FERMA urges insurers to speed development of environmental cover

The Federation of European Risk Management Assns. is calling on insurers to be less "risk averse" and develop products that will allow businesses to protect themselves against new environmental liability exposures they could face as of the end of April.

The appeal from FERMA was a reaction to the publication of a white paper on the insurability of environmental liabilities produced by an expert working group at the Comite Europeen des Assurances in Brussels, Belgium.

The paper referred to the "significant challenges" in transforming the environmental liability market from being "niche to mainstream."

"We remain a long way from this goal," according to the CEA paper, with the groundwork laid in the white paper signifying "a first step on the journey."

Members of the European Union must transpose the new European Environmental Liability Directive into their national law by April 30. The European Commission has, however, given the insurance industry until 2010 to develop products to cover the liabilities.

To assist in the process, CEA, the organization representing the European insurance and reinsurance industry, formed the 11-member environmental expert working group two years ago to research and identify possible cornerstones for future insurance products.

Pierre Sonigo, a former risk manager at Pechiney Groupe in Paris who represents FERMA on the CEA working group, said in a statement that the gap in timing will leave businesses facing considerable uncertainty with potentially large exposures that they cannot insure.

"At the moment, insurers are risk averse when it comes to environmental liability," said Mr. Sonigo, FERMA's secretary general. "They should be more proactive in providing products now that the directive is being transposed into national law. Our companies need to take risk to survive; insurers should do so, too."

The Environmental Liability Directive, adopted in April 2004, aims to create incentives to avoid environmental damage based on the so-called "polluter pays principle." It ensures that environmental damage is repaired at the expense of the polluter, rather than society.

Under the directive, the environment is considered a legal entity for the first time, and national governments will have the responsibility to bring claims against polluters on behalf of the environment. Some forms of remediation referred to in the directive are not covered under current insurance policies.

FERMA urged insurers to make cover available and at a "reasonable price" for buyers, the Brussels-based group said.

From the insurance industry's perspective, the ability to develop coverage depends largely on whether member states decide to go beyond the scope of the directive when transposing it into law.

Having different regimes across Europe would be a nightmare, said Phil Bell, chairman of CEA's general liability committee and a member of the working group. He is also group casualty director for Royal & Sun Alliance Insurance Group P.L.C. in London.

The paper cited Poland and Spain as examples of countries considering more stringent legislation.

"The key message is the greater the consistency of the application of the directive...the greater the probability of insurance developing," Mr. Bell said.

CEA is also discouraging countries from opting for compulsory insurance or financial security. Several countries are "seriously considering" it, including Spain, Bulgaria and the Czech Republic, Mr. Bell said.

"Insurance is most likely to develop when you have a free market," Mr. Bell said. "If there is no pre-determined coverage that the operator has to buy or the insurers need to provide, you can be far more creative and develop what people need and want."