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The nightmare scenario for most risk managers is based upon the following dialog that can happen in any corporation in any European Union member state (in relation to any directive).
Tony Tight-Fist, chief financial officer: "Well Ron, I read an article over the weekend that says that all companies are now subject to a terrifying new green law that could cost us squillions if we get caught dumping our waste in National Parks as we have for years all over Europe. I presume you have insurance cover in place for the company, and more importantly, me and the rest of the board in case those sandal-wearing eco-police catch us red-handed again?"
Ronnie Risk, Head of risk and insurance: "Hmmm. I think you are probably referring to the new environmental liability directive that is designed to protect public space from polluters by making sure that they pay for any cleanup that they incurred or are even likely to cause in future?"
Tony Tight-Fist: "Don't try to blind me with science Ronnie. Are we covered? It is your job on the line, not mine. And I don't want to hear any of your broker-driven whining about 'extra exposures means extra costs.' I want cost-free solutions."
Ronnie Risk: "Ummm. Well. The thing is boss, we are not actually covered, because this is a whole new raft of exposure and the insurers have not quite worked out how to cover it fully yet. The national member states are transposing it into national law as we speak and the rules will differ widely. Our German operation looks like it may get off lightly, but our Madrid operation is very worried because the Spanish are insisting on compulsory coverage in place by 2010, regardless of what the European Union decides. Nobody has a clue what the United Kingdom is up to as it forgot to issue its discussion paper. Oh, and by the way, pressure groups have been empowered to make sure public authorities are doing their job properly."
Tony Tight-Fist: "So what you are telling me is that if we are caught dumping, we are going to be sued by those maniacs at Amigos of the Universe and it will come straight out of the bottom line, not the insurers' pockets?"
Ronnie Risk: "Errr... well... I guess that just about sums it up."
Tony Tight-Fist: "Ronnie get on the phone to Barbara Broker at Global Contingency Inc. and set up a weekend for me and her in Caymuda to sort out some way of covering this through the captive or a finite deal."
Ronnie Risk: "Shall I pack my golf clubs or do you want me to just caddy for you as normal?"
Tony Tight-Fist: "No. You're fired."
Don't panic, this is not the transposition of a taped conversation anonymously passed onto Business Insurance Europe by a disgruntled former risk manager. As far as we know, this conversation has not happened, yet at least.
A version of it could happen, however, if the current high level of uncertainty over the coming raft of national laws that transpose the European Commission Directive on Environmental Liability (2004/35/CE) continues for much longer.
The European Union estimates that the directive covers roughly 15% of the E.U. landmass and, based on an analysis of the U.S. system, will cost European business about e1.5 billion for starters.
The E.U. recognizes that companies will not find a ready-made insurance or wider financial guarantee market to carry the can for panicky risk managers. It thus delayed the decision on whether or not to impose a compulsory funding system until 2010 when it will reconsider.
Over the last couple of months or so BIE has reported on a sparky debate about whether or not an insurance market really does exist for this extended environmental liability.
FERMA, The Federation of European Risk Management Associations, set the cat among the pigeons when it apparently suggested that no market currently exists beyond the standard coverage for existing liabilities. The leading specialty insurers cried foul and said that coverage does exist.
The reality appears to be that coverage does indeed exist, but that it is restricted by limits offered, territories and industries covered. As usual, those operating in the riskiest sectors will find the coverage the most expensive if it is available at all.
The good news is that should Tony Tight-Fist come bashing on your door, industry bodies such as FERMA, the Comite Europeen des Assurances and the Gesamtverband der Deutschen Versicherungswirt-schaft e.V. in Germany and individual companies are working on solutions that could come to embattled Ronnie Risk's aid.
While these hopefully broad solutions are under development, polluters will be exposed to potential actions that will hurt both the bottom line and reputation.
Thus, it appears risk managers in Europe have two things high up on their 'to do' list currently.
Stop squabbling with brokers, insurers and reinsurers about what is and is not currently available and vigorously accelerate the analysis of what is doable, when and how (and hope that the European Commissioner for Competition, Neelie Kroes, does not spot you all together).
Stop polluting or even thinking about something that has a reasonable chance of polluting. Bang on Tony Tight-Fist's door before he even reads about this and demand investment in loss prevention, or risk having to call on his D&O policy. See how he likes it for a change.