GLOBALISATION offers businesses of all sizes potential operational benefits and opportunities to expand, but it can also be a source of new and different types of risks. Notably, environmental risks dominate short, medium and long-term global risks, according to the World Economic Forum’s Global Risks Report 2023.
It’s more important than ever to take adequate steps to evaluate your clients’ environmental exposures and establish a bespoke insurance program to minimise the impact of pollution and environmental damage.
Depending on the nature and geographic reach of your clients’ business, managing environmental risk can be a complex task. If not managed properly, the effects of an environmental event can be devastating – both in terms of the actual damage caused and the consequences for the business involved, financially and reputationally.
The biggest mistake companies often make is to assume wrongly that they do not have environmental exposures or that these are in some way limited simply because they are not typical “polluter” businesses.
This misconception can be costly because even relatively benign industries still carry potential environmental liability issues.
To help your clients get started in evaluating the environmental exposures and associated insurance requirements, here are five questions to ask
1. Are there gaps in coverage that expose your client to environmental claims?
Your client’s general liability insurance may only cover a sudden and accidental, one-off incident that releases pollution into the environment, but may leave them without protection for unknown environmental damage which occurs gradually.
Dedicated environmental risk coverage can help close this gap, as it can be structured to provide insurance protection for pollution which has occurred over a long period of time even if it is caused by a previous owner or tenant
2. Where is your client most likely to have an environment claim?
While a comprehensive environmental risk insurance program should cover all of your client’s facilities, you should also evaluate where they may face the greatest exposures; where do their operations have the potential to cause pollution or environmental damage and, which regional environmental legislation poses potential compliance risks?
There are many potential exposures to consider, these may include:
- Following the acquisition or purchase of real estate or land it is crucial to know the past activities and uses of the site so possible historical pollution can be identified;
- Daily operation of the site with all its production, storage and treatment processes;
- Construction, development or maintenance work carried out on the site which can generate pollution or damage to biodiversity;
- Transport and distribution of goods, in particular during loading and unloading operations;
- Work undertaken on third-party sites;
- International development and expansion which requires detailed knowledge of environmental regulations, particularly in the area of compulsory insurance.
3. What are the most stringent environmental regulations your client faces?
Environmental compliance requirements vary widely across the globe, as do minimum mandated insurance levels covering pollution or environmental damage. Failure to meet requirements in one region can also have financial, operational, and reputational consequences 5 questions to help you assess your clients’ environmental exposure Anthony Pollen, Environmental Underwriter Chubb UK & Ireland 017 elsewhere.
Understanding local operational guidance and legislation is critical to remain compliant worldwide. You should ensure your client’s insurer can provide comprehensive geographic expertise, including local specialists to help meet the specific compliance and insurance requirements. Within the EU, the most significant piece of legislation currently in force is the Environmental Liability Directive.
This created several specific and far reaching legal requirements. Any business operating in Europe should therefore ensure these are adequately covered in any environmental policy they hold. In Ireland, the Environmental Protection Agency (EPA) requires license holders in certain industries to maintain a financial provision in order to manage environmental risks.
Affected licensees that do not have the required financial provision can risk having their license shut down by the EPA until the required financial provision is in place.
Dedicated environmental insurance is one of the most cost effective ways of effecting the required financial provision.
4. Is your client exposed to legacy contamination liability?
It’s important to know about the historic use of your client’s sites and facilities to help identify potential contamination caused by a previous owner.
It is also important to understand the extent of any environmental liability which may have been passed to the client in Sale and Purchase Agreements when acquiring new facilities or businesses.
The client’s environmental risk management program should account for the risk of their business being held liable for legacy contamination and the associated liability.
5. Does your client’s insurer offer crisis management support as part of its services?
Today’s 24/7 news coverage and social media can amplify the impact of environmental incidents. When an environmental incident occurs, as well as addressing the physical damage to the environment, a business may also need to take steps to reassure its peers and the public that it has responded appropriately.
It is important to manage reputational damage, even if the environmental harm was caused by another party. If a business faces environmental risks, it should therefore prepare and regularly update a crisis management plan that includes steps to protect their reputation and ensure business continuity.
Consider seeking out an insurer that supports crisis management planning and operations.
The value of incident prevention
Reducing damage, minimising costs, and managing claims after an incident has occurred are just part of any comprehensive environmental loss-control program.
The most important steps however are to evaluate your client’s operations, analyse specific projects, and determine actions that can reduce environmental risks.
Find an insurance company that can help understand local environmental regulations and provide access to dedicated experts to strengthen your client’s ability to prevent pollution incidents or environmental damage in the first place. Chubb European Group SE trading as Chubb, Chubb Bermuda International and Combined Insurance, is authorised by the Autorité de contrôle prudentiel et de résolution (ACPR) in France and is regulated by the Central Bank of Ireland for conduct of business rules.
Registered in Ireland No. 904967 at 5 George’s Dock, Dublin 1. Chubb European Group SE is an undertaking governed by the provisions of the French insurance code with registration number 450 327 374 RCS Nanterre and the following registered office: La Tour Carpe Diem, 31 Place des Corolles, Esplanade Nord, 92400 Courbevoie, France. Chubb European Group SE has fully paid share capital of €896,176,662.