Let's Talk: environmental liability
How has the market for environmental liability insurance changed over the course of your career?
The environmental market has changed considerably over the past 15 to 20 years, growing from a handful of markets in the 1990s to nearly 20 today. When I first started out 15 years ago, the majority of environmental business was placed through “specialist” environmental impairment liability (EIL) brokers, which at the time was perhaps 10 to 20 individuals. The number of specialist EIL brokers has fallen with time, as the placements have become more mainstream alongside property and casualty submissions. The market has also moved away from being M&A-focused, to covering a broader range of placements, including annually-renewable policies, project-specific contractors (CPL) policies and scheme business.
How have the risks that clients face evolved?
Tighter regulation and licensing requirements over the past 10 to 20 years should have driven improvements in environmental management. But the underlying risks remain largely the same. Operational risks tend to be the obvious focus of attention – storage and handling of potentially hazardous chemicals and materials. But even with very well-managed facilities, they may still continue to experience pollution incidents due to factors such as operator error, mechanical failure, fire and vandalism.
Perhaps less obvious are the historical risks that come hand in hand with the ownership of brownfield assets. The polluter-pays principle applies – so long as the polluter can be found! If the polluter cannot be found, then the current owner or occupier of the premises is liable – this has driven a rise in interest in coverage from property owners, lenders and developers. There are also contractual and reputation risks to consider, and it’s clear that businesses are now more clued up in the ways in which pollution conditions can damage their business.
What is AXA XL’s outlook for environmental business in the UK?
The outlook is positive. Despite a significant number of new entrants in the past five to 10 years, the environmental book continues to grow. This is driven by a greater awareness from clients and brokers of the gaps in coverage provided in public liability policies, such as no own-site cover, no cover for regulatory claims, and no cover for gradual releases. Add to this a backdrop of tightening environmental legislation and more expensive clean-up liabilities, such as the imposition of complementary and compensatory damages, and the value of environmental insurance becomes clear to see.
Having access to the wider AXA family puts us in a tremendous position, with a stronger combined brand, national footprint and a wealth of opportunity for cross-sell and new broker relationships to explore.
What is it that you find interesting/stimulating/enjoyable about this sector of the market?
Every risk is different. For example, the type of pollution, the sensitivity of the risk locations, the deal structure and the contractual liability can all differ significantly. Underwriting an environmental risk requires looking at the commercial, technical and legal aspects, and no two deals are ever the same. The nature of the business means that you have to work closely with the broker and the client to develop a solution. This can be time-consuming, and often the deal may not go through, but it’s very rewarding when it all comes together and lays the foundation for good long-term relationships with our brokers.