Start with an already competitive environmental marketplace.

Next, mix in increased claim activity in certain areas and asignificant carrier exit from the U.S./Canada site pollution/pollution legal liability market; throw in some high-profile newsevents like the Flint, Mich., water crisis and a steady streamof pipeline leaks; and top it off with an incoming president whospoke during the campaign of gutting the Environmental ProtectionAgency, and you have what was an … active 2016, to put itmildly.

Or, as Willis TowersWatson states in its “Marketplace Realities 2017” report, “Be readyto navigate the most dynamic conditions (market exits/entries,personnel changes, emerging exposures, appetite shifts) everexperienced in the environmental insurance market.”

AIG exit from mono-line PLL market

In the site pollution, or pollution legal liability (PLL)marketplace, the big story in 2016 was AIG'sFebruary announcement that it was exiting the mono-line PLL marketin the U.S. and Canada. Yet the bigger story might be what happenedafterward: As Joe Constantine, senior vice president and casualtybroker at AmWINS Brokerage inSeattle, states in AmWINS' latest “State of the Market” report,“When AIG pulled out of the market, it had absolutely no hardeningimpact.”

Other experts likewise note that the expected hardening after amajor market exit did not occur in PLL. Willis Towers Watson'sEnvironmental Practice Leader/Head of Environmental Broking RichardSheldon says he thought a market force such as AIG leaving mightmake other companies at least pause to re-examine their own booksand take a deeper dive into their data to see if rates wereadequate.

That hasn't happened, he says, other than for tougher risks. Ifanything, competition for simpler risks has become even moreaggressive, Sheldon adds.

'Feeding frenzy around simpler risks'

It's a sentiment echoed by Marsh Environmental Practice Leader Chris Smy, whosays there has been “almost a feeding frenzy around simpler risks”non-renewed by AIG.

Rather than harden the market, then, the exit of a major playerdemonstrated how crowded PLL has become, with many other markets —including both new entrants and longtime players — eagerly jumpingin to fill the void. In the AmWINS report, Evy Hazenberg, vicepresident and casualty broker at AmWINS Brokerage in Grand Rapids,Mich., says, “After the announcement, we immediately began gettingcalls from insurers offering to roll our AIG book.”

Abundance of capacity

That abundance of capacity was a key factor in AIG's decision towithdraw from PLL in the U.S. and Canada. As AIG Executive VicePresident and CEO of Commercial Robert Schimek told NUEditor-in-Chief Shawn Moynihan in May, “My view on pollution legalliability is we helped create this market. We are one of thepioneers in this market and we think we do it better than almostanyone in the business. However, it's become a crowded field, andwe believe that in general, our value proposition was not as valuedby the marketplace as we think it should have been.”

Related: Diggin' in: A look at the environmentalmarket

That “crowded field” is now happily picking up accounts insearch of new carriers. That's not to say all of the accounts areeasy to pick up, however. Smy points out a challenge that's arisenwith risks he calls “institutionalized accounts.” He explains theseare accounts that have been with AIG for so long that theunderwriting information necessary for a new carrier to getcomfortable with the risk is difficult for the client to access —if it exists at all.

Marcel Ricciardelli, senior vice president, EnvironmentalDivision at AlliedWorld, says of these accounts, “If you can't get the data,terms and conditions are going to change.” Good brokers, heexplains, are building terms and conditions that are fair given theavailable underwriting information, and are bridging the knowledgegap by putting in the work and getting to know these clients, theirbusinesses and the risks they face.

John Wasilchuk, vice president, environmental practiceat Lockton, says in addition to working with theclient to obtain any data on these accounts, brokers potentiallyhave to have conversations with the clients to let them know that,due to the lack of data, new carriers' approach to the risk may bea different experience than in the past.

Additionally, as Smy and Sheldon note, while competition isfierce for simpler AIG PLL accounts, there is limited appetite forthe more complex risks. This, of course, is not unique tocompetition over accounts coming from AIG. In fact, the market'sreaction to AIG is essentially a microcosm of the Environmentalmarketplace as a whole: generally competitive, with increasingcompetition on basic risks and limited capacity for more complexrisks, or risks with certain characteristics.

As Smy says, “There's still a lot of capacity, relativelyspeaking. But that theoretical capacity is often not deployed onsome of the more challenging risks, or in certain industries, or onrisks with catastrophic exposure.”

Sheldon cites mining and oil & gas as sectors in whichappetite is shrinking, and he says this impacts not only theability to find coverage, but also finding enough coverage.Challenging classes of risks, he notes, may find it difficult tobuild $100 million or $200 million towers of coverage, as the fewnumber of carriers willing to write such risks may have only alimited appetite.

For basic risks, if AIG's announcement is driving competition inthe PLL market, sustained construction activity is fuelingincreasing demand and competition on the contractors' pollutionliability (CPL) side. But Sheldon notes that while the market isstill seeing growth in the number of insurable accounts,year-over-year premium growth percentage is not what it has beenhistorically.

He also says that, even within these more basic groups of risks,there are nuances to the coverage elements — in other words,emerging claim experience in areas like mold and emerging issueslike lead in drinking water are causing underwriters to pay closerattention even on risks that might be considered “more of a mundaneexposure” from an environmental perspective.

Expansions in coverage due to competition

To a certain degree, claim activity causing the industry concernhas been driven by expansions in coverage due to the level ofcompetition. On mold, for example, experts point out that when theissue emerged in the early- to mid-2000s, insurers excluded it frompolicies before applying very small sublimits. Over the lastseveral years, polices have been broadened from a coveragestandpoint — and as coverage for mold has been offered morereadily, particularly in certain classes like real estate andhospitality, claims have been made against those policies.

Now that mold losses are coming in, carriers are beginning tore-examine their exposure. Ricciardelli says Allied World saw thistrend emerging back in 2012. “Mold is an issue,” he says. “Peopleare cautious and tightening terms and conditions, but it's notclear that hospitality and mold are a space in which people canmake money.”

Kevin Haas, partner at Clyde & Co.,which represents insurers in complex insurance coverage matters,says claim activity he has seen has mostly been related toconstruction projects — both outside projects like roads andrailroads as well as building construction projects — and claimsarising from mergers and acquisitions.

On the latter issue, Rod Taylor, managing director withAon Environmental Services Group, explains, “Many ofthe most significant losses our clients experience are associatedwith acquired operations and locations that have not beenadequately assessed in the due diligence phase of a purchasetransaction. While current operations can be evaluated, there areoften liabilities associated with discontinued and previously ownedentities that are much harder to assess.

“With the widespread merger-and-acquisition activities of globalcorporations, environmental risks are often difficult to address,especially in countries outside of the U.S. where environmentalregulations are not as advanced or actively enforced,” Tayloradds.

News coverage impacts marketplace

News coverage of pollution events also continues to impact themarketplace in a variety of ways. Sheldon notes that while suchnews stories can raise awareness among insureds and drive interest,they also can cause markets to rethink coverages and exclusions.“While there may be a desire to buy, the question is, is there amarket to sell?” he says.

Issues like the Flint water crisis, says Taylor, have led tosome exclusions of lead in drinking water, where carriers arereconsidering their positions on providing liability coverage forwater distribution risks, for example.

Make environmental coverages great again?

Multiple experts volunteered the 2016 election as a key factorgoing forward, but all agreed the impact is still uncertain, inpart, says Wasilchuk, because President-elect Donald Trump has notbeen particularly clear about his plans other than some campaignstatements about reducing the size of the EPA.

Both Ricciardelli and Haas believe that even if the role of theEPA is reduced, states would likely fill the void. “My expectationwould be state agencies would be more involved,” says Haas. “Idon't know if a shift in approach by the EPA is going to change therisk profile and number or variety of claims” for environmentalrisks, he adds.

Ricciardelli also stresses that state jurisdictions can be as oreven more important than anything done at the federal level, andthat any changes to the EPA would also likely take years tomanifest. He also notes that while there is a regulatory componentthat impacts the insurance industry, there is also the tortliability side — which he believes won't change. That will continueto be driven by the developing claim activity the industry isseeing.

Growing interest

Ultimately, despite the developing areas of losses and someappetite shifts, experts agree there is growing interest in manyareas of environmental coverage, and a general feeling that thereare profits to be found there. Both the Willis Towers Watson andAmWINS reports expect that appetite to continue into 2017, butwhether that capacity means the marketplace is healthy or a bitoveraggressive is up for debate.

“I think it's healthy,” says Louis G. Fey Jr., vice president ofrisk management for BancorpSouth Insurance Services in Baton Rouge, La. Hecites the quickly filled void when AIG pulled out of site pollutionas a sign that the market is “stable, healthy and stillcompetitively priced.”

Sheldon says, “It's hard to say whether it's a healthymarketplace.” He notes that while there is plenty of capacitypremium — in terms of growth percentage year-over-year for carriers— has been flat to slightly down relative to recent prioryears.

'We've run out of low-hanging fruit'

Smy, speaking to the maturity of the marketplace and where it isrelative to other coverages, says, “I would say we're probably lateadolescence.” There is an increase in the number of clients buyingthe policy than ever before, he says, “But it's probably true tosay we've run out of low-hanging fruit.” People who shouldobviously be buying the coverage, in other words, already are — andalthough there is room for growth, the data in these lines is notadequately developed to demonstrate risk and loss potential toclients.

Related: 5 keys to navigating environmentalclaims