Pollution policies and forever chemicals

The rise of environmental insurance in a climate conscious world

Pollution policies and forever chemicals



There’s a palpable shift happening in the environmental insurance sector, thanks to evolving ESG standards, increased regulatory demands and a rising coverage of “forever chemicals” in the media. According to research from NAIC, the market generates around $2 billion in annual premiums, outpacing even the general property and casualty sector.

Speaking to Insurance Business, Nick Kohal, executive vice president at American Risk Management Resources Network (ARMR), said that these surges are evident in an increased interest of first time buyers for the product.

“A lot of that is really driven by the standard GL markets adding in more environmental or pollution exclusions to their policies,” Kohal said. “Because of that, agents are reaching out for ways to try and solve the newly highlighted coverage gaps.”

Kohal used the term “coverage gap” loosely, adding that oftentimes the new exclusions included are just further exclusions from the pollution exclusion found in pretty much all standard GL policies.

“This has certainly created  more interest for first time buyers to start exploring environmental coverage  for their operations going forward, especially as it pertains to manufacturers,” Kohal said.

This rising interest isn't merely a reaction to tighter policy wordings; it also reflects a growing awareness among businesses about their environmental exposures. The motivations for acquiring environmental insurance are twofold. On one hand, there are proactive companies that, upon recognizing potential environmental liabilities through news stories or industry chatter, decide to safeguard their operations.

“They've seen news articles or they've heard of companies  in similar industries that have experienced some sort of an environmental loss,” said Kohal. “[This drives them to think] perhaps we have that exposure too; maybe this is something that we should look into.”

On the other hand, there's a reactive element driven by external requirements, particularly in the contracting sphere. Contractors increasingly find that to even set foot on a project site, they must carry environmental insurance.

“There is a flip side  that we see particularly as it pertains to contractors,” said Kohal. “There has been  a  significant increase in requests where environmental coverage is required from the GCS in order for a contractor to set foot on a project – requiring them to carry environmental insurance for their contracting activities.”

In order to maintain their global growth,  ARMR has  been focusing on promoting coverage for manufacturing too.

“ARMR has always offered brokering of environmental insurance solutions for manufacturers,” Kohal said. “However, we didn't really position our brand much in that space with our marketing. Historically we were more focused on marketing towards restoration contractors, which is still a core piece of our business. However, a lot of our agents have been reaching out looking for more environmental coverages on  manufacturers because of the  exclusions that the GL carriers have been adding.”

Kohal said their agents trust that they can partner with them to deliver quality insurance solutions.

“We’ve been reminding our agents that it's important to obtain coverage for the next emerging contaminant before the carriers start adding in the exclusions,” he said. “It's always a good business practice for agents to offer the proper environmental insurance in order to offer that insure to retro date earlier and sooner.”

Kohal said he regularly reminds his team that “we need to play chess, not checkers. Our job is to think three moves ahead for our agent when they bring us an account.”

A core concept of this involves finding simple solutions to complex problems. Part of this strategy stems into proactive risk, identifying any potential areas of concern before the risk arises. Something that ties back into the importance of having environmental insurance in your arsenal.

“Environmental insurance is one of the most under-purchased coverages in insurance,” Kohal said. “Often, clients are reaching out to their agents after they have a near-loss or a chemical that they use in their operations. When we work with agents, we get to really know the types of accounts that they target and help them identify the pollution exposures that those clients would have to find the proper policy to go with it.”

Kohal works alongside a lot of commercial property owners, pairing a  high-quality site pollution policy with proactive risk management to help ensure it mitigates losses more effectively in the event of a loss. That way, a smaller loss doesn't necessarily turn into a larger environmental loss that would result in a more costly claim and a more lengthy remediation process.

“A significant advantage of the ENS market is the ability to create manuscript endorsements,” Kohal said. “Off-the-shelf policies typically don’t work for every client. When a client has a unique environmental risk exposure, we regularly work with underwriters to ensure the policy will adequately cover the client. We're able to do this better than a lot of other firms due to our extremely sophisticated technical insurance training.”

Despite environmental coverage being one of the least sought-after products historically, it’s rising in prominence.  This growth is something Kohal attributed to rising media coverage and new interest. With individuals increasingly concerned about the impact of pollution on ESG targets and the environment as a whole, organizations are having to be more transparent in their dealings and careful in their operations, or else they risk the public’s ire.

On April 15, 160 financial institutions called on governments to detail a treaty which would end plastic pollution – with the backing of $15.5 trillion in combined assets. What’s more, with a renewed interest in the dangers of PFAS – or “forever chemicals” – people are beginning to sit up and see the importance of environmental coverage for large institutions.

“It's just bringing it more to the public's forefront,” Kohal said. “Concerned citizens are more in tune with the chemical exposures that manufacturers and other major industries can impose on the environment. And so, with more public scrutiny, with more regulation change, businesses should be and are, taking note. They should be working with an agent who's going to identify that they have those exposures and offer them the proper environmental coverages.”

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