The message brokers should be conveying to commercial lines clients is that every business needs Environmental Liability.
“Every risk that comes across a broker’s desk has an Environmental exposure. Every manufacturer, every retailer, every street and road contractor,” says Gina Jones, associate vice president and director of the environmental sector of excellence at Burns and Wilcox. “Every business deals with supplies and substances that, out of their normal element, can be construed as a pollutant.”
A growing recognition of these exposures, in addition to increased lending activity associated with an uptick in construction, are helping drive greater demand for Environmental cover. “Banks are lending on construction projects, and they’re asking for site pollution coverage to be in place,” says Jones.
“We are seeing increased demand from both traditional and nontraditional buyers,” says Richard Wagner, global environmental chief underwriting officer at AIG. Two nontraditional sectors that have shown particularly strong interest are health care and higher education.
Capacity has risen to meet demand. “The insurance market is getting hotter. More companies are offering Environmental insurance than ever,” says Bob Hallenbeck, senior vice president, sales and marketing within the environmental unit at XL Group.
Environmental has performed well for a number of carriers, which has driven increased appetite, observes Stacy Brown, president and managing partner at Freberg Environmental Inc. Also, he notes, a number of Environmental underwriters who had worked for large carriers have since gone off and started their own operations.
Currently, there are about 45 carriers in a market that continues to expand. “There are still mergers and movements in the market, as well as new entrants, such as Capitol and Scottsdale,” Jones notes.
Although there is no shortage of capacity in the marketplace, brokers may find it more difficult to find a single carrier willing to place large limits on a single risk, requiring the creation of layered programs. “Until recently, brokers were able to secure $50 million plus from a single carrier. Now, they need to use multiple carriers,” Wagner says.
Predictably, strong capacity has had a downward impact on pricing. “These [Environmental insurance] companies compete very strongly against each other. The product they are offering is better than it’s ever been, and pricing is better than it’s ever been. In today’s market you can buy protection that’s worth a lot more than the rate you’re paying for it,” Hallenbeck says.
Brown adds, “The market for Environmental consultants and contractors has become very soft, particularly in the last six months.”
Minimum premiums that used to be to be $2,500 are now $1,000, and carriers are throwing in more coverage, Jones observes. “Ten years ago, policies gave very little coverage, and they were very expensive. Any time you simply wanted to add an additional insured it was another $200—carriers were nickel-and-diming you. Today, every single enhancement has been put into these policies,” she says.
However, there are a few exceptions to this rosy pricing picture. “It’s hard to get capacity on high-hazard risk, or where carriers perceive there is high risk,” says Chris Smy, global leader of Marsh’s Environmental Practice.
One area of high risk—real or perceived—is fracking. “It continues to be such a hot button in the news that it makes carriers nervous,” Jones says. “Carriers are entering those operations very gingerly. If it’s just a little guy hauling fracking water, he can get a $2,500 premium policy, but anyone doing actual fracking is looking at $20,000 minimum.”
Claims Spike, Will Premiums Follow?
“We’ve absolutely seen the number of claims going up in our book, more than threefold, over the last couple of years. Carriers have seen that as well,” Smy says.
Claims frequency is happening across the spectrum of accounts and from a wide range of loss triggers. “Some of the claims that we’ve seen have come from events that are not necessarily the result of our clients’ operations, such as flooding or ingress of water that has resulted in contamination that wouldn’t have otherwise happened,” Smy says.
Hallenbeck sees the area of intrusion claims as a growing cause of concern. “We’ve definitely noticed more claims activity in terms of odor, whether related to disposal sites and landfills or other businesses. Claims have been made by people living near areas that put off odors, saying it has caused illness or bad health. Noise pollution is an area of some concern, although it hasn’t fully developed yet,” he adds.
Vapor intrusion is also something that has gotten some play in terms of what it does to people and what it can potentially do, Hallenbeck says: “It’s an easily remedied phenomenon, but yet we’ve gotten a lot of calls and requests for coverage to deal with vapor intrusion in homes, office buildings, and so on.”
Claims frequency is rising because coverage terms have expanded, Wagner observes. “Overall, we see about 3,000 new claims on pollution business come in each year,” he says. “Our claims group in Jersey City has 85 claims professionals who are handling close to 9,000 total claims.”
But whether that claims activity leads to rate increases or capacity pullback remains to be seen. “A year from now, I would expect to still be looking at a market that’s expanding,” says Hallenbeck.
“I would hope a flattening of rate” would be in the cards, says Brown, “but I think this soft market cycle will last for a while because of capacity.”