There are more than 17,000 environmental laws and regulations worldwide. How sure are you that your business operations are in compliance?
Environmental insurance has become a hot topic the last several years, mainly because even though most companies have environmental exposures, those risks are excluded from most liability and property policies, creating a major gap in coverage.
“An experienced, specialized broker can help you recognize exposures, understand the regulatory climate and provide solutions, whether it is insurance or other risk mitigation options to satisfy coverage needs or financial assurance requirements,” says Michael R. Szot, executive vice president, global practice leader, Environmental Service Group, Aon Risk Solutions.
Smart Business spoke with Szot, Gregory E. Schilz, managing director, Environmental Service Group, Aon Risk Solutions, and Paul D. Maxwell, senior account executive, Aon Risk Solutions, about how to protect your company from environmental risk.
Why should businesses be concerned about environmental risk?
Many companies are unaware that they do not have proper protection against environmental risk, but virtually any company that owns or leases property has exposure to environmental risk. If a company transports potentially harmful materials, it has environmental exposure. An experienced environmental broker can point where exposure exists and whether companies have coverage for it in their current program. Companies may have some limited environmental coverage built into their current policies, but a broker can identify if they have a gap.
How can businesses assess whether they have a gap in their environmental coverage?
Companies may not understand their environmental risk. The starting point is a coverage gap analysis, in which a broker reviews current policies to determine if their insurance program provides any environmental coverage. The answer generally depends on the company and the country in which the company operates, but usually, coverage for environmental exposures is limited, at best.
Next, the broker will make a site inspection and perform a policy review highlighting where the company has exposures and its gaps in coverage to environmental risk. Then, the company will receive solution sets showing how to fill any gaps with an environmental insurance product or other mechanism.
In many cases, they may choose not to buy insurance; they may intentionally self-insure risk. But to not know the risk level would be a mistake for any organization.
What types of problems are covered with environmental insurance?
The biggest issue is pre-existing, unknown conditions. Whenever a business considers buying a property, whether it is an undeveloped or currently developed piece of land, there is always a question about the historical use of that property. Even an undeveloped piece of land with grass growing on top of it could have been used 30 years ago as a plating facility, with lead, zinc or toxic minerals in the ground. That is the single largest driver that causes businesses to consider environmental insurance — what they don’t know about a property they are buying.
