DVS 2012: The environment: a deep-rooted concern

The legislative background of environmental risk management is complicated, split between state, federal and EU jurisdictions. Broadly speaking, German companies and organisations are obliged by law to take a precautionary approach and are subject to a ‘polluter pays’ principle. The legal and financial implications of a major environmental incident, however, may be less important than the damage it would cause to a company’s brand.

As sportswear manufacturer Adidas said in its annual report: “Although we believe that social and environmental malpractice may occur only in isolated cases, we see increasing corporate social responsibility obligations for the group as legislative measures and consumer expectations with regard to socially and environmentally sound business practices and behaviour are becoming more demanding.”

Marsh executive board member in Germany Jochen Koerner (Kőrner) said: “It’s in companies’ best interests to stay ahead of the pack for environmental risk impact for reputation risks.”

Today, “you will find companies would rather have an environmental risk manager than an insurance risk manager”.

Adidas said it has had to cope with rising costs to meet more challenging environmental requirements, but that strategic initiatives had reduced the likelihood and impact of such exposures.

Insurance requirements vary, as Leue & Nill lawyer and liability insurance specialist Arno Schroeder [Schrőder], explained. “For operations surrounded by natural habitats and protected species, an additional policy [UmweltschadenVersicherung] covering specific exposure from the EU Liability Directive (ELD) is recommended,” he said. “For companies in an environment marked by other industrial operations with hardly any biodiversity, liability insurance for third party property damage and bodily injury due to emission of pollutants is sufficient.”

An indication of the sophistication of German environmental insurance is that this is one of very few markets where it is possible to obtain cover for gradual pollution, as opposed to sudden and accidental covers. Another is the extent of environmental damage liability cover (UmwelthaftpflichtVersicherung) available for first party impacts.

But according to ACE Germany casualty manager Marcus Riss, the number of claims for environmental insurances remains relatively low. Riss said he is aware, however, of huge demand for new products. “I would say the market is sufficient: insurers do a good job,” he says. “The population and politicians are very sensitive to environmental issues, so if there’s new liability legislation, the insurance industry has to come back with the solution.”