LETTERSPosted On: Feb. 11, 2007 12:00 AM CST
Much attention has been given to the Federation of European Risk Management Associations' comments on the Comite Europeen des Assurances' "White Paper on Insurability of Environmental Liability" last month, urging insurers to be less "risk adverse" with respect to environmental liabilities, particularly those arising from the Environmental Liability Directive 2004/35/CE (BIE January 29, page 3).
While we understand and respect FERMA's role in working to foster the development of this market on behalf of its members, we feel it necessary to correct a misapprehension that may be created by the announcement. The fact is environmental insurance products are broadly available throughout much of the E.U., and they are increasingly affordable.
The environmental insurance business approaches €2 billion in worldwide premium. While much of the experience gained to date has been in the United States, a number of insurers--ACE among them--are actively working to increase takeup of the product in Europe, and dedicating significant resources and creativity to the effort.
Granted, over the years many larger E.U.-based risks may have been underwhelmed by the offerings in the market, largely because coverage has typically been sought for complex legacy issues, often on the basis of extremely limited engineering data.
That picture has changed, however. Since the requirements of the Environmental Liability Directive address prospective liability, most underwriting to address these liabilities can be performed on the basis of typical casualty underwriting data.
Similarly our wordings have been developed to specifically and explicitly respond to the language of the environmental liability directive, including the much discussed question of "compensatory remediation".
It's also important to point out that this is not simply a liability risk, nor is it simply a liability coverage, since much of the financial impact of environmental regulation is actually first-party cleanup expense--companies cleaning up their own sites.
As for affordability, we are actively promoting products for all segments, from small and medium enterprises to multinationals. In fact, in most European markets, we have rolled out a simple endorsement to our casualty policies, which offer specific coverage for environmental liability directive liabilities, which are generally priced as a small percentage of the casualty premium.
We certainly agree with FERMA in that much work remains to be doneecifically, a great deal of education is necessary, particularly among brokers and intermediaries, with respect to:
- The large gaps in existing p/c programs as regards environmental risk
- The specifics of the Environmental Liability Directive and of the large body of existing environmental regulation--this is hardly a new issue
- Typical market offerings, and what underwriting information is required, and
- What companies can do to make themselves a better risk.
Similarly, we can agree with FERMA that increased market capacity is necessary--both in terms of limit and infrastructure. Here too, the direction is positive, particularly as reinsurers are also increasingly open to supporting such programs.
If you are not sure what's available in the marketplace for your new environmental liability directive liabilities, have your broker dig into the question. You, and they are likely to be surprised at what's available.
Karl Russek, senior vice president--environmental risk, ACE European Group, based in London.