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BONN, Germany -- German insurers are showing greater flexibility when setting rates and conditions for environmental impairment liability insurance, say buyers.
The once-hard market for EIL insurance has softened, according to Bund Versicherter Unternehmen e.V, a German buyer's association representing midsized industry. "Buyers no longer must settle for high rates and poor coverage," said Managing Director Stephan Jens.
Since EIL insurance was introduced to Germany in 1993, insurers have taken a cautious and -- for buyers -- often costly stand on premiums and conditions. But that is changing, said Mr. Jens.
In some cases, the shift is dramatic. "Just recently, a company did nothing more than send a letter to an insurer and saved 50% on its premium," he said.
Previously, insurers offered little room to negotiate either rates or conditions, said Mr. Jens. "As is so often the case, premiums were determined on the basis of what reinsurers wanted, but claims experience didn't warrant high rates. A correction was inevitable."
Insurers admit a change has come.
"When Germany passed environmental protection legislation in 1993, we had no statistics on which to base premiums," admits a spokeswoman for Munich, Germany-based Allianz A.G. "Now we know more. It's true; in many cases, premiums have dropped 50%," she said.
Policy exclusions and restrictions are also being corrected, according to Mr. Jens. "Conditions for coverage are being eased," he said. "Previously, companies had to report regularly on the storage, type and volume of substances used in production. Those restrictions have been eased. It not only saves time but prevents a lack of coverage when every little change is not reported."
The easing up is being felt especially in new German states, where policy conditions had been most stringent, said Mr. Jens. After reunification, insurers were hesitant to insure EIL risks for companies located in the former Communist East Germany. With over five years of experience with EIL risks, however, insurers are making more concessions everywhere in Germany.
One such concession involves per-claim coverage limits. Within the last six months, German insurers increased coverage limits for accidents occurring during normal operations to 50 million deutsche marks ($28.2 million) from 20 million deutsche marks ($11.3 million) per claim.
Peter Geppert, director of EIL product development at Cologne, Germany-based Gerling A.G. said the move reflects experience with claims but admits he is worried about rate cuts. "The difficult thing about EIL is the long-tail exposure," he said. "It's foolish to be too short-sighted. Rates reflect client experience, but also the potential for loss."
In addition, Mr. Jens said that insurers have also eased restrictions on how companies can use their insurance. In the past, some insurers refused to cover claims that went beyond an annual limit, the so-called "single maximum." Now, Mr. Jens said, buyers can negotiate better conditions and even increase the insured maximum that can be used in any given year. "In the past," said Mr. Jens, "companies could easily exhaust insurance with several claims. That's changed. Buyers can easily double that amount, and we recommend they do."
But Gerling's Mr. Geppert contends it was always possible to obtain increased coverage. "We have always offered double-maximum. Some buyers are just now finding that out."
The "double maximum" limit is a boon to buyers, who say it reduces their fear that several claims in the same year will eat up coverage limits.
Insurers are also expanding coverage for the cleanup of a buyer's own property after an environmental accident, protection known as "preclaim coverage." Initially, EIL insurance covered only third-party cleanup costs, and it recently allowed just 10% or 20% of the amount of a claim for the cleanup of a company's own facility, even in instances where environmental damage was limited to the buyer's property. "We have had to settle for 10% of the insurance sum in the past," said Mr. Jens, "but now it's possible to have the entire insurance sum apply."