Don’t rely on GL to cover environmental risks, report warns

Traditional approaches to risk and over-reliance on general liability (GL) policies could leave cross-border companies exposed to environmental liability risk, a report has warned.

Chubb has published a pollution risk paper in conjunction with Clyde & Co on the impact of environmental risk on multinational organisations.

The study focuses on how recent increases in global legislation have become the biggest change to environmental risks for firms operating across borders.

A “multitude of risks” mean relying on traditional risk management techniques and general liability policies “are leaving companies exposed to unnecessary risks – both financial and reputational”, Chubb warned.

The average fine handed out by the UK government’s Environment Agency has rocketed from £5,000 in 2000 to £178,000 in 2017, Chubb noted in the report, which is available on the insurer’s website.

In France, the penalty for companies that fail to comply with the Civil Code is a fine of up to €10m, the insurer said.

“There has been a significant tightening of environmental regulation around the world and this is now the biggest environmental risk faced by organisations,” said Neil Beresford, a partner at Clyde & Co.

“Not only that, but organisations operating globally are faced with an extremely wide range of regulations and enforcement regimes that add complexity to their risk management and mitigation processes,” Beresford added.

The environmental risk paper, “Global Management of Environmental Risk”, is an update to a report first published in 2015, it’s release timed to coincide with last week’s Airmic gathering of UK risk managers and insurance buyers held in Liverpool.

“Multinational organisations have created a global marketplace that defies national borders, while the continued rise of digital platforms and agile working practices has accelerated the pace of trade, and the pace of change,” warned the report.

“But while the world has grown smaller, it has also grown more complex,” the study argued.

GL insurance policies may not cover the risks as well as dedicated multinational environmental risk insurance, Chubb warned.

The commercial insurer spelled out three reasons for this.

Firstly, liability policies do not cover the cost of decontaminating a company’s own property, as it only covers third-party liability, Chubb warned.

Secondly, liability policies do not protect against statutory-imposed decontamination costs, according to the insurer.

Thirdly, liability policies will usually exclude gradually-occurring pollution releases altogether, Chubb suggested.

“Environmental risk is one area which has grown exponentially as a result and it is increasingly important for businesses to understand the multitude of potential threats they now face,” said Suresh Krishnan, head of global accounts division, Chubb Europe.

Chubb listed some recent examples of environmental catastrophe events.

On 5 November 2015, 60m cubic metres of iron waste flowed into the Doce River in the Bento Rodrigues region of Brazil, resulting in 17 deaths and a further 16 injuries after the collapse of the Fundão dam.

In the Chinese port of Tianjin, 173 people died and a further 797 were injured after a series of explosions at a container storage station on 12 August 2015. The second of two blasts in a matter of seconds involved the detonation of 800 tonnes of ammonium nitrate, and was seen from space.

Chubb suggested four questions for a company considering setting up a multinational environmental impairment insurance programme.

• · Where do you think you are most likely to have a claim, and where are the strictest environmental regulations?

• · Are you covering the minimum regulatory requirements for insurance provisions?

• · Does your insurer have adequate local knowledge?

• · Could your operational sites be exposed to legacy contamination issues?

Krishnan commented: “Building a multinational programme from the ground-up locally brings to the forefront the preventive aspects of risk management and is a vital perspective for a company looking to protect itself against environmental risks.

“The consequences of not being prepared locally can be severe and the impact of an environmental incident resonates on many levels,” he added.