At first glance, this year's environmental insurance marketlooks a lot like last year's in many respects.

The loss of a major player continues to provide opportunitiesbut also poses challenges in filling the gap; the increase inconstruction starts is growing demand for Contractors PollutionLiability (CPL); and weather-related claims, particularly mold,increase insurer exposures.

However, the entrance of new players into this market has addedan even more competitive element to what is already a line facingsome unique challenges.

Related: Environmental insurance: A tale of twomarkets?

"The environmental market is different from other lines ofcoverage because it is rarely a required protection," explains GinaJones, vice president and director of environmental programs atBurns & Wilcox. "Often, those who have environmental coveragedo so because they have a smart risk manager or they have experienced aloss in the past."

She notes, however, that because this coverage isn't alwaysrequired, it is often thought about last and removed first:"Environmental lines do not follow the same trends as other linesof business, such as General Liability or Property. As those linesincrease and the costs of premiums rise, Environmental coverage isoften cut."

As we head into 2018, Stacy Brown, president and CEO of FrebergEnvironmental Insurance, characterizes the Environmental market ashighly competitive and "very soft," especially with environmentalcontractors and consultants. Brown sees an endless stream of newmanaging general agents (MGAs) and carriers entering this line —"now close to 60 markets," he says, "all vying for accounts in avery limited Environmental marketplace. There are perhaps 80,000 to90,000 contracting and consulting firms in the U.S.; that's a lotof carriers and MGAs trying to build market share."

The environmental insurance market is still responding tothe 2016 decision by AIG to cease writing stand-alone PollutionLegal Liability (PLL) policies, aka site pollution coverage, in theUnited States and Canada. (Photo: National Underwriter)

Pollution market: still soft

According to Willis Towers Watson's "Marketplace Realities 2018″report, insurers are continuing to compete on pricing fordisplaced AIG business while implementing creative solutions to thelimited availability of engineering data. Further, the monolinesite pollution market has experienced increased competition andcontinued soft pricing for most site pollution placements.

Brown points out that the CPL-only coverage market is also verycompetitive but the marketplace is much larger, with artisan contractors and general contractors drivingbusiness — therefore creating more opportunities. "Still, allthe new competition is driving minimum premiums down to $1,000 oreven less for some CPL-only accounts — an incredible turn from justa few years ago," he notes.

The site pollution market is a bit less competitive and themarketplace is limited only by the ability of brokers to sell thecoverage, says Brown. "The number of carriers writing sitepollution is smaller than [those] writing CPL, as site pollutionrequires more underwriting expertise," he explains. "The carrierfield narrows further for complex risks with known environmentalconditions, multiyear terms, and 'bespoke' policies, some withterms up to 10 years and beyond."

Building demand

The uptick in construction activity over thepast few years continues to fuel demand for PLL products as well asbuilders risk coverage. Michael Tighe, senior vice president andnortheast regional manager at Beacon Hill Associates Inc., alsocredits the increase in demand to awareness of environmentalexposures, examining the amount of risk that can be transferredthrough an insurance policy, and the overall improved economy andresulting healthier corporate balance sheets.

Related: Construction activity is creating opportunity forcarriers and brokers

Bill McElroy, global head of Environmental Insurance at Aspen,definitely sees demand in insurance for construction coveragecontinuing to grow, as does Joe Constantine, senior vice president,AmWINS Brokerage of Washington, who says that "the majority ofcontracts today require some level of pollution and/or professionalcoverage."

Indeed, Freberg's Brown notes, CPL coverage is standard in manyconstruction contracts and specifications; he forecasts growth inCPL coverage, including Owners and Contractors Protective Liability Coverage.Willis Towers Watson's 2018 report notes that site pollution andCPL wrap-up products are being coordinated to address bothpre-existing and construction-related exposures at projectsites.

Jones at Burns & Wilcox notes that the growth in U.S. construction and the boost inenvironmental protections being sought on those projects isvery good for this market. As large contractors realize theenvironmental exposures of a project, they are increasinglyrequiring the subcontractors they work with to purchaseenvironmental insurance.

"Although environmental coverage may not be federally or statemandated, many larger construction firms request it, which drivesthose working on the project to purchase coverage to begin work,"she says. Jones adds that lending institutions are more commonlyrequiring contractors to assume financial responsibility andprovide assurance for environmental liabilities associated withconstruction projects — in effect, requiring Environmentalinsurance as a condition of their loans.

Rod Taylor, managing director of Aon's Environmental practice,notes that the increasing complexity of construction andinfrastructure projects is driving demand for coverage: "Today,roads are typically being built in urban areas, not cornfields.There is significant exposure for projects in urban areas."

Related: Environmental insurance: A tale of twomarkets?

Tony Lehnen, managing director, Environmental Practice Insurance& Risk Management, and Douglass Cameron, account executive atGallagher Environmental, cite growing recognition among clients andlenders that Environmental risks are not covered in standardP&C programs. "Contractors, architects, and engineers — aloneor in combination — can be the targets of environmental claims forcleanup costs, property damage, or bodily injury, and the EPAconsiders the construction industry to be among the greatestpotential polluters," says Lehnen.

Mold and indoor air quality (IAQ) issues continue to be amajor source of trouble. (Photo: Photo by Kevin C. Downs viaNewscom/ALM Media archives)

Mold claims persist

Willis Towers Watson research cites increasing claims based on mold and IAQ issues in thehospitality, real estate, and healthcare spaces. Furthermore,Willis Towers Watson notes that the majority of environment claimactivity related to the damage caused during the 2017 hurricaneseason will likely arise from unexpected clean-up costs and PLLcaused by the spreading of historic or pre-existing contamination,landfill containment breaches, floating drums of chemicals andstorage tanks, sewage system backups and mold damage.

Related: When is humidity or mold damageexcluded?

According to Jones, because mold resulted in some of the largestclaims in 2017, the industry is tightening up on residential andhospitality risks. "In addition, environmental conditions areexacerbated due to natural disasters such as the chemical releasesfrom Hurricane Harvey in Houston this past summer," she says. "Thisis a prime example of how every business has an environmentalexposure — whether or not they are willing to acknowledge it."

As mold claims become more frequent, the costs to remediate and restore propertiesare ballooning, says Tighe: "We see many of these claims in thehotel industry as they implement renovation schedules. We are alsoaware of, and have been involved in, airborne legionella claimsstemming from HVAC cooling towers in hotels, casinos, hospitals andamusement parks." He finds that costs for bodily injury, findingthe source, remediation and treatment, and costs to defend can comein at well over six figures.

Related: Today's hospitality guests want new experiences andtechnology

Matthew Pateidl, vice president, senior environmental riskspecialist at Lockton, expects to see underwriters pay specificattention to IAQ issues associated with remodeling and newconstruction projects in the works for Class A office space,hospitality, and habitational apartments.

Gallagher's Cameron notes that more carriers are shying awayfrom quoting business within a specific industry that has shownincreased claim activity over the past few years — for example, IAQclaims associated with mold and Legionella for multitenant habitational entities such as hotels,apartments, and other living facilities; vapor intrusion claimsassociated with contaminants found in soil and groundwater;manufacturing and distribution claims; and municipal potable waterclaims.

"When dealing with a difficult exposure, insurers are beginningto increase risk-specific retentions to address the growingfrequency and severity of Environmental claims," Cameron adds.

As we move through 2018 and beyond, the term 'Environmentalmarket' will continue to be redefined. (Photo: iStock)

Innovation needed

"As even more markets enter the space, each one will need tofind ways to support itself — if not by price, then by appetite,"Constantine says. He finds that the appetite continues to expand far beyondwhat has long been deemed environmental risk. "We are seeing, andwriting, completely non-environmental accounts on combined GeneralLiability/Pollution policies. Between 10 and 20 years ago, marketswould require a minimum of 50% of the risk to meet their definitionof 'Environmental.' Today, some markets advertise as low as20%."

Lehnen believes this marketplace will likely remain robust andcompetitive throughout 2018, with managers and lendersfocusing more attention on environmental risks and a continuingincrease in available Environmental insurance options. "Insurerscontinue to enter the marketplace and demand for PollutionLiability products is increasing across the board, whether due toperceived risk or contractual requirements," he says. "At the sametime, a growing number of carriers are considering increasing theircapacity and coverage options, while also tailoring policy languageto meet the varying needs of each specific risk."

Pateidl at Lockton notes an abundance of capacity in themarketplace. While AIG decided in 2016 to cease writing stand-alonePLL policies, the exodus was not immediate. Due to the nature ofmultiyear policy terms continuing to expire, it will be severalyears before all of those policies are ultimately replaced."Several environmental carriers grew from AIG's decision two yearsago, and there will still be a lot of AIG policies renewing atthree-to five-year and even 10-year terms. Carriers areaggressively going after that," he says.

McElroy at Aspen believes the outlook for the environmentalmarket in 2018 can best be described as uncertain. He believes thatbecause of an excess of supply over demand, competitive pressureshave expanded terms and conditions and reduced rates to a levelthat presents challenges to identifying the opportunities thateffectively meet underwriting appetite.

"Some carriers have responded to this pressure by compromisingunderwriting standards and expanding into areas only tangentiallyrelated to Environmental," he says. His solution: working closelywith broker partners and clients to find creative solutions to meetthe risk-mitigation needs of this ever-changing and increasinglycomplex market environment.

See also:

It's only natural: The Environmental insurancemarket, at a glance

The next big thing: Environmental insurance for therest of us