Expert Risk Articles
4 Questions for… Arthur Lu, Head of Global Environmental Impairment Liability
Environmental Impairment Liability insurance is a fast-growing market covering environmental and public health exposures ranging from industrial pollution to a pandemic outbreak. Liabilities faced by a company whose activities cause such public perils can be long-lasting and tremendously costly requiring an insurer to help clean up the mess, as Arthur Lu describes.
1. What is Environmental Impairment Liability?
Environmental Impairment Liability (EIL) is the liability associated with damage to the environment and by extension, to public health. This unique segment of the insurance market evolved decades ago from incidents that did not quite fit the typical property and casualty space, such as gradual pollution, remediation costs, first party clean-up costs, transportation pollution, microbial matter, and non-owned liability such as leased properties or waste disposal liability.
Exposures like these essentially created a need for a distinct and new line of insurance products. Today, the global EIL market is vibrant and growing – estimated at USD2-3bn in gross premium. Many companies understand the need for specialized insurance products to address these unique risks to which traditional insurance products such as general liability and commercial property are not meant to respond. Once largely a corporate dominated space, today’s EIL purchaser also includes small businesses and local domestic risks.
2. What are the consequences to a company that suffers an environmental incident?
Environmental incidents can occur in a variety of ways and could cost a company hundreds of millions of dollars. For example, an explosion at a refinery, leading to a large release of petroleum products; or a malfunction at a water treatment plant, leading to discharge of unsafe effluent; or the mishandling of raw materials during unloading, leading to spill of contaminants. Other examples might be a change in compliance regulations, leading to a regulatory order to remediate or the lack of maintenance of a water cooling tower, leading to bodily injury from Legionella pneumophila, the causative agent of Legionnaires' disease, also known as legionellosis. The consequences from environmental incidents such as these can also vary greatly, depending on the scale and size and who or what is affected. But the common denominator for what a company can suffer on its book is a liability (or liabilities). A company can be mandated to pay for remediation expenses, to rectify its operations by implementing certain improvements, to pay fines or penalties if bodily injury is sustained, or to defend against third party allegations for injuries.
3. What various business interruption exposures can companies face in the wake of an environmental incident?
In the recently published Allianz Risk Barometer 2017 report, the number one global business risk, as surveyed by over 1,200 experts from 55 countries, is business interruption, Multiple new triggers are emerging, including non-physical damage disruptions caused by political violence, strikes and terror attacks. The sleeping giant within this business interruption risk is environmentally related. In my almost two decades of underwriting EIL, this “extra cover” is often left unpurchased or under-purchased. Many of today’s EIL solutions are offered on a menu-style basis, which leads to some coverages being left off the final order.
It is important to clarify that traditional BI cover under property programs would not typically address an environmental incident. This goes back to my earlier point about specialized coverage existing to respond to this unique risk. Loss of profit and extra expense are typical exposures companies can face from these types of incidents.
4. What coverages does AGCS offer and how is our product unique?
EIL products were created to meet the demand of the perils I’ve mentioned. AGCS’ products address the needs of a premises-based risk such as manufacturing, distribution, or retail, to name a few. We also have products for the construction and engineering segment, to address pollution concerns arising from our customer’s work. Our product offerings are in line with the established EIL market, however, our technical underwriting and customer-centric approach are what makes AGCS unique.
By listening to our customer’s needs we can better create bespoke programs which work in tandem with their risk management programs and therefore create an optimum risk-based solution. The global capabilities of AGCS make us stand out from the competition with the capacity through the Allianz network to service clients in more than 160 countries worldwide. Our International Insurance Solutions team is adept at delivering global programs for our clients.