Environmental Insurance Lucrative: Brokers

Burns & Wilcox operates throughout the United States and its territories, explained Don Carson, branch manager and vice president in the Dallas office

Mr. Carson said that while demand for environmental insurance products is up, the price increases being seen in other lines of insurance "may not be as substantial in this specific area." At the same time, Ms. Hailey believes that the terms and conditions in environmental policies remain "very broad."

Mr. Cox believes the environmental insurance market overall remains "relatively soft" with "components of hardening relative tocertain product lines."

Generally, Aon has not been seeing significant changes in pricing structures for the environmental insurance products, he said.

One reason for this, he suggested, is that "so much scrutiny into pricing" took place years ago "to make it a profitable piece of business that the external pressures" on the rest of the insurance industry are not having a substantial effect in the environmental area.

But reinsurance is having a hardening effect in some areas of environmental insurance, Mr. Cox observed.

Reinsurance costs have risen for underwriters, but he thinks this is "a knee-jerk" reaction to other industry events, unrelated to the actual performance of the environmental insurance sector.

He also noted that reinsurers appear to be less willing to offer long-term placements to primary underwriters.

This is leading to "a slight restriction on longer-term placements" offered by insurers, Mr. Cox stated, with 10 years being "about as much as folks want to go out."

"Otherwise, I think the reinsurers are being very supportive of the industry, and there is still the capacity that we need to do the $300 million, $400 million deals," Mr. Cox said.

Ms. Hailey said that Burns & Wilcox is seeing a broader range of customers buying environmental coverages.

Truckers-for-hire are one example.

"I've had a couple of accounts here recently where the general contractor is requiring them to carry the pollution legal [coverage] for whatever liquid they may be hauling, whether it's a contaminant or not." she revealed.

"That's something new because it usually doesn't roll down to a subcontractor like that," she observed.

Contractors specializing in mold removal are another group that can now find coverage similar to that available to abatement contractors, Ms. Hailey said.

Mr. Cox also estimated that about 60 percent of the insurance sold in the last year "was driven by transactions, where the insurance was much more embraced as a business tool than it ever had been in the past."

He added that lawyers and banks are now more confident about the role of environmental insurance.

"People were suspicious of [environmental] insurance10 years ago because they saw what was going on in [general liability] policies," Mr. Cox explained, referring to the exclusion of claims under those policies.

But the environmental insurance industry now enjoys a claims history, proving "that it's functioning and serving the role" for which it has been promoted, he said.

Additionally, among corporate buyers, "there are a variety of driving factors forcing corporations to be better at what they do, especially in environmental liabilities," Mr. Cox stated.

These forces include increasingly stringent financial reporting requirements, as well as "a higher awareness" by "lean-green" (i.e., environmentally conscious) corporations, he explained.

There are also corporations that have made great strides in recent years in establishing internal environmental risk management programs, Mr. Cox said. These firms now want to protect themselves in case something "backfires," he said, explaining that environmental insurance "will usually dovetail nicely with those programs."

Ms. Hailey noted that the increasing demand for environmental coverage also stems from contract requirements, as in the case of independent truckers.

She said that demand also is being fueled by agents who are covering their own errors and omissions obligations by ensuring that they offer "every product available for the nature" of their clients respective professions.

Still, Mr. Cox believes that, as a whole, environmental insurance is "very much underutilized," a situation he occasionally finds frustrating.

"You do a lot of educational work, a lot of promotional work, and you still walk into a law firminvolved with a transaction and you'll say, Here's where the insurance will serve overall, and they'll say, I didn't know that," he stated.

Nevertheless, Ms. Hailey believes that certain environmental insurance products that were developed some time ago, but that didn't do well, are now becoming "much more sellable" because of increased consumer awareness and the potential for loss.

But she also is seeing new insurance products being introduced, such as in the area of mold remediation.

Mr. Cox stated that "very strong growth" is expected in the environmental insurance industry.

In fact, he foresees "tremendous expansion" not only domestically but also internationally, with places such as Japan "just figuring out that they need the insurance to help them with their business dealings."

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.