The Environmental Insurance market does not always move in lockstep with some of the more common lines of business. Since this is often not a required coverage, Environmental’s peaks rely more heavily on one or more factors including, but not limited to, the foresight of risk managers, a business’ experience with past environmental losses and claims, and contractual requirements that may be placed at the local or regional levels.
Still COVID-19, natural weather disasters, and other macro events that have impacted businesses around North America the last couple of years have also influenced the Environmental Insurance market. For example, there has been a decline in real estate transactions throughout the U.S. and Canada. One outcome is a reduction in the need for new Environmental liability policies.
During this time rates either remained stable or have experienced increases throughout North America. At the aggregate level, our teams have not witnessed a large percentage of clients eliminating coverage. Yet, our professionals continue working closely with brokers to develop quotes and provide solutions.
Since most Environmental coverage comes from the London or U.S. markets, conversations frequently surround how clients can avoid double-digit gains in their premiums. COVID-19 claims, and the tight Property & Casualty market has played a role in this, creating an atmosphere where clients are most concerned about near-term options.
The Canadian market is largely influenced by the American market, except that there are far fewer carriers to choose from. In fact, while the U.S. market has roughly 60 carriers, Canada has only a handful, placing added stress on Canadian policyholders.
As a result, there has been a noticeable drop in the quality of market submissions in Canada and a further stabilizing or tightening of rates. Even though the Canadian market is heavily influenced by trends in the U.S., coverage capacity has slightly eroded. This has led to a certain frankness between carriers, brokers, and clients whether coverage is viable, and if so at what levels. If the viability and capacity isn’t there, both parties are quickly moving on to other options.
While the mid-term impact of the pandemic has leveled off toward the norm, and revenues have largely remained steady, we will be closely monitoring the months ahead. There is a possibility that the full impact of the pandemic may not be felt until a full business cycle or more has passed since the coronavirus became a worldwide issue.
Regardless, every account comes with an environmental risk. Absence of loss does not always correlate to an absence of risk.
There are clear trends in the types of claims being filed. Damage caused by mold, and any necessary clean-up has resulted in some of the largest Environmental claims we have seen in recent years. This in turn further tightened the market for residential and commercial policies, especially within healthcare. It has also been a claims generator in many office building settings.
Natural disasters have inadvertently impacted Environmental claims as well, from chemicals released from the destruction of Hurricane Harvey in Houston and the Gulf Coast area in 2017, to the horrific forest fires burning throughout the West Coast of the U.S. and in other states like Colorado and Florida in 2020 and preceding years.
Forever Chemicals, or PFAS, are also the reason behind an increasing number of claims. PFAS stand for per- and polyfluoroalkyl substances, a term used to describe a class of approximately 5,000 substances that have become notorious as much for their potential danger to human health as for their perseverance and functionality for consumers. Examples include non-stick Teflon that is coated on pots and pans, fire suppression fluids, and more.
Older underground tanks are also becoming more difficult for carriers to cover. In addition, white site development activities, which refers to examples of when developers quickly adjust and optimize space among different uses, have generated a consistent number of claims over the past 10-20 years.
Carriers are carefully selecting which of the above trends they even want to touch. Changing federal guidelines from the Environmental Protection Agency in the U.S. and Environment Canada can also influence the market.
COVID-19 has made it difficult to find available coverage for contractors or restoration officials who have been called in for cleanup work following an outbreak. Dry cleaners are also difficult to cover because of the chemicals that work generates. Of course, most carriers were quick to confirm their COVID-19 exclusions early in the pandemic, and Environmental policies were no exception.
It has been an interesting period in the Environmental market, and we expect variability to continue with policy options, premiums and capacity. The pandemic has had an adverse impact on many of the developers and businesses that require coverage, but our long-term outlook is bullish. When a sustained recovery starts, the number of new construction and development projects may fuel a boom period for Environmental policies.
Until then, our team will continue to provide the highest level of service in the industry to make sure client risks are mitigated as much as possible.
Contributor(s): Gina Jones, Vice President, Director, Environmental Programs, Burns & Wilcox; and Karim Jaroudi, Manager, Environmental, Burns & Wilcox Canada
This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.