Environmental Insurance

• Environmental Insurance
• Environmental Liability Insurance
• Pollution Liability Insurance

POLLUTION exposures have been growing in significance for years. Yet even in the face of clear need, environmental insurance has not been a coverage insureds have readily accepted. How to prioritize environmental coverage? With the list of needed coverages growing longer every day, when does the business owner take the time to deal with pollution issues?

To help you grasp the issues and opportunities, We will review the mold exposure ( recent concern), silica (a new one), recent changes in the environmental market, and the market's likely direction in the year ahead.

Mold: A continuing problem

One of the most talked- exposures for the last several years has been mold, toxic or otherwise. Evolving from a problem in humid, coastal regions to one that affects every state, mold has done more to heighten the awareness of environmental concerns than the federal Clean Air Act or even Superfund. By affecting people's homes and workplaces, and their children's schools, mold became everyone's concern.

As they often do when confronted with new, high-profile exposures, the standard markets quickly excluded coverage for mold in an effort to keep losses from exploding out of control. Where insurers were prohibited from excluding the risk, many simply stopped writing at all, leaving homeowners, contractors, manufacturers and property owners without coverage.

Mold presents a unique challenge for many reasons. First, it is naturally occurring, potentially present anywhere it can find moisture, warmth and a food source. As an organic substance, it also has the propensity to recur whenever the minimum requirements are met. Removing mold is not enough. It will grow back unless the root causes are fixed. Furthermore, the typical root cause-water damage-can occur in any number of places and for any number of reasons, including construction defect, faulty maintenance and product failure. This can make it difficult to determine the responsible party in many cases.

Another challenge comes from mold's defense mechanisms. When threatened, mold releases millions of microscopic spores, which land wherever they are carried by air currents. This phenomenon allows mold to migrate from one location to another. It also complicates the removal process; specific protocols need to be followed to avoid making the problem worse.

Environmental insurers have been excluding mold coverage from their policies for about as long as standard carriers have, generally for the reasons outlined above. Over the past year or so, however, environmental insurance carriers have provided more coverage to a growing number of commercial clients. After a great deal of study, these insurance companies have concluded that the mold risk is manageable for certain types of clients, if they take proper precautions. Coverage is becoming more available for commercial contractors and for commercial-property owners and managers. It remains hard, though possible, to find coverage for residential contractors and habitational sites. Here's the situation for some typical insureds

Certain carriers now furnish training themselves, building the cost into the coverage premium. This enables the insurer to control the quality of the training its insureds receive.

An issue unique to facilities is the construction of the building itself. Carriers will take a close look at its age, construction and property loss history. Loss runs will be vital for successful submissions.

Habitational facilities and residential contractors still have a difficult time finding mold coverage, although the task is becoming a little easier. They'll need to meet the aforementioned requirements in regard to training and property condition. They also may have to accept lower limits than other environmental insureds, or deal with coverage restrictions. For instance, there may be no coverage for mold cleanup, only for third-party bodily injury- or just the opposite. By exploring what the market has to offer, agents can counsel clients about other risk-management strategies for any remaining exposures.

As this year unfolds, coverage for mold will become more readily available for several reasons. First, more insureds have taken mold-awareness training and incorporated it into their procedures, making them more insurable. Additionally, carriers are becoming more comfortable with the mold exposure. Finally, there are more insurance companies rs interested in writing environmental insurance, and mold coverage will be seen as an entrée to the marketplace. While mold coverage will not be easy to obtain, it will be available to insureds who put in the required effort.

To many carriers, silica sounds a lot like asbestos in the early days of its emergence as a major source of claims. For that reason, silica exclusions are common on standard carriers policies, as well as on many specialty insurers environmental policies. As is often the case with exclusions, insureds are learning about the reduction in coverage at renewal, usually without knowing a great deal about the exposure beforehand.

Because of the exclusion, agents need to learn about the silica exposure to properly inform their clients of the exclusion's implications.

As with mold in its early stages, even companies specializing in environmental insurance are being cautious about extending coverage for silica. Some environmental insurers exclude coverage for silica on everything they write. Others exclude it only on those accounts they think have a significant exposure, granting the coverage for others.

For clients and their agents seeking silica coverage from environmental carriers, it is important to review carefully what is offered, to determine if it is acceptable. As with all environmental policies, no two carriers offer coverage in exactly the same way.

It is hard to predict how available silica coverage will be in the next 12 months. While the exposure presents a significant challenge because of its widespread nature, it does not have some of the &334;organic" characteristics that have made mold such a challenge. Over time the insurance industry will find the balance point between risk and reward and provide coverage accordingly.

The environmental marketplace

The environmental marketplace has been "firming" over the last few years. While it didn't really "harden" like some segments of the market, carrier pricing did become more realistic. Rate increases of 10% to 20% were the norm in 2005. In 2006, however, carriers likely will retreat from that "firm" stance.

Environmental coverage will become more readily available for mold and, in at least some circumstances, for silica during 2005. Agents who are adept at recognizing their insured's environmental exposures, communicating them to their clients, and giving them reasonable solutions will be in the best position to retain business.

Carriers are planning to bring lower-cost environmental coverage to a wider range of insureds. Stand-alone contractors pollution and site pollution coverages designed for lower-risk accounts will be available for a fraction of the previous cost.