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With both public and regulatory scrutiny of environmental damage on the increase, and the potential for large clean-up and remediation costs, environmental liability is one of the most important exposures many companies face. And the differing legal systems across the world mean that managing environmental liabilities can appear complex. Adias Gerbaud, Head of Environmental International at XL Catlin, based in Madrid, discusses how and why these risks can be included in global insurance programmes.

Q. Why are companies increasingly examining their environmental liability risks and coverage?

A. A company’s motivation for buying environmental liability coverage, and for including it in their global programme, varies.  It mostly depends on their activity, geographic scope and claims experience, among other factors. For companies in some sectors, such as petrochemicals, waste management, and mining, having environmental liability coverage can be one of the options for financial security required by the authorities. For example, in Spain, the implementation of the European Liability Directive requires companies to have some form of financial guarantee in place. For others, prior incidents and claims that have affected their balance sheet may be a driving factor behind a decision to buy coverage. Companies with sophisticated risk management practices will simply consider it best practice as part of their environmental corporate policy, and as a tool to improve and control their environmental exposure. As environmental legislation evolves around the world, companies see their potential exposure to environmental liability increasing. As a result, they are increasingly seeking to include this coverage within global programmes as they historically would have done with other property and casualty coverages.

We have also seen those companies that own a captive insurance company evaluate how to make use of their captive to cover part of their environmental risks. This could work particularly well when there is a history of small-frequency losses, which are typically more cost effective to retain within the group rather than transfer to their insurer.

Q. Does the demand for environmental liability coverage vary around the world?

A. Companies around the world are at different stages in terms of their environmental liability buying. In the U.S. the local market for environmental liability coverage is very well established. And it is among the regions with the most complex regulations and punitive damages for environmental damage. Historically, multinational companies with activities and risk in the U.S. approached their exposures in a distinct manner and kept their U.S. and rest-of-world programmes separate. But with the increase of environmental legislation around the world, clients are showing more interest in keeping control over their operations, their insurance programmes and their claims. So we are seeing a trend whereby more and more clients are including environmental risks within global programmes written under a Master Policy from the U.S., or from a  Master Policy elsewhere in the world with a local policy in the U.S. This approach allows the risk manager to control their exposures globally and it also allows us to approach our clients’ risk on a consistent and holistic basis.

Q. Has the EU Environmental Liability Directive (ELD) led to changes in the way companies with operations in Europe seek coverage for their exposures there?

A. The European Liability Directive, which was transposed into national laws across the EU by July 2010, has prompted companies to look more closely at their environmental coverage needs. The Directive enshrines the polluter-pays principle, which means that a company causing environmental damage is liable for it and must take the necessary preventive or remedial action and bear the related costs. The ELD applies a strict liability regime, with a 30-year prescription date starting April 30, 2007, for pollution directly caused by activities undertaken by certain types of companies – for example, energy, the production and processing of metals, mineral, chemical and waste management industries, large-scale pulp, paper and board production, textile dyeing and tanneries, and large-scale meat, dairy and food production. The directive also applies to environmental damage to protected species and natural habitats caused by companies operating in industries other than those high-risk areas.

The ELD also allows for EU Member States to require companies to make financial provisions – such as buying environmental insurance. Some countries, among them Spain and Portugal, have taken this step.

The extent of liability under the ELD, as well as the potential for financial guarantees to be required, has undoubtedly led to an increased focus and interest in environmental coverage from risks managers whose companies have operations in the EU, over the past five to ten years.

Q. Are there other regions of the world where environmental liabilities are coming into greater focus?

A. Insurers have seen a great uptick in demand for environmental liability coverage from countries like Brazil, Mexico, South Korea and China, in recent years. There are several reasons for this increased interest from buyers. The key driver for increased demand is definitely the evolving legislation framework. For example, in Mexico a new polluter-pays-principle-based legislation was implemented in 2013. And in China, for example, the  China Insurance Regulatory Commission, is working on proposals to make environmental liability insurance compulsory for companies operating in industries considered to be at high risk of causing pollution.

Unfortunate large-scale pollution events also trigger many conversations in the markets and globally around traditional insurance cover and the need for environmental specific cover. For example, a large-scale dam rupture in Brazil in 2015, unleashed a tidal wave of mining waste that flowed into the sea more than 600 kilometres away. More than two years on, the market is still discussing how to better adapt insurance coverage for such events. Clients and operators have shown increased interest in buying a local insurance policy in line with local regulations.

Q. What other considerations do companies have when incorporating environmental coverage into global programmes?

A. Beyond the specific requirements of local environmental legislation, there are also many basic insurance principles that companies need to take into consideration when setting up their global programme. For example, in France liability coverages must have a five-year extended reported period as a standard within their contract - and this is not necessarily considered within the master policy, so clients will benefit from a local policy there. Also, the potential huge impact of environmental losses means local environmental laws can be tight – and specific. This means that coverage must be tailored to fit local requirements and local language. Risk managers and their insurers need to be aware of these differences and ensure that coverage is suited to the regions and countries in which the company operates.

Q. What are the benefits of including environmental exposures in a global insurance programme?

A. The complexities of environmental regulations mean that it usually makes sense to have local environmental policies written under a master policy. One of the main benefits of including environmental liability policies under the master policy in a global programme is that it gives the risk manager greater clarity of their potential exposures. Environmental claims, when they occur, can be complex and technical. Having local support, such as crisis management consultants or loss adjusters, who speak the local language and understand local culture and legal environments, is a real advantage. As environmental liability becomes an increasingly important part of the risk manager’s coverage, more and more will look to include these risks within their global programmes.


Adias Gerbaud is Head of International Environmental at AXA XL, and can be reached at

This article first appeared in Commercial Risk Europe.


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