Environmental Insurance

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What is Environmental Insurance?

Environmental Insurance is a form of business insurance that covers companies and protect them from un-insured environmental liabilities they may face.

Background

Standard public liability policies offer limited environmental cover and, therefore, questionable protection for pollution liabilities. In addition new environmental legislation increases the range of risks and responsibilities for companies.

Environmental Remediation Services

Remediation companies that are specialized in developing environmental clean-up projects most of all require environmental insurance. This type of policy helps companies to cover costs associated to remediation project which overlap the total amount of investment estimated. Additional costs could include: regulatory or requirement changes, discovery of new contaminant, delays and difficulties in the execution of the original remediation plan.

In certain circumstances, governments need environmental insurance to minimize the impact of costs.

History of Environmental Insurance

The first policies associated with environmental hazards, appeared as new forms of pollution arose, thus creating a specific market for environmental companies. There is an increased awareness in the public, media and government agencies for pollution and corporate responsibility and sustainability.

During the 90s, new technologies helped companies to calculate the various types of risks and costs related to pollution problems. At the same time, the first remediation tools appeared. Even today, environmental insurances cover only a small portion of environmental risks.

Types of Environmental Insurance. categories

Three main coverage categories of environmental insurance can be distinguished:

• Pollution Legal Liability (PLL) / Environmental Impairment Liability: a policy with options to cover loss from historical contamination, loss from contamination caused by ongoing operations (often known as "operational risks"), or a combination of the two. Such policies are often used as a means of breaking deadlock in transactions where the seller may want to achieve a "clean exit" from liabilities associated with the site, but the buyer does not wish to inherit liabilities for pollution caused by the seller or any other party in the past.
• Business-based liability: a policy to cover pollution and environmental liabilities arising from the business activities of the insured.
• Contractors' Pollution Liability: a policy to cover loss arising from contractors operating, or project works, on third party sites. Such liability may arise from:
  • New contamination caused by the activities of the contractor.
  • Existing on-site pollutants mobilized or exacerbated by the contractor and causing contamination.
• Remediation Cost Cap (CC) / Stop Loss: a policy to cover loss arising from cost overruns during remediation. Protects against and maximizes extra-costs originating from a remediation plan. For example:
  • The discovery that contamination is more extensive or more significant than originally anticipated, which can lead to costs spiraling.
  • Underestimation of base costs because, among other things, the proposed remediation method is not suitable.
  • Changes in regulatory or planning requirements during the course of the remediation.
  • The failure or inadequacy of remediation works.
  • The requirement to carry out further remediation.

Cost of Environmental Insurance. Premium

Typically, policy premiums for environmental insurance are calculated depending on guaranteed costs and the limits of a policy.

Policies are flexible and coverage can be customized to address a large variety of a firm's needs.

Companies can have various levels of industrial production hazard, depending on the use of chemical substances, the respect of environment impact standards, and pollution risk value.

Insurance companies should identify pollution sources in order to use them in defining price and compensation policy.

Almost everywhere, industries with environmental risky activities are obliged or exhorted to stipulate environmental insurance contracts with accredited institutions. Usually, businesses can obtain a high-level protection for environmental risks at a reduced cost, since part of the premium is paid by local governments.

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