Practice Areas

REASONS WHY AN EXPERIENCED
ENVIRONMENTAL INSURANCE CONSULTANT
SHOULD BE RETAINED

Any business which already faces, or is likely to experience in the future, liability with respect to an environmental issue should contact an environmental specialist who can serve as a consultant and/or broker to control the coordination of the risk management and financial transfer process. The process of environmental risk management and transfer is multifaceted and complex and mandates the involvement of an Environmental Insurance Consultant (“EIC”).

An EIC must have the requisite background, experience and ability to handle the following tasks:

1. Identify Risks:

An EIC should understand the environmental risks relevant to a client’s industry and know the questions necessary to determine what environmental exposures must be addressed for the specific business, the nature of those risks, and the various options for consideration to meet the client’s objectives.

2. Quantify Risks:

An EIC will assist with providing estimates of potential environmental losses based on some actuarial data, and the systematic assessment of costs which include physical damage, cleanup, bodily injury, defense, business interruption, and natural resource damage. An EIC should be familiar with all available resources which can quantify a range of costs for the client’s risk exposures.

3. Understand Environmental Liability:

In order to fully assess environmental risk, an EIC should understand the environmental
laws and regulations, and tort and contract law, which present liabilities. An EIC which has involvement with environmental claim disputes under commercial general liability policies will appreciate the need to fully address the client’s exposure for environmental liabilities which may include using environmental insurance. An EIC should utilize specific environmental coverage forms and policy wordings, many of which are likely to be written by endorsement.

4. Know Coverage Forms:

An EIC should have a thorough understanding of the more than 25 different types of environmental insurance coverage forms available. An experienced EIC would have already pioneered changes, which were subsequently incorporated into the coverage forms. Brokers who are not regularly involved with manuscripting environmental policies will not know the subtle changes necessary to fully protect the client’s risk exposures. An EIC should have a checklist of mandatory changes to pre-printed coverage forms, and be focused on specific business environmental exposures which must be creatively addressed.


5. Access Insurance Alternatives:

An EIC should be familiar with creative risk transfer solutions which may include captives, trusts, bonds, insurance and reinsurance, and various financial transactions which are tax advantageous. An EIC should have formed significant relationships with specific consultants, attorneys and accountants to outsource certain necessary skills and have the ability to manage the process. For example, specialized skills may involve negotiations with regulators, funding mechanisms and developing remedial cost figures. An EIC should understand capacity available in the domestic insurance market, have access to foreign markets if necessary, and understand how insurance captives are often utilized. As environmental insurance is recognized as an advantageous solution to many environmental problems and potential exposures, the demand and insurance premiums will significantly increase.

6. Prepare Submissions:

Confidentiality Agreements are commonly executed for the client’s insurance submissions. An EIC should know the environmental insurance market submission which will include technical data. The EIC will often need to discuss the environmental data, environmental regulatory climate, assessment of liability, financial statements and claims data, among other things, with the underwriter. A close relationship between an EIC and an underwriter will typically result in better results for the EIC’s client. This is because significant negotiations will take place over the actual policy wording, pricing, financial transactions, submission materials necessary to bind coverage, timing, allowable terms, and input on claim payments and resolutions.

7. Negotiate and Facilitate Coverage:

In order to comprehensively bind coverage, the environmental policies must address all coverage elements. An EIC should coordinate with the client, risk managers, attorneys and/or accountants to assure that the client’s needs have been met. An experienced EIC would have worked on negotiating endorsements, and know the acceptable risks, limits, deductibles, pricing, and manuscripted language, which will provide maximum protection for the client. Most general brokers will be unable to dedicate resources to the job of controlling this process and facilitating the prompt delivery of an insurance policy.

8. Communicate Financial Benefits:

An EIC should be accessible to the client and the client’s other professional representatives at all times. In addition, an EIC should be able to clearly explain the financial benefits of the risk transfer approach to the client’s management team which often includes inside and outside counsel, accountants, and financial officers. An EIC should have a few knowledgeable professionals who can provide continuous personalized assistance. Large brokers are often unable to efficiently call upon the necessary resources from their large staff each with a specific specialty in order to quickly deliver an effective product, particularly for smaller placements. Large brokers typically have too many diverse interests present with respect to internal revenue incentives for production. 

An EIC must monitor changes to environmental exposures and alert the client if modifications to the financial transaction or policy are needed. Changing environmental statutes, tax laws or legal developments are a few examples of areas which an EIC should closely monitor to ensure that the client’s risk exposures remain protected. An EIC, which has been involved with prior environmental claims, will be most sensitive to the ongoing protection of the insured, and will be able to provide advice on the proper presentation and handling of claims.

CONCLUSION

Boutique or specialty brokers, EIC’s, which have experience with environmental placements and significant relationships with underwriters, should be retained either as a consultant or broker. A niche environmental broker may work with the client’s existing broker to provide an outsourced environmental service, and may then be appointed as the broker or co-broker for any insurance placement that satisfies the client’s needs. The skills highlighted above are necessary to properly and comprehensively effectuate a complex risk transfer.

General brokers and specialty departments at large brokers will usually fall short of having all of the necessary skills and thus meeting a client’s expectations. In conclusion, a client should recognize the value of a niche environmental broker as long as that EIC possesses the necessary skills and capabilities, and the client views the EIC as one of its trusted advisors.