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Insurers respond to demand for specialty environmental cover

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Companies facing environmental risk management issues are being offered an increasing array of specialized coverages and services by insurers and brokers seeking to customize programs for specific needs, experts say.

As old industrial sites are used for real estate development, in- surers and brokers say they are seeing increased demand for products that mitigate the environmental risk inherent in those projects.

And as more recent environmental risks are gaining greater attention, the market has reacted to those exposures too, they say.

Specialized environmental coverage has come a long way since it hit the market two decades ago, experts say. Going from niche to mainstream, the one-size-fits-all approach to environmental coverage is history, and the demands are virtually everywhere thanks to issues such as brownfield redevelopment, they say.

Overall capacity for environmental insurance stands at approximately $400 million, with industry leaders offering single-placement capacity as high as $50 million, according to a November 2006 market study by Willis Group Holdings Ltd.

But policy terms have been made shorter, going from 10- to 15-year policies to renewable policies in the 3- to 5-year range, according to Ursula Knowles, New York-based vp and knowledge manager for the Environmental Practice at Marsh Inc.

"Some (insurance) carriers have gotten away from long, multi-year policies," she said. "A lot are asking 'what's going to happen in the future that we don't know about now?"'

The need for environmental insurance is being driven in large part by such issues as brownfield redevelopment and the real estate market.

Peter Breitstone, Jericho, N.Y.-based managing principal and chief executive officer of Aon Corp.'s environmental services group, said construction industry risks account for about 25% of Aon's environmental business, as there is little clean land available in many areas.

Such is the case in New Jersey, for example, where brownfield redevelopment has taken up much of the market there, according to Ann Waeger, a partner at the Westfield, N.J.-based National Assn. of Industrial and Office Properties.

"This is where we are finding a lot of property with environmental ills," she said. The same goes for land in such states as California, New York, Ohio, and Pennsylvania, where lawmakers have taken tough stances on environmental issues.

Lenders also are helping drive the market, as more and more require companies to purchase environmental insurance as part of their lending deal, experts said.

And despite a nationwide slowing of the real estate market, the environmental insurance market is still expected to grow, according to Mr. Reynolds. "We're anticipating a (5%) to 10% growth in the market annually."

John O'Brien, executive vp and chief executive officer for AIG Environmental in New York, said many companies are not aware of the environmental liabilities that they face, though.

"It is a robust market and (environmental insurance) is more mainstream, (although) people don't have to buy it" he said. "I think brokers are still reluctant to buy (environmental insurance) for their clients because there is a belief that you have to be an environmental scientist to understand it, and that's not true."

Specialty environmental coverage for more recent and emerging environmental risks is growing in popularity and insurers are often becoming more comfortable about offering the coverages, experts say.

New knowledge on how to mitigate mold, and the lack of scientific evidence supporting the claim that mold causes bodily injury, has helped support the expansion of coverage for mold-related risks, they say.

"Over the course of the last several years, it has gotten much better, providing extensive coverage when needed," Mr. Reynolds said. "Insurers are putting in place mold management plans that address exposures and how they would handle them."

Ken Ayers, a Nashville, Tenn.-based managing director of Aon's environmental services group, said more focus is on risk management. "Once mold became a primary concern, people began doing a better job of preventing it," he said. "Before people didn't worry about venting" areas that are susceptible to mold growth.

Mr. Breitstone said insurers are increasingly requiring that companies have mold or moisture management plan in place before offering coverage.

One proven and popular prevention method includes having adequate ventilation in areas where water is present, according to the experts at Aon.

"People are more aware of mold," said Ms. Knowles of Marsh.

Health concerns and bodily injury issues stemming from mold have eased in recent years after it was discovered that, as Mr. Ayers put it, "the science didn't support the injury."

For a health-related claim to pass the test, it must be proven that the injury was caused by the substance. "It's been difficult for (plaintiffs) to prove the science," Mr. Ayers said.

Where science related to mold risks left off, it picked up significantly in other areas, which could lead to a potential expansion of specialty coverages if more environmental risks are excluded from general liability policies, they say.

Vapor intrusion, for example, where chemicals in groundwater are trapped in homes and businesses above ground, is relatively new and is causing environmental agencies to re-open historic chemical spill cases across the country, brokers say.

Greg Roberts, Houston-based national managing direction with USI Environmental Risk Mitigation Group, said so far, vapor intrusion in general has not made the list of exclusions, but could eventually once entities like the Environmental Protection Agency produce more studies.

"The insurance industry is always the last to know," he said. "Asbestos was around forever, and it wasn't until the insurance companies got the lawsuits that asbestos was excluded."