Persistent Claims, Coverage Issues and Trends shaping the future of Environmental Insurance

As stated in a previous Environmental Insider article, the environmental insurance industry has experienced an increase in both frequency and severity of claims as coverage has likewise expanded from its genesis in the early 1980s. Underwriters, claims adjusters and insureds face many pollution-related challenges today that had not yet surfaced in the early days of environmental coverage.

This past fall, our very own Paul Scian, senior risk analyst, had the opportunity to offer his technical expertise as a panelist at the SEIP Annual Environmental Insurance Forum Insuring Resilience Conference. The panel addressed historic challenges, persistent claims and emerging coverage issues contributing to the rapid growth of the market and the impact these issues will have on the future of environmental insurance.

Questions Posed

  • What challenges arise from the insurance application and underwriting process?
  • What complexities have led to change in the underwriting and/or claims handling process? Is there an issue or common thread that presents the greatest challenge?
  • How are historic discharges being handled? i.e. knowns v. unknowns, existing chemicals with newly identified risks, overlapping plumes and areas of concern.
  • Does climate change have an impact on underwriting? What have we learned and what potential adjustments or improvements could be made?

Insights Shared

Common Insurance Challenges

Can you give us a quote yesterday?
The increasingly fast turnaround on coverage decisions and insurance quotes appears to be a rising commonality for many. In turn, the time available to develop a clear understanding of the voluminous information exchanged is shortening. As the speed of transactions increase, it is pertinent to have experienced and dedicated team members involved to enable all parties to effectively and efficiently push past hurdles. Additionally, due to today’s media accessibility, digital communications greatly contribute to identifying key needs rapidly, and in turn searching, finding and sharing critical information.
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How are brokers and insureds handling these common challenges?
Those insureds best understanding the markets’ needs demand quality due diligence work from consultants conducting Phase I(s) Environmental Assessments. In turn, brokers are communicating and providing comprehensive access of existing environmental reports to the markets as early as possible. Exchanging all available information early ensures all documents are reviewed timely and accurately. For sites containing prior remedial activities, it is crucial to perform recent, high quality Phase I(s). This includes analyzing past reports as appendices and providing concise summaries of these prior environmental efforts. In turn, this allows for an efficient and transparent process, confirming all parties involved are on the same page in the least amount of time needed.

How are the markets handling this?
Excellent communication improves the speed and the accuracy of the decision making process while handling transactions. Having an experienced team allows a market to manage submissions in the most efficient manner. Channels of communication are kept open and any issues identified are quickly relayed to insureds to help maintain deal flow and expectations.

Per- and Polyfluoroalkyl Substances (PFAS)

Does it warrant the current industry attention it is receiving?
Industry professionals continue to pay close attention to the rising concerns of Per- and Polyfluoroalkyl Substances (PFAS). A decades-old, ubiquitous chemical compound group containing thousands of unique formulations used in just about every facet of modern living, PFAS exposure to humans and the direct impact to the environment is unfortunately unavoidable.

Which of the thousands of PFAS variants are toxic?
Current regulatory focus is on long-chained PFAS compounds of which, compounds with more than six carbons (C6) are considered more toxic. Some argue that short-chained compounds are less toxic; however, the scientific community is not in full agreement that the short-chained compounds are veritably ‘safe’.

Do property transactions require due diligence for PFAS?
Due to the fact that the compounds are not defined as a “hazardous substance” at the federal level1, there is currently no national requirement on a Phase I(s) to test for PFAS. However, the New Jersey Department of Environmental Protection, recently defined PFNA (a C9 long chained PFAS compound) as a “Hazardous Substance2”. Quality due diligence efforts in New Jersey now include an evaluation of potential PFAS presence and usage as well as past releases. Other states are following suit.

Are companies seeing impacts?
A class action suit has been filed by investors contending lack of disclosure for potential environmental liabilities on a corporate scale against DuPont and Chemours. Chemours shares have taken a tumble, resulting in a $560 million loss for shareholders3.

Is insurance coverage available for PFAS?
Insurance offerings are evaluated on an individual basis with some markets pulling back more than others. Properties with confirmed historic PFAS use are finding it difficult to obtain coverage. However, properties with current use, such as large airports where PFAS fire suppression systems are still legally required, are experiencing even greater challenges seeking coverage opportunities. This being said, many markets still offer PFAS coverage against a fortuitous loss.

The Impact of Climate Change

How severe and how soon?
The clear consensus at SEIP was to move past the debate on whether climate change was anthropogenic or naturally occurring, and to instead, focus on the probable outcomes facing insureds and insurers right now as well as in the years ahead.
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What are climate data and models showing us?
An increasing amount and availability of high-quality data is allowing detailed models to look at the different risks associated with climate change. For many areas, current understandings appear to indicate an increasing frequency of high intensity rain events. Depending on a property’s location, this can result in increasingly severe flooding not only in areas located along the coast or with mapped flooding potential but also in areas without historic records of flooding concerns. Hurricane Harvey for example, broadly showered 40-inches of rain over eastern Texas, including a record setting 60+ inches in certain areas of the state.

How can insureds address climate risk?
Due to the unique operations and geographical locations of each organization, there are many critical aspects to consider when addressing the concerns of climate change. For some, maintaining 24/7 site access, employee safety and accessibility remains a primary focus. Such locations will require site improvements which are typically referred to as ‘hardening a site.’ Other locations can be relegated as less critical without impairing an organization’s ongoing business, even if it resulted in being offline for a few days. A site’s business function measured with its unique setting needs to be evaluated to best determine how to protect the critical systems vital to maintaining a functional organization.

How are insurers addressing climate risk?
Markets are working closely with consultants to investigate climate change impacts at both the macro and micro scale. A precipitation modeling study of insured properties near Paris, France identified chokepoints in the area that would cause drainage blockage during successively heavier precipitation events. These findings were then used to highlight and target infrastructure improvements within the studied area. Fortuitously, soon after the study, damage from a high intensity storm was lessened significantly by the start of improvements on the study’s targeted chokepoints 4.

Great American’s Environmental Division is confident that our experience and expertise will allow us to continuously and proactively monitor emerging risks. Contact your underwriter today to learn more about how our core products and services can help you protect your client’s operations. We offer a complete portfolio of environmental insurance products, including contractor’s and fixed premises pollution liability insurance products.

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Paul Scian, Risk Analyst
Great American Environmental Division

Paul is a Risk Analyst with Great American’s Environmental Division. He brings over 30 years of environmental and insurance consulting experience to Great American. Paul’s background includes hydrogeology and finance degrees with extensive experience in greenfield, water supply development and brownfield redevelopment. He provides technical support and training to our underwriters and is based out of our New York office.

References:

  1. https://ofmpub.epa.gov/sor_internet/registry/termreg/searchandretrieve/glossariesandkeywordlists/search.do;jsessionid=Q1akom7Fd8m1yjNLkAUSbUUfHC7PF0-iU_xiSid3Sbcy9PW727_W!175277872?details=&vocabName=Waste%20and%20Cleanup%20Risk%20Assess&filterTerm=hazardous%20substance&filterMatchCriteria=Contains.
  2. https://www.nj.gov/dep/docs/statewide-pfas-directive-20190325.pdf
  3. https://news.bloomberglaw.com/securities-law/chemours-accused-of-misleading-investors-on-pfas-liabilities.
  4. https://www.rouxinc.com/wp-content/uploads/2019/12/11-20-2019-Roux-Webinar-Handout-Effects-of-Climate-Change-on-the-Insurance-Industry.pdf