedGL and CPL policies to eliminate potential squabbling overresponsibility for a covered loss.

Technology is also playing an important role in the riskmanagement process. For instance, in 2014, ACE introduced ACEAlert, a smartphone app that connects an insured to an emergencyresponse center than can provide expertise on selecting cleanupexperts and help begin the time-sensitive process of remediationmore quickly.

Pullback on the horizon?

Although the Environmental liability market has traditionallybeen dominated by E&S carriers, there is continued encroachmentby standard-lines insurers into the sector. This will continue toput downward pressure on rates.

“Right now you're seeing standard markets offering ISO pollutioncover, which is limited compared to what we offer, which is quitebroad. However, I can see the progression of standard marketsoffering broader coverage, and at some point we may meet in themiddle,” says Brown.

“Agents and brokers are also becoming more sophisticated,suggesting the coverage and offering quotes,” he adds. “They arerealizing that if they don't, and an insured suffers a loss, it canresult in an E&O claim.”

How long the Environmental sector remains a buyer's marketremains to be seen.

“It's inevitable that loss frequency will continue to climb andthat claims results will get worse simply because we are chargingless money for broader coverage,” adds Pritchard. “When it allshakes out—not today, but a few years down the road—the question iswhat carriers will need to do, in order to deal with thoseresults.”

'Brownfield' business booming

One notable uptick in construction activity is increasedinterest in the development of “brownfields”—generally defined asproperty that had previously housed industrial or commercialdevelopment, and in which the presence of contaminants isexpected.

These sites present multiple exposures, which is where insurancecomes into play to transfer the risk of unexpected loss from aproperty purchaser or developer to a carrier. Susan Neuman,principal at The The EnvironmentalInsurance Agency Inc. (EAI) in New York, reports seeing a“tremendous” increase in pollution policies for brownfielddevelopments.

Neuman, an attorney who used to litigate pollution claimsagainst insurance companies, founded EAI to provide Environmentalinsurance coverage for contaminated property transactions andhigh-risk exposures, including tanks, environmental contractors andconsultants, and operational sites and facilities.

“It's not just new business that has increased; I've also seenseveral multi-year policies approaching expiration that wererenewed, which is unusual,” she notes. “Typically in the past,those policies would be purchased when the redevelopment began,then put in a drawer and forgotten about. The fact that theproperty owner is interested in renewal tells me that there is agrowing awareness of the need to have coverage in place.”

Unlike other areas of Environmental insurance that have seen acapacity-driven decline, pricing for brownfields has been driven upby demand. Although site pollution liability for brownfields canstill be readily found, the availability of cost cap coverage,which pays for remediation costs that exceed estimates, hasvirtually dried up.

“Cost cap coverage began disappearing in 2010, and today thereare only two carriers offering it,” says Neuman. “The premium isalso typically based on 15% of the estimated limits, which isprohibitively expensive for most owners.”

Related: ACE: There is a global need for environmental andpollution protection insurance