Environmental liability exposures have evolved and expanded far beyond the coverage provided in standard property or general liability policies. Claims stemming from environmental hazards tend to be extremely costly and complex, which has driven underwriters to wash their hands of pollutant risks, leaving a gap for specialized environmental insurance products.
The environmental liability insurance market in Canada is growing, according to Beazley Canada environmental underwriter Miles Foxworth. It has progressed from being a niche market targeted primarily at the oil and gas industry and chemical manufacturers, to a more mainstream market as heightened environmental regulation forces up liability exposures.
“People are definitely buying more pollution insurance coverage, which is largely due to heightened regulation combined with stricter financing requirements from banks and investors,” Foxworth told Insurance Business. “If a company is refinancing or trying to get a loan for a property, a bank won’t want to take on any pollution exposure and so will require the company to have pollution coverage in place before offering any funding.
“Likewise, if someone is interested in purchasing a property or a plot of land, they want to make sure the liability for the pollution has been taken care of before they move forward acquiring the site. It’s the same for big property developers, who want to make sure a site is covered before starting a project, and for contractors, who oftentimes can’t get on to a job site until pollution coverage is in place.”
Despite these requirements, there remains a serious lack of education around what environmental exposures actually are and how far the liability can fall, according to Foxworth. He described education as the “consistent number one challenge” in the environmental space.
For example, not all property owners understand that they’re responsible for contamination on their plot of land, even if that contamination existed before they became the owner. Likewise, if a developer is digging a plot of land and accidentally hits a waste pipe, the developer is responsible for that clean-up.
“One thing insurance brokers can do – based on successes we’ve had at Beazley – is educate clients by using real-world claim examples,” said Foxworth. “Here’s a milk transporter with similar exposures to you. No, they don’t handle anything hazardous and yet they’ve had pollution claims and exits of a million dollars. Real-world claim examples seem to have the biggest impact in opening people’s eyes to the exposures and encouraging the purchase of coverage.
“Continuous education and communication are also important. There might be some clients who have bought pollution coverage for years but haven’t submitted any real claims because they don’t understand the scope of the coverage. As clients become more aware of what’s covered, they will start to take advantage of those policies and claims will increase.”