Expert Risk Articles

Public Good: Environmental Liability Insurance

Polluters in Europe have to pay for the damage. Environmental liability insurance can help cover these costs. But far more important: it can help prevent pollution, says insurance expert Klaus Burkhardt who is the Global Head of Liability Risk Consulting at Allianz Global Corporate & Specialty.

The background of Environmental Insurance

AGCS insures companies against environmental damage. Is this a new concept?

Well, the first attempt at doing something similar started in the 1960s. Back then Allianz was offering a liability insurance for civil law claims in case of water contamination.

In the late 1980s, we saw a number of major accidents in chemical plants around Europe that resulted in massive air pollution. Since 1990, the owners of such factories have been liable for such damages under the German environmental liability law. And since 2009, our environmental liability insurance EAGLE also covers biodiversity damages to public goods that don’t fall under civil law.

Environmental insuranceWhat are the biggest risks in Europe?

The biggest risk is polluting rivers and lakes. They have huge biodiversity that can be easily damaged. And pollutants can be spread easily and fast. It’s crucial for our societies to keep our waters, especially our groundwater, clean as they are the source of our potable water.


What are the most common damages your clients report?

Human damages because of flammable gases are quite common, but we also see claims for the regeneration of soil and water after an accident. Pollution of waterways with manure or heavy oils often kills fish.

But there are also more exotic examples. One of our clients owns a wind turbine sited on a meadow that hosts protected butterflies. Once they had to cut the grass for maintenance and a lot of butterfly larvae died. The insurance claims filed by environmentalists were eventually dropped, but this shows the variety of risks for industries.

And which industries pose the biggest risks?

Mines are among the most risky businesses as the recent accident in Hungary showed. There is also some danger in chemical processes. Generally speaking, every large store of liquids poses a risk. This also includes extinguishing agents in case of a huge fire or the liquid manure of a biogas plant.

Do you also operate in emerging countries?

Environmental regulation is weaker in emerging countries, often for historic reasons. There is also a lot more insecurity concerning contaminated land. We are trying to launch an adjusted version of our EAGLE policy in Brazil.

But big environmental disasters like the spill of toxic waste water in Doñana in Spain, the cyanide spill in Baia Mare in Romania ten years ago, or the devastating bursting of a dam in a mine in Ajka in Hungary, show that Europe has some potential for improvement as well.

Raising environmental safety standards

How can you help your customers avoid such problems?

Our engineers offer valuable advice for plant construction and maintenance. In Germany, for example, you need double-walled tanks for dangerous liquids. The security system sounds an alarm immediately if the first wall is breached due to corrosion.

Other European countries don’t necessarily demand such measures. But if we cover risks we demand double-walled tanks, leakage detectors, modern filters, and overfill protection. So we ensure high safety standards in all of Europe.

Without your coverage, risky industries wouldn’t be possible. Doesn’t that mean that you facilitate environmental destruction?

No. Our priority is to prevent damage. We make clients aware of their risk and help them to prevent or at least minimize incidents.

This can come down to small details. Every industrial plant has a drain for rainwater that usually flows into a river or creek. If a barrel of dangerous liquid falls from a forklift it could easily run into that drain.

But you can install a gate at the end of a drain for just a few thousand Euros. If there is a spill, you close it and the chemicals cannot run into the river. The costs are relatively low but this has a huge impact.

Why is this distinction between civil and public law so important?

Assume there is a factory burning in your neighborhood. If your property or your health is affected by the resulting pollution, you will be entitled to compensation under civil law.

But there will be no such recourse if the soot and smoke settle on a nearby nature reserve and kill trees. The loss will be public and until now no liability insurance would have paid for that.

When a chemical plant close to the River Rhine burned down in 1986, only those that held fishing rights for the river received compensation. The millions necessary to clean up and regenerate the river had to be funded by the taxpayer.

In 2007, an decontamination and the resettlement of animals and plants will have to be covered by the polluting company.

That could be expensive. Have many companies adapted to this new risk?

A lot of our customers haven’t realized the scope of this yet. They underestimate the possibility of a collective or group action lawsuit. Previously, only the injured party could sue a polluter- the fisherman, for example, whose fish had died. Now, an environmentalist, even if he isn’t directly affected, can petition the responsible government agency and they will have to investigate.

How can you help your clients deal with this new risk?

We use our geocoding system SPACE to improve their risk management systems. Our clients provide us with the coordinates of all their production sites and we feed these into SPACE. The system then tells us which sites are close to rivers, the sea, or a nature reserve. We can then advise our clients where they face risks and have to improve safety.

Furthermore, if something does happen our environmental insurance policy supports the regeneration of damaged ecosystems.

If you are interested in this topic read more on the Allianz Knowledge Site.