There has been much activity in the past 18 months as the European insurance market has acted to address new obligations arising from the EU’s Environmental Liability Directive

There has been much activity in the past 18 months as the European insurance market has acted to address new obligations arising from the EU’s Environmental Liability Directive, which came into force in April 2007. Unfortunately, as demonstrated earlier in the year by FERMA’s call for action by the insurance industry, the response of most of the market has been sorely inadequate. The products which have been introduced thus far are primarily liability products and do little to protect companies from the losses they are actually more likely to incur.

Most European companies spend a great deal more money cleaning up their own current and former facilities than they do responding to third party pollution claims. This makes environmental risk as much a first-party risk as a liability risk. However, most current policies fail to address these first-party cleanup costs, or provide extremely low sub limits. With the additional public and shareholder pressure and more onerous accounting standards, companies are increasingly aware that their pollution risks are broader than once thought and can have a direct balance sheet impact in the form of reduced property values and reserves.

It is understandable why insurers would tread carefully in this area, as most do not have specific experience or dedicated underwriting capability. However, policies that address the full spectrum of environmental risks are now available in the market, including coverage for a wide range of exposures such as the cleanup of property in the absence of a third- party claim, biodiversity damage, first party business interruption, pre-existing pollution conditions, mergers and acquisitions and property transactions, multinational businesses with global coverage and local policies and management liability for pollution issues.

Risk managers should be asking their brokers to look beyond what typical property and casualty markets are willing to offer, and to consider a product which addresses their true exposures.

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