Environmental Insurers Look to Expand Range of Clients in 2007

–How to reach their own growth goals.

Luckily, environmental insurance products can help agents meet all these challenges. The market for these products has evolved steadily over the years. In the early days of this niche, pollution coverage was available only for a select segment of the commercial market: highly experienced environmental practitioners. With the continued underwriting success of the line, how-ever, and the growing societal demand for corporate responsibility for pollution incidents, environmental insurers have expanded the number of classes they serve. This expanding group of prospects has led to the creation of new coverage forms and combinations to meet specific needs. Prepared agents can differentiate themselves from competitors by offering these new products.

And now is a great time to offer them. The cost of most clients' total insurance programs has dropped significantly in the past couple of years, giving agents a great opportunity to offer clients products they may have decided to forgo in tougher times. Now, with excess funds in their clients' insurance budgets, agents need to help their insureds look at their full range of exposures. Environmental risks are some of the easiest and most affordable to address.

More prospects, broader coverage
Perhaps the most significant change over the last few years has been carriers' increased willingness to write environmental coverages for a broader group of clients. For many years pollution coverage was written only for businesses with environmental expertise and large, obvious pollution exposures. Meanwhile, many mainstream accounts, which had no such coverage, incurred significant environmental losses because of the absolute pollution exclusion in the CGL policy. In recent years, however, the environmental insurance industry has begun to address some of these mainstream businesses and their needs.

For example, contractors of all sorts have significant pollution exposures. Environmental exposures for contractors arise from contaminants brought to job sites (fuels, solvents, building materials, cement, etc.), contaminants uncovered or disturbed at job sites and the potential for completed operations to create hazardous conditions. While many agents try to address these exposures with pollution endorsements provided by standard CGL carriers, these enhancements often are inadequate. Fortunately, contractors pollution liability policies for general and trade contractors are now available at reasonable minimum premiums.

What is new in 2007 is the breadth of contractors for which environmental coverage can be purchased. At the start of 2006, most general commercial contractors could find coverage, many with mold included. But most environmental carriers refused to cover residential or habitational contractors. Now, many will. While it is still difficult for such contractors to obtain coverage for mold, it is no longer impossible.
When advising such clients about their environmental exposures and options, it is important to keep in mind the CGL policy's definition of a "pollution condition." This broad statement in essence says that almost any substance that is an irritant could be a pollutant and thus subject to the pollution exclusion. What an insured or even his agent thinks is hazardous is irrelevant; what matters is what the insurance policy says is a pollutant. When insureds are shown how encompassing the CGL's definition is, they often begin to comprehend just how much at risk they are.

Added to contractors' everyday exposures has been the concern over mold. Coverage for this peril used to be available only to trained remediation professionals. Now, however, contractors pollution liability insurance with mold coverage is available for many types of contractors. HVAC, plumbing and mechanical contractors–not to mention residential and habitational contractors–are all seeking such coverage because more of their project contracts require it. We expect demand to continue growing significantly in 2007.

Another interesting development has been the creation of stand-alone products-pollution policies. A drum reconditioner, concerned about the failure of a drum to contain hazardous material it is designed to hold, is one example of a prospect for this coverage. Another might be a manufacturer of absorbent materials for cleaning up spills. For either insured, pollution losses under the typical CGL would be excluded. Now environmental carriers will cover such exposures on a stand-alone basis; some will write such coverage with the CGL as well.

Over the last few years, we've also seen significant growth in combined forms. As we enter 2007, virtually every environmental market offers a product combining CGL, contractors pollution and professional liability coverages. These products generally are available only for environmentally oriented firms, but the definition of such firms has been broadened. Most carriers now require eligible insureds to derive only 50% of their revenue from environmental services, and even that figure may be negotiable.

The advantages of these forms are many. One company handles all claims, so there is no argument about who is on the risk. One underwriter puts together the whole account, so the agent has only one contact. The pricing generally is competitive, since the policies' various coverage parts typically have a shared limit. There are downsides to these policies, however. The shared limit often does not provide enough coverage for large firms. Also, the vast majority of these policies are written on nonadmitted paper, which may be unacceptable to clients of some contractors. Finally, standard endorsements that construction contractors often require are hard to obtain in these package policies. Agents need to consider these issues before deciding to recommend combined forms to their clients.

One year ago, only three or four environmental carriers offered an umbrella or excess policy over their primary combined forms. Now almost all do. The advantage of using a combined form with such policies is significant. In the past, most excess writers required the purchase of a separate GL aggregate for the primary policy, which could be quite expensive.
Some environmental carriers recently have begun offering companion auto insurance programs. Typically these are designed to cover the service fleets of environmental contractors. Many also will provide umbrella or excess coverage for this risk. The upshot is that many environmental insurers will now cover much of a contractor's account–the CGL, contractors pollution liability, professional liability, auto and excess liability insurance.

Another interesting evolution of the product line has been the combination of CGL coverage and site-specific pollution liability insurance. The latter part of the policy can cover both onsite and offsite cleanup, or third-party bodily injury or property damage. This enables insureds to buy their primary GL and pollution coverage from the same carrier and enjoy the benefits of such an arrangement. Some packages also offer excess coverage, giving the client even greater protection. All these coverage permutations enable agents to bring environmental coverage to their clients in new, more affordable ways, which helps the agency differentiate itself from its competitors.

Agents should be aware that none of these forms is "standard." Many carriers say all CPL or EIL forms are the same, but that's incorrect. Their intent may be the same, but their terms can be quite different. One carrier that writes a great deal of combined CGL and site-specific pollution coverage excludes onsite cleanup, but doesn't clarify this well in the quote. Others, offering the "same" coverage, provide both onsite and offsite cleanup, although at a higher price. (Of course, coverage needs should be an important factor in the buying decision, not just cost.)

Many agents address their contractor clients' pollution exposures with "add on" pollution from their standard CGL carriers. While such solutions are inexpensive, they have their shortcomings. To be covered under many of these endorsements, a pollution discharge has to start and stop within a certain time frame, usually a few hours or days. It also must be discovered and reported within a short additional time period. Other CGL pollution endorsements typically provide only sudden and accidental coverage. Also, few of these endorsements cover the actions of an insured's subcontractors.

The increased competition in the environmental insurance market has led not just to new coverages but also to lower costs. Rates have dropped considerably in the last two years. With minimum premiums as low as $1,500 for many products, agents can't afford not to look into high-quality stand-alone coverage for their clients. By doing so, they can fulfill the aforementioned second goal: to enhance clients' protection at a competitive rate.

The final goal of many agents in 2007 is to grow their own businesses. One of the best ways to do that in a softening market is to round out existing accounts. Offering environmental insurance is an effective way to do this.

For instance, agents and brokers can offer contractors pollution liabil-ity insurance to those contractors that don't engage in environmental work. Coverage from high-quality carriers starts as low as $2,500. Coverage can be offered on an occurrence or claims-made form. A sublimit for mold often is available, usually on claims-made forms.

Another opportunity is to offer contractors site-specific pollution insurance. Many contractors either own their yards (and often have a lot of equity tied up in them) or are responsible for their condition. Most contractors store materials and equipment on these sites. They also park vehicles and may maintain them and other equipment there. All these uses pose the hazard of a slow or sudden release of pollutants. Site-specific pollution coverage today can be added to a contractor's program for as little as $2,500 and is a great way to ensure the long-term value of the yard.

Owners of office buildings, movie theaters, supermarkets, etc., also face pollution exposures in connection with the ownership and use of their properties. The owners of a building in which a leaking pipe leads to mold growth can find themselves liable to their tenants. Up to $1 million of coverage for such an exposure can be purchased for as little as $1,250.

A final rounding opportunity is to provide over-the-road pollution coverage for an insured's vehicles. The pollution that stems from a sudden upset or overturn of a vehicle can be expensive to clean up, making this coverage an excellent investment for the insured.

Know what you're getting
Agents and brokers should thoroughly understand each environmental insurance product they present to their clients; they should not rely on labels alone for a full description of a product. Consequently, agents need to either develop expertise in such pro-ducts or access outside sources that can provide it.

There are several ways to access the environmental marketplace. One is to approach large, well-known environmental insurers that work directly with retail agents and brokers. Examples include AIG, XL and Zurich. Another option is to approach an MGA with a specialized environmental product. A third option is to go to a general wholesaler. Most agents have longstanding relationships with wholesalers they go to for hard-to-place accounts, and in today's marketplace most wholesalers have access to the environmental marketplace. A fourth option is to use a specialty wholesale broker that focuses on environmental business. All of these options generally produce the same commission for agents, so the determining factor is often how much assistance an agent wants. In this class of business, outside expertise is usually very helpful in finding the best coverages for your client.

While environmental products have been available for years, they are just now becoming the answer to a wide range of insureds' needs. In a softening marketplace, agents have a good opportunity to use these products to differentiate themselves from competitors, better serve their clients and generate additional revenue. By accessing the environmental insurance market in the way that makes the most sense for them, agents and brokers can write dozens of new accounts in 2007, helping to make this year even better than last.

Bill Pritchard is president of Beacon Hill Associates, a wholesale brokerage firm that specializes in environmental insurance. He holds the Environmental Risk Manager designation and teaches pollution insurance classes nationwide.