A FEW DECADES AGO, the simple mention of environmental insurance might have been met with a lot of skepticism. Today, however, the insurance maintains a prominent place in many waste management firms' risk management plans. To get the most out of insurance plans, waste firms should seek providers who realize there is more to environmental insurance than betting on the cries of Chicken Little.
The majority of the environmental insurance market's growth, estimated at 20 percent annually, is driven by its recognition as an important business tool. Environmental insurance covers operational risks or manages potential environmental liabilities incurred, for instance, during the closure of a facility or property sale.
Environmental insurance, nevertheless, is constantly influenced by market conditions, client needs, environmental regulations and public perceptions of environmental risks. These influences often result in changes in the key market providers, the availability of coverages, policy terms and underwriting standards.
A substantial amount of upfront, hands-on work and evaluation goes into assessing a potential buyer's environmental exposure before a policy is underwritten. Therefore, environmental expertise remains an important factor in an insurance carrier's longevity and ability to successfully, and profitably, underwrite environmental risks.
For waste firms seeking an environmental insurance provider, predetermining a provider's level of environmental expertise and how it is used in underwriting, providing loss control services and managing claims should be a guiding principle when deciding upon the right provider and appropriate coverages.
Waste firms also should recognize that environmental insurance providers recently have tightened their own business practices and risk appetites to remain financially strong and control long-term liabilities. For one, policy terms are shorter than in years past. A 10-year term will be hard to come by in today's market, whereas a one- or three-year policy is commonplace. Shorter policy terms allow insurance companies and their policyholders to analyze potential risks more frequently and, therefore, manage them more effectively.
Emerging environmental concerns, such as mold, also are catalysts of market change. As a result of growing demand for insurance protection to cover third-party lawsuits, professional liability and remediation expenses, many environmental insurance providers are underwriting certain mold coverages.
Some insurance providers are becoming more restrictive on coverage types, such as cost-cap or remediation-stop-loss coverages, which provide cost overrun protection on remediation work. Because of pricing and attachment issues (the point at which policies pay-out), the coverages are being offered on a selective basis, often with increased pricing and higher attachment points.
Contractors are taking on more responsibility for their cost overruns. Consequently, waste companies may see tighter restrictions and requirements when seeking closure or post-closure financial assurance.
Throughout 2004, industry experts expect premiums to increase perhaps another 10 percent to 25 percent. Waste businesses, however, can control some costs through their environmental risk management efforts. Like most insurance products, the price of an environmental policy will be determined by type of product, a waste company's loss history, how much risk a company is willing to retain and other related issues.
Environmental incidents still remain costly for many businesses, and the environmental insurance market continues to play a vital role in protecting the waste industry from the repercussions.