There has been a marked increase in the number of companies purchasing environmental impairment liability (EIL) cover across Europe in recent years, mainly due to an increase in regulation and buyer awareness, according to a report published by Marsh.
From a regulatory perspective, the implementation of the Environmental Liability Directive (ELD) in the European Union has imposed new liabilities for environmental damage on many companies operating within the EU, said the Marsh’s “Environmental Market Update.” (The ELD came into force across Europe in 2009).
“The ELD has imposed new liabilities for environmental damage on many companies operating within the EU, as it requires them to not only prevent, but also to remedy, any significant environmental damage that has been caused,” said the report, noting that this has led to a rise in EIL insurance to cover potential new environmental liabilities.
“ELD requirements that operators take appropriate steps to prevent, and immediately notify the authorities of, any environmental damage that results from their operations has led to an increase in the scope for, and cost of, possible claims, as well as potential lawsuits for a failure to act,” Marsh continued.
“As a result, we have seen the average cost of claims steadily increase since the implementation of the ELD.”
High Profile Claims
Companies also have an increased understanding of the gaps in traditional insurance coverages, “largely due to several high profile claims.”
The report cited the example of a fire in a sodium chlorate plant, which resulted “in extensive pollution of a local river and the destruction of the surrounding natural habitat.”
At the time of the fire, the cost of the environmental cleanup was estimated to be around 10,000 euros ($10,878). However, under the current environmental regulatory regime, the estimated cost of cleanup would be around 4 million euros ($4.4 million), the report explained.
Clients are now seeking EIL policies to protect against these types of exposures, which include third-party bodily injury and property damage resulting from gradual pollution, first-party cleanup, business interruption, and the costs to undertake preventative measures, the report continued.
“The buying patterns of those mid-sized companies purchasing EIL cover have also changed, with a general marked increase in the average limits of indemnity sought between 2011 and 2015,” the report said.
Since 2011, the average limits of indemnity sought by those types of companies have risen from an average of 6.9 million euros ($7.5 million) to slightly under 7.9 million euros ($8.6 million) in 2015, Marsh affirmed.
While there was a dip in the average limits of indemnity being purchased by mid-sized companies across Europe in 2015, it appears that the upward trend is continuing, the report went on to say.
“Policy premiums for environmental insurance for operational risk policies have increased slightly since 2011, and this is reflective of the increase in the limits being sought and the coverage being provided,” said the report, noting, however that premium reductions have been achieved in many cases when multi-year policies are being renewed.
Environmental regulations across the EU are varied and complex, which ia demonstrated by the fact that some countries have requirements for companies to show financial security against the possibility of causing environmental damage, but others do not, the report said.
“As such, many companies have chosen to have a master environmental insurance policy for operations in many geographies, with specific local policies, written in the local language and responding specifically to the local regulations in those countries of operation that demand it,” Marsh explained.