What has this to do with environmental insurance? Insurance is about protecting and compensating companies against the unexpected, and unintended, event leading to a loss or damage or legal liabilities, which in the absence of insurance create significant unplanned costs to companies.

In reality although these direct costs may rarely threaten the viability of a company, issues of trust and reputation can be fatal. Insurance can help mitigate these losses and nowhere is this better illustrated than with environmental risks.

Real and perceived
Real and perceived environmental risks are moving closer to the heart of business operations as regulation increases and tightens and as recent events, for example the red mud disaster last year in Hungary, have demonstrated.

Simply the process of obtaining an environmental insurance program requires that companies assess the exposure to these risks. The program itself then provides protection principally against those risks that, despite good management, can occur - the chemical spill, fire, uncontrolled discharges and gradual pollution.

"Issues of trust and reputation can be fatal."

Regulation risks
Demand is increasing for insurance that can cover the risks that are evolving mainly through regulation such as cover for environmental damage and biodiversity and post-closure restoration and reparation for activities such as mining and waste landfills.

Insurance and insurers actually actively support and reinforce environmental management and sustainable practice. Insurers reward companies that comply with national and international standards and operate to recognised standards, for example, ISO 14001 for environmental management, initially by insuring them - it is not for insurance to support and pay for poor practices - and by being able to offer terms that reflect the reduction in risk that such practices represent.

Front line defence
Insurance is for when these frontline defences fail. Insurance can also help companies to implement best practices; assisting companies to implement and maintain systems to manage and control risks, for example, through loss control surveys as an integral part of an environmental insurance program.

Unfortunately some environmental risks don't lend themselves to an obvious or easy insurance fix. The implication is that is if the practice or operation cannot be insured and cannot be adequately managed, controlled or otherwise mitigated then the prudent strategy is to change.

"Insurance and insurers actually actively support and reinforce environmental management."

Reluctant aid
The reluctance of insurers to insure some risks, therefore, acts to promote practices that can be insured and are, therefore, sustainable.

Environmental insurance should be a part of any overall strategy for sustainable environmental management, providing necessary protection against the unexpected - ‘the black swans' and supporting companies to become sustainable.

Simon Johnson is a director in Aon's environmental services group