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LONDON -- The U.K. insurance industry, from buyer through to reinsurer, has developed an unprecedented set of guidelines that aim to improve the underwriting of environmental risks in the United Kingdom.
The guidelines were launched at a London seminar this month as part of a wider report delivered by the Joint Pollution Working Group.
The working group, established 18 months ago, includes representatives from the Assn. of British Insurers, the Assn. of Insurance & Risk Managers, the British Insurance & Investment Brokers Assn., Lloyd's of London, the London International Insurance & Reinsurance Market Assn., the Loss Prevention Council and the Environment Agency.
Phil Bell, working group chairman and technical services manager-global risks division for U.K. insurer Royal & Sun Alliance P.L.C. of London, said it is the first time all sectors of the U.K. insurance industry have joined forces to examine and improve the underwriting of a particular insurance class. He said all group members agreed there was a need for better-quality underwriting of public liability insurance for sudden and unintended pollution in the United Kingdom.
Insurance for third-party claims for damage arising from pollution in the United Kingdom generally is offered as part of public liability policies.
Mr. Bell said the guidelines represent a more technical approach to environmental underwriting, as practiced in Europe and the United States, by giving insurers better information and guidance on assessing environmental risks. He said the guidelines aim to help underwriters better understand the technicalities of environmental underwriting and, ultimately, reward the better risks.
The guidelines, which are not enforceable, set out key questions for insurers to ask buyers seeking public liability insurance. The questions are designed to help insurers identify businesses that have a high risk of filing large pollution liability claims.
Michael Meacher, U.K. Environment Minister, welcomed the launch of the guidelines during a keynote address at the seminar, attended by more than 60 representatives of the U.K. insurance industry. He said the report sends a clear message to U.K business that "it pays to get your environmental house in order."
"Although the insurance industry are not front-line environmental policemen, they do have an important role in educating the businesses they insure and helping them reduce their environmental risks, as well as giving them financial incentive to reduce that risk," he said.
Mr. Meacher said the guidelines are a good, practical initiative, but that they now must be backed by commitment from the insurance industry to take them forward.
Mr. Bell said he agreed with Mr. Meacher that the guidelines must not be "just words on paper." He said action now lies with individual insurers to adopt the guidelines in assessing their clients' environmental risks.
Graham Lee, director of risk management at Waste Management International P.L.C. of London and chairman of AIRMIC's environmental group, said U.K. risk managers welcome the shift toward more technical environmental underwriting. "I am sure some buyers will complain about filling out more forms, but I am sure the majority will welcome the opportunity to discuss their environmental risks with underwriters," he said.
Mr. Lee said there is a need for U.K. insurers to study their clients' environmental exposures more carefully. He said many large U.K. companies have well-developed risk management plans for environmental liabilities, but there is a perception among such companies that underwriters make no allowance for this.
"Buyers now look at environmental liabilities the same as any other liability they face -- without emotion and using as much fact as possible," he said. "Buyers want underwriters to ask the right questions. . .to discriminate between good and bad."
The guidelines cover three areas:
* Inherent hazards, including a list of all industrial materials and substances processed, handled or stored onsite.
* Management controls, including processing, storage and waste management procedures.
* Location, including descriptions of surrounding areas and pathways through which potential pollution and contamination could flow.
The guidelines are based on general-purpose questionnaires, but they can be adopted by insurers to specific industries.
Jeremy Hodge, manager of insurance services at the U.K. Loss Prevention Council, which provided technical advice to the working group, said the guidelines are designed to operate on multiple levels. "The idea is to avoid troubling every client with every detail and only bothering with the extreme for extreme cases," he said.
The starting point is a standard questionnaire for all buyers. Insurers can then issue supplementary questionnaires for those companies they think might be high risks, detailed questionnaires for those companies they know are high risks, and, finally, consultant reports to address areas that need to be improved. At each level, buyers must provide more detailed information.
Mr. Hodge said the most difficult part for insurers is interpreting the information gathered from the questionnaires. "How you turn the questions and answers into ratings and premiums is up to each insurer," he said.
Training and support for underwriters who will be dealing with the questionnaires is essential, Mr. Hodge said. But he said the guidelines are "not just science for science's sake" and that underwriters still will have to apply some degree of common sense. "You will still have to go for the overall feel of the risk," he said.
Copies of the Joint Pollution Working Group's Recommendations for the Underwriting of Pollution Risks cost L15 ($25) and are available from the Assn. of British Insurers, 51 Gresham St., London U.K. EC2V 7HQ; 44-171-600-3333; fax: 44-171-696-899.