The average level of knowledge among brokers about the Environmental Liability Directive and its ramifications is low. Rachel Gordon reports on the need for education in the sector
"Clueless, witless, hopeless." These are the harsh words used by one senior specialist underwriter to describe the average level of knowledge about environmental impairment insurance among provincial brokers. And a quick phone call around eight such brokers across the UK, including large consolidators and small commercial firms, promptly reveals their knowledge of the Environmental Liability Directive is indeed on a par with quantum physics or conversational Mandarin Chinese.
Typical responses included that of one major consolidator who said that the only individual who might know about the directive was away on holiday. Another award-winning firm said: "No, we're not at all green," perhaps thinking the call was to ask them about their recycling strategies rather than the arrival of the ELD this March.
So, what can be done? There is no point simply rubbishing brokers. And, to be fair, a number are putting their staff forward for training. So, it is understandable if they do not want to talk about strategies at this early stage.
Paula Williams, managing director of Alec Finch, confirms this is an area her company is taking seriously and frontline employees are currently undergoing training. Aon is also briefing its regional executives. These firms, it seems, could be ahead of the game.
Knowledge in isolation
As Simon Johnson, director with Aon Environmental, says: "There is no point having knowledge in isolation and we are currently training our brokers, including running some roadshows. A lot is about understanding your client's activities and sorting out the gaps so they are covered. There is probably most potential right now in the middle market, but longer term it will expand."
Paul Dickson, regional director for Giles, adds: "Our office has not had much involvement with environmental cover - it is complicated and intimidating for non-specialist brokers. I would say there is scope for it to be better sold by the providers into the broker market. I know Ace has been involved in this area for some time and would welcome more information. Given the arrival of the directive, I'm sure it's a relevant and necessary product for at-risk businesses."
Mandy Turnbull, director with Bluefin's Newmarket office, is an exception in that she already has expertise. She comments: "This area is going to be a bit like directors' and officers' liability insurance. Around seven years ago, insurers started introducing this cover for smaller companies. At that time, brokers had low awareness, now they have good levels of understanding."
Bluefin has a dedicated environmental scheme for petrol retailers underwritten by Ace. This may be offered on a wholesale basis once the economy is stronger and demand increases. "Margins are tight, but this cover is right for various sectors, such as motor traders and the transport sector," she says.
And yet many non-specialist brokers have still never heard of the ELD or the Bartoline case - which ruled that public liability insurance does not cover off-site clean-up costs - and so are oblivious to the breadth of exposures. The directive extends the liability of polluters beyond property damage and into areas of environmental damage and un-owned property, such as rivers, countryside and wildlife. It makes operators financially liable for threats of or actual damage.
In addition to existing environmental liabilities, three types of remediation now apply - primary, complementary and compensatory.
But this awareness problem may be set to change. The British Insurance Brokers' Association is poised to launch a specialist environmental liability scheme with broker AJ Gallagher and insurer Ace Europe.
AJ Gallagher director Joanna Newson will be running a seminar at next week's Biba conference along with Ace underwriter Wayne Harrington on pollution liabilities, followed by a roadshow and provision of a detailed website.
Ms Newson is highly experienced in complex cases and an expert on European environmental cover, but emphasises the new scheme - and service - is straightforward. "It's online and we'll handle the administration. Brokers like dealing with other brokers. There does need to be more education but this is one solution brokers will find easy."
She adds there remains a perception that only large companies have pollution risks but stresses: "Any client of a local broker could have a large oil storage tank, or be a hotel with a swimming pool or a hairdresser storing chemicals."
Meanwhile specialist insurers continue with their environmental crusades. Of course, it is easy to suggest such specialists simply want to promote their products - but if a broker knows nothing and an expert is willing to provide them with a briefing, then blocking their ears is foolish.
"At times, I have been deafened by the silence," says Tony Lennon. As European manager of Chubb Environmental Solutions he has more than 17 years' experience in the sector and says there are now glimmers of improvement in terms of awareness. But more work is needed.
"The problem is, you can provide training in one office but that information is not disseminated," he says. "It's vital all those who are talking directly to commercial clients understand the issues. I have also conducted plenty of presentations to the Chartered Insurance Institute, but this has barely scratched the surface."
Another view is that some brokers may know about the environmental impairment cover but perceive claims to be unlikely. Mr Lennon responds: "Claims are already happening. Yes, there are more in Europe where the market is more mature, but they will occur here. One I am thinking of involves a small manufacturer who noticed an oil sheen on a nearby river. It turned out his company's oil tank was responsible.
"It will probably cost around £300,000 - a relatively small claim, but for this business and in this climate, having cover makes an enormous difference. Brokers need to find out about the claims service provided by specialist insurers. One of the main benefits is that the worry is taken away; the insurer handles everything."
Tom Hillier, senior underwriter at Ace Europe, comments: "Environmental insurers are focused on offering an expert claims service. We reimburse those involved in the clean-up and other areas directly. There should also be help with managing reputations."
He adds that brokers need to refresh themselves on this sector, especially if they previously dismissed it as overly complicated. "Forget bells and whistles if talking to a smaller client. It's just about finding out where the gaps in cover are and recommending how to fill these."
Heath Lambert was the broker involved in Bartoline, alongside insurer RSA, and has since focused on training its employees about this area and now has a number of in-house specialists, led by Graeme Merry.
He says: "This is a tough market to sell anything new but brokers have to make clients aware of their liabilities. Prices have come down unless it's a very high risk business and more simplified cover is available for smaller companies."
Other brokers could also receive unwelcome errors and omissions claims if they remain in the dark. Mike Marston, principal specialist with adjuster Cunningham Lindsey, comments: "It's not just brokers; there are adjusters out there who don't know how to deal with environmental claims. But if there is an incidence of pollution, then it's likely there will be blame."
Mr Marston is currently dealing with pollution linked to an oil leak from a public school. "This went into the school grounds and also into a river. The water company had to close down the supply to two nearby villages. It's probably going to be a six-figure claim linked to all the clean-up and water abstraction costs. Beyond this, there could be fines and someone, such as the head teacher or governors, could be found liable - as could the broker."
So, brokers have been warned. Steve Coates, head of UK property and casualty for Allianz, says his company is poised to launch into the market and is currently working on a pilot with a group of brokers.
"Surveys we've conducted have shown there is low awareness, which is why broker education is a focus. This is not for every client, but most brokers will have some clients with exposure - printers or waste management companies are typical examples. We also need to get across that premiums can be under £1000, so it should be affordable. While a claim without cover could hit a client - and the broker - like a ton of bricks."
Education remains the watchword. Simon Harwood-Matthews, environmental underwriter with specialist insurer XL, says he spends several days a month talking directly to brokers about this area. "We're going to see a change. Some of the larger regional brokers are starting to appoint environmental insurance champions within their businesses. They are becoming aware that the market has developed."
He explains that apart from clean-up costs, brokers are also starting to talk to clients about potential reputational damage and how insurance can prevent this. "There is a lot more flexibility in the pricing now too, although I would warn brokers that cheap cover is cheap for a reason."
Another important issue, he says, is to find out if the insurer offers protection against historical risks - some only insure from the year the policy is taken out. "In some cases retroactive cover is important as pollution can be slow to manifest itself. Longer term policies, say three or five years, may also suit some clients."
If brokers remain slow to grasp environmental insurance, then is bundling it into commercial combined the answer? Mr Harwood-Matthews responds: "If there is no pollution risk, then cover is not appropriate, so it makes sense for it to remain as an add-on."
Another potential reason for brokers not taking on board the need for environmental cover - albeit an unlikely one - is guidance from the Department for Environment, Food and Rural Affairs that stated the cost of insurance could not "reliably be assessed" and that "very few businesses are expected to take out insurance" as a result of the ELD (Post, 12 February 2009, p6).
This was clearly the last thing specialist insurers wanted to hear but they are carrying on unperturbed with their awareness-raising activities.
One of the newest entrants is Liberty Mutual Europe and vice president Duncan Spencer says the insurer will be targeting regional brokers with its launch, which he says will ideally suit SME firms. "This is going to be a useful area for brokers who want to grow their premium income. It is relevant in various sectors - for example, many brokers have small engineering firms as clients." He adds that premiums in some cases may be below £1000 and that Liberty will also cover pre-existing conditions. "It is about clarity, brokers and their clients will know where they stand."
There is no doubt that some big UK claims will kick-start the market. Mr Merry says: "We need more information on claims to come out. Clearly insurers may want to keep this information private, but it would boost understanding of the risk."
He also favours the approach taken by Spain, which requires companies to make financial provision, either through their own funds or via insurance to cover against pollution. "Perhaps local authorities in the UK could ask for cover; there should be ways to encourage responsibility."
For his part, Mathew Hussey, associate director with specialist broker Tysers, says education should not only start with brokers. "The Defra guidance was not informed; there is a market and we have already had one broker caught up in an action. I also think there needs to be more consistency when it comes to prosecutions and that magistrates need better guidance."
He points to a case earlier this year when Thames Water poisoned the water by accidentally leaking chlorine from sewage works into the River Wandle in South London. It has been described as a serious and upsetting pollution incident with frantic local people trying in vain to rescue thousands of dying fish - and two decades of riverbed restoration was wiped out in a day.
A fine of £125,000 was dished out and it was discovered staff knew about the leak but failed to issue a public warning. Thames Water was also ordered to pay £21,335 towards the clean-up and investigation.
The Environment Agency also criticised the guidelines that restricted Croydon Crown Court to a fine of less than 0.1% of Thames Water's annual turnover. "What we don't need is a culture that says it is cheaper to commit the crime. The fine was pathetic," says Mr Hussey, who has an MSc in environmental science.
He stresses there is now good capacity in the market and explains that Tysers is now placing more business for brokers on a wholesale, shared commission basis. "It means they can use a company with experience to place the right cover and we're happy to provide advice."
Meanwhile, insurers will keep plugging away. AIG has a specialist division, Enviropro, which provides cover specifically for the UK's light industrial manufacturers.
Anna Nilsson, environmental impairment liability underwriter with AIG, says her company is actively providing training to brokers. "Yes, knowledge is a bit patchy, but this is no longer a highly specialist area - we are pushing it out through our regional offices. This is going to remain a stand-alone area and so brokers do need to advise clients."
The strong presence in the environmental insurance market suggests there is groundswell of opinion towards this sector becoming more mainstream. No one needs reminding that this is not an easy time to be selling additional cover, but ignorance is no excuse either.
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