While it won't shock most casual insurance observers to hear that environmental pollution coverage is experiencing the same price softening as the rest of the property-casualty market, it does come as a surprise to brokers who specialize in the niche.

Indeed, since its inception more than 20 years ago, brokers say this line has been relatively immune from soft market pressures. But increased competition--on top of declining demand, due to a slowing economy--have combined to prompt significant price drops, specialists report.

"It's a buyer's market," said Michael Balmer, environmental practice leader for insurance broker Willis, headquartered across the street from Lloyd's in London. "Some areas are particularly soft. In pricing terms, we are looking at certain program reductions of 25-to-35 percent--something not seen in the past."

Chris Smy, managing director and global environmental practice leader for insurance broker Marsh, a subsidiary of New York-based Marsh & McLennan, called downward pricing trends in the environmental liability market "unusual." Even though in the past premiums were stable, "that's not the case now," he said.

Kevin Engelke, an environmental specialist for the wholesale brokerage firm JIMCOR in Montvale, N.J., agreed that pollution insurance is going along for the ride in this soft market cycle, but he said demand is constant while supply has not only remained stable over the years but is growing.

He reported that price reductions on small, clean accounts are somewhere in the 10-to-15 percent range, while it's higher for larger accounts--as much as 25 percent.

"But if there is a loss, it's a whole different ballgame," he noted.

John Butler, environmental practice leader for Program Brokerage Corp., the wholesale brokerage arm of Chicago-based Hub International, said there is some softening in the market, but nothing compared to what's happening in the general liability or property markets.

"Typically, it is still the most affordable insurance in terms of risk and premium cost," observed Mr. Butler. "You have a catastrophe risk, but the cost relative to the total cost of risk is in most instances minor" compared to the potential exposure, he added.

Part of the reason for the price reductions is the effects of the economic downturn, brokers reported. They noted that one of the major drivers of the environmental market is real estate and construction--both of which are currently in the doldrums.

Meanwhile, a major customer for environmental insurance is brownfields reclamation--contaminated property that is cleaned up and deemed usable for some building projects--which has also slowed as construction has petered out, noted Mr. Butler.

However, he added, the product is holding its own because loss exposures remain pervasive. "It is a risk now that folks in every industry sector have become aware of, but to this day [many] do not realize it is an uninsured risk to them," said Mr. Butler.

Some of the unusual softness in the environmental liability market, according to Mr. Balmer, can be traced back to the coverage becoming less of a niche product and more routine--even standard--as insurers seek to increase their books of business. "It was insulated in the past, but it is now being synchronized to the market cycle," he observed.

Howard Tollin, managing director of Aon's environmental services group, a unit of Chicago-based insurance broker Aon Corp., characterized the line as relatively stable, but said "that could change with a tighter regulatory environment and more enforcement." He added that this applied to both global and domestic risks.

The shift that Mr. Balmer said he sees depends on the market segment and risk.

For the midsize market, there is growth in package programs, bundling environmental liability together with general liability or property policies, which he believes is contributing to the "main-streaming" of the product. But for large accounts, environmental coverage remains structured on a stand-alone basis, he added.

He said that the more complex the risk, the more need for tailoring of the coverage.

However, price softening is not universal for environmental buyers, he added, noting that prices for some accounts that have suffered "unfortunate losses" remain hard.

The general softening, he said, is limited to "straight placements."

Although more standard carriers are selling the coverage, Mr. Butler said he believes environmental liability is one product that will never end up in the standard-line arena because there is no policy that can be fashioned to standardize the exposure.

"There invariably is some variation--some particular aspect of the coverage or the risk that needs to be dealt with specifically and manuscripted or customized in the final policy placement," according to Mr. Butler.

As a result, he added, "I can never foresee, ever, that an insurer will be--and I wouldn't think that the insurer would want to do it, either--in a position of doing direct sales to insureds for environmental coverage. I couldn't imagine anyone would ever think that's feasible or a good idea."

Environmental coverage demands more technical, experienced underwriting than other lines, said JIMCOR's Mr. Engelke, meaning fewer players--which he numbered as possibly around 25. He said policies are not based on standard Insurance Services Office forms, adding that every policy can have slight or major nuances to them.

One point on which all the brokers seem to share common ground is that every commercial insured has an environmental exposure but is not necessarily aware of it. That means plenty of opportunity to expand, no matter what size the account.

"The perception is that there is room for growth and that a lot should buy, or at least certainly consider it," said Marsh's Mr. Smy, adding he estimates that less than 20 percent of those who should be purchasing the coverage are doing so.

One hurdle is the impact of the economic downturn, which weighs on buyers who are watching their spending, and are therefore reluctant to purchase coverage that hasn't been a part of their insurance program in the past, according to Mr. Smy.

On the flip side, he pointed out that overall price cuts in the soft market are creating head room in the risk manager's insurance budget that could mean an opportunity to "purchase meaningful [environmental] coverage at a favorable price."

Mr. Tollin said while budget considerations remain one major obstacle to the "hesitancy" of risk managers to buy coverage they have never had in the past, "more companies increasingly realize that there is a real gap in their insurance program" without environmental liability in their insurance portfolio, and after evaluating the exposure, either decide to self-insure or transfer the risk.

"The astute insurance buyer should be aware of all his exposures," noted Mr. Engelke. "Every account has some level of [environmental] exposure."

He said buyers should take the initiative when it comes to environmental insurance and look beyond regulatory or contractual requirements when it comes to how much, if any, coverage to purchase.

Mr. Butler noted that from the wholesale brokerage standpoint, most independent retail agents and brokers do not have the expertise to recognize the risk--adding that is often where the environmental broker's expertise comes into play.

Often the only time many retail producers get involved with an environmental liability product is when their customer is contractually obligated to obtain such coverage, and that is when they need the expertise a specialty broker offers.

"Rarely will an agent or broker actively solicit environmental insurance. It's natural for someone not to want to introduce something that they have little knowledge or confidence in," said Mr. Butler.

Therefore, he suggested, the only way for this line of business to continue to grow is through education of both retailers and risk managers.

Unfortunately, according to Aon's Mr. Tollin, the one way many insureds become acquainted with their environmental exposure is through the pain of dealing with a claim, then discovering coverage doesn't exist because it was excluded from their standard general liability or property policy.

"This is not a frequency but a severity issue," he noted.

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