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Lets Talk: State of the environmental insurance market
June 14, 2019
As the saying goes – there is no use crying over spilled milk. For many businesses, dealing with spilled milk is not a likely problem. Instead, the question is – what happens when fuel oil, hydraulic fluid, stored chemicals, or other substances spill? Without the right insurance coverage, such a spill may give businesses a good reason to cry.
Environmental incidents like these can easily result in a five or six-figure clean up price tag. Fortunately, says Matt O’Malley, president of AXA XL’s North America environmental insurance business, that’s why environmental insurance has become more of a staple in businesses’ insurance portfolios. Here he explains why.
Are more businesses buying environmental insurance?
O’Malley: Yes. More businesses have come to realize that their operations can have some environmental impact. When it does, they have also become aware that their commercial general liability or their property insurance offer little coverage to clean up after an environmental incident. Environmental insurance fills this gap, covering loss or damages that result when an unexpected pollution incident happens. An environmental policy can cover a business against claims for bodily injury, property damage, cleanup costs, and business interruption. And because there is a steady demand for environmental coverage, the market continues to be very competitive, but we see ample opportunities for growth.
Where do you see the most growth opportunities for your team?
We continue to see growth in the services sector, environmental consultants and contractors in particular. The construction industry is booming right now. General contractors are requiring all types, all size contractors to have environmental coverage as part of their contracts. To help contractors meet these requirements, we offer Contractors Pollution Liability (CPL). It’s offered on a claims-made or occurrence basis that provides third-party coverage for bodily injury, property damage, defense, cleanup, and related defense costs as a result of sudden/accidental or gradual pollution conditions arising from contracting operations performed by or on behalf of the contractor. Many contractors are new buyers. As their operations have grown over the last few years, so have their environmental insurance requirements. We’re seeing that kind of organic growth in the market.
Are there any other types of businesses buying the coverage?
By now most businesses know that they don’t have to be in the environmental business to have environmental exposures. Our clients represent all size businesses from across industries. Retail. Real Estate. Hospitals. Hospitality. Universities. Restaurants. Transportation companies.
Environmental insurance also provides coverage for financial losses associated with historic contamination or operational issues, such as mold, lead paint, asbestos, Legionella or indoor poor air quality.
There are also policies designed to protect lenders as well as real estate agents, managers and developers when properties they manage are contaminated. In fact, environmental insurance has become a big component in transactional deals whether it’s a sale of a piece of property or real estate portfolio or merger and acquisitions of a whole operation. Environmental insurance is seen as a tool to facilitate transactions because it addresses environmental liabilities that could potentially stop a deal in its tracks.
Are there any environmental or pollution trends contributing to buying trends?
Claims resulting from mold are the most frequent claims we see. And the size of mold claims can be significant, especially in an office or hospitality setting where many people can be exposed.
Environmental clean ups are still a big driver. A $10 million cleanup is not unheard of. In fact, just recently, after years of arguing over who should pay to clean up a Superfund site in Virginia, a proposed settlement was announced for a $64 million cleanup. According to the consent decree filed in federal court, the U.S. Department of Defense and the Navy will pay the state $8.5 million and $55.3 million to the EPA in remedial costs as well as $1.5 million for oyster restoration in the river. Two other private companies who operated on the land are also contributing a combined $250,000.
Given the increasing need for environmental coverages, are you seeing a lot of new competitors entering the market?
In recent years, I’d say that new insurers entering the market has slowed. In environmental insurance’s three-decade history, there have been a lot of entries and exits. Only a few insurance providers have had long-term success and staying power in the market and our team at AXA XL is one of them. Success for an environmental insurance provider is driven by the ability to manage what at times can be a very complicated risk. Environmental expertise and an understanding of the natural environment are critically important in successfully underwriting pollution coverages, helping clients manage their environmental exposures and successfully managing a clients’ claims.
By some estimates the environmental insurance market represents about $2 billion in annual premiums with double-digit annual growth anticipated. Competitors that are in the marketplace continue to fight for every piece of business. For us, it’s important that we continuing to operate with the same underwriting discipline that can be credited for our market longevity. Plus now, we’re leveraging our 30-year market experience and data to assure that we continue to remain financially strong to serve our clients.
How are you using data and analytics to improve your profitability?
When you assume complex risks like environmental liability, you have to manage your portfolio carefully. For us, careful portfolio management includes greater use of data and analytics. Our data/analytics strategy is dynamic and adaptive. In our predictive modeling efforts, we are constantly searching for novel insights that can be applied to our book of business. This is fundamental to our team’s success particularly in our efforts to build services that support our insureds’ operations and help us identify what industries we can partner with to support their environmental risk management strategy.
With the market being so competitive, how does AXA XL set itself apart from the competition?
Our integrated environmental risk management approach – which includes loss control and specialized claims handling – has proven to be very effective in helping clients proactively manage their environmental liabilities, not just clean up after a pollution incident.
Consider how we help clients in a property transaction. It doesn’t matter if we are insuring one property or a client’s portfolio, it is a team effort. For each client risk, we pull together a team that consists of an underwriting assistant, an underwriter, a senior underwriter, a dedicated claims specialist and a dedicated risk consultant. This team of five works at the speed of the transaction to align with the insureds due diligence process. They help our clients every step of the way through the close of the transaction. No other market in the industry has the on-staff environmental expertise to be able to offer that much resource.
What’s next for your environmental insurance team?
This team is determined to continue to make strides, developing new pollution products, finding new ways to address business’ environmental risks, delivering products and service more efficiently than ever, and using data and analytics to assure its business success so we can commit to protecting its clients in the decades ahead.
Matt O’Malley is head of AXA XL’s North America Environmental and E&S Casualty businesses. He can be reached at firstname.lastname@example.org.