An intricate nexus of regulations around the globe is making coverage for multinational corporations increasingly complex – and under the glare of public scrutiny, the stakes are higher than ever
The global environmental regulatory landscape is a patchwork quilt of complexities, from the EU’s sweeping Environmental Liability Directive to the Comprehensive Environmental Response, Compensation and Liability Act (Superfund) in the US. For multinational businesses, operating in multiple countries is a balancing act that requires navigating an intimidating amount of legislation.
“From the multinational side, it’s incredibly important to make sure the policy is responding to local laws,” says Glenn O’Halloran, Chubb’s environmental risk manager for the UK and Ireland. He says that at last count there were around 17,000 different pieces of environmental legislation globally. “So when businesses do have an event, it’s important to have a local contact point within the certain territory where these losses occurred and to ensure that the policy is structured appropriately for that territory.”
Regulation across various jurisdictions can be “wildly different”, says Neil Beresford, partner at Clyde & Co. Some markets, such as China, India and some countries in Europe, have compulsory insurance programs in certain areas, and it’s no coincidence that those jurisdictions tend to see the highest claims activity.
Alongside this complex global landscape, there is an ever-increasing level of public scrutiny on companies – meaning the stakes are high when it comes to potential reputational damage resulting from an environmental incident.
“There’s increased pressure in how [firms] operate and how they manage their environmental exposure,” O’Halloran says, explaining that this is driven in part by rising public awareness, as well as the ability of news to spread quickly in the digital age. “Something that might have been a relatively benign issue can quickly become serious from a reputational damage perspective.”
But despite the weight of the risks, clients typically don’t understand the extent of their environmental exposure, and among those that do, there is a common misconception that property and general liability policies will be enough to cover the majority of any losses.
“The market is in a very similar place to where D&O was, say, 15 years ago, or where cyber was five years ago, in that there’s not sufficient understanding of the generality of the risk,” Beresford says. While a great deal of work was done in the cyber market to help businesses understand that cyber exposures are not just limited to technology companies, he explains, there remains a lack of awareness in the environmental space.
“If you look at the claims data across industry sectors, you’d be surprised at how many claims are accounted for by real estate businesses, retail businesses and construction businesses – they’re all facing quite significant claims,” Beresford says. “So there needs to be a greater awareness that this is not just confined to manufacturing or oil and gas sectors – it is everybody.”
One aspect in particular that is not well understood is that under some environmental legislation – including the EU’s Environmental Liability Directive – the responsibility to remediate falls not just on the polluter, but the landowner too.
“About half the cases that we see are cases where a landowner has been required to remediate for something that someone else has done,” Beresford says. “It’s the fact that the landowner is responsible for the acts of others that makes environmental risk of such general application.”
With such a complex landscape to navigate, how are clients – especially those facing exposures in multiple territories – best supported? O’Halloran stresses that both brokers and insurers must recognise that the differing requirements in different territories create a need for local policies. Brokers should draw not only on multinational insurers’ knowledge of global environmental exposures but also on their capabilities in providing local services to clients.
“The common theme here is that a multinational client must properly structure their environmental insurance policy to respond to unique risks in each territory,” O’Halloran says, “and they must not rely upon a single master policy to appropriately insure their overseas exposure.”