Given the breadth of its client base—and the complexities of Environmental exposures—it’s inevitable that Marsh’s clients will encounter risks for which no insurance solution exists. In these situations, the Environmental practice, which prides itself on its innovation, will work to develop a risk-transfer product that addresses the gap and then will find a carrier willing to support it.
“We take the lead in identifying those unmet needs and then going to the marketplace and getting those endorsements—and then rolling them out throughout the industry where the risk exists,” says James Vetter, a managing director and the member of the Environmental team with a special expertise in the retail, wholesale and food-and-beverage industries.
Vetter, for example, spent the last six months working with a number of markets to come up with a disinfectant endorsement so that when a company has a product recall due to an outbreak of salmonella or another bug, carriers will now respond and pay for those cleanup costs.
And for a private-equity client eyeing a deal in Europe, Marsh was able to secure a coverage that’s usually off the table in Environmental negotiations: a policy that doesn’t exclude known pollution conditions at a site.
Pollution Liability “is really not intended to cover known conditions, but we had a private-equity deal come in with a number of known conditions as well as the typical unknown-conditions concerns,” says Vetter. “But we were able to convince a specific market to cover every single known condition related to this deal under Pollution Legal Liability (PLL). You don’t often get to be able to pull all risk into a PLL policy.”
This “big win,” as Vetter describes it, was achieved due in part to Marsh’s deep understanding of the foreign regulatory marketplace and how it differs from the U.S. in a key respect: While the rules may be similar, there is much less enforcement of them overseas.
In the view of Adam Hill, Marsh’s N.Y. Metro Environmental Practice leader, who has experience around both financial-services and international engagements, this deal illustrates not only Marsh’s innovation but also its persistence. “If we sit there and think we can’t get the known conditions covered, then we’ve given up. But we didn’t give up, and the client really enjoyed the result,” he says.
Another new product around known conditions deals with cost overruns on cleanup projects. “Historically, a Cost Cap product was available—but that marketplace died about 24 months ago because there were such significant losses on it. And that left a real gap in the marketplace,” Vetter says.
Marsh began seeking alternatives, and in an arrangement with Axis Insurance, helped develop a replacement Remediation Management product (geared for projects where the forecasted cleanup cost is expected to be $1 million or more) that “offers substantially the same coverage” as a Cost Cap policy, Vetter says.
How did Marsh whet Axis’ appetite for a risk other carriers repudiated? The brokerage and carrier did a lot of “soul-searching around what has been the source of these losses,” Vetter says. And with some coaching help from Marsh and its extensive data around what was causing claims, Axis is confident it has in place a screening process that will filter out unpalatable risks.
Marsh is also careful only to bring the carrier cleanup risks that meet strict criteria. “One of the challenges with the prior Cost Cap model was not only did it transfer a lot of risk, but it was also very complex and costly for an insurance company to underwrite,” says Chris Smy, managing director and global practice leader for Marsh’s Environmental practice. “So what would have killed this [alternative] product from the start would be a high volume of opportunities that really wouldn’t pass the ultimate underwriting screening, yet would incur costs during that process. So there is an element of trust between ourselves and Axis that we’ll be thoughtful around making sure their solution will fit the need for the client—and that the client understands what they’re going to get as opposed to what they would really like to get.”
And Marsh’s approach to products isn’t limited solely to classic insurance solutions to risk-management problems. “We work on providing consultative solutions to help clients divest liability with a product called Environmental Liability Buyouts and a related product called Guaranteed Fixed Price Remediation,” says Vetter. “In these situations we act as facilitator to bring in companies that have interest in looking at clients’ liabilities and assuming them contractually. A lot of times these liabilities are associated with distressed real estate, so [these properties] sit on the books and absorb costs year over year from a carrying perspective.”
By orchestrating a divesture of the liability, Marsh also helps make it possible for the client to sell the real estate. “By integrating what is really a real estate solution into our advisory role, we’re generating revenue for clients—and that’s really powerful for our value proposition. Our services are suddenly no longer seen as a cost of doing business,” Vetter says.
The Guaranteed Fixed Price Remediation is particularly popular with energy companies unwinding from their downstream business assets and with private-equity clients looking to close out a fund. “We’ve done many, many of these deals,” adds Vetter.
In summing up Marsh’s approach to innovation, Vetter says, “Anybody can go out and get a quote. But a hallmark of Marsh’s Environmental practice is to press a boundary condition, to drive that edge for our clients, to get things done that a lot of people may stop a yard short of.”
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