Here is what risk managers should be looking at when designing a multinational environmental insurance programme, recommends Suresh Krishnan, head of global accounts division at Chubb Europe.
Environmental risk is a major concern for businesses of all sizes but the issue is particularly acute for multinational organisations due to their extensive geographical spread.
Multinationals have created a global market that defies national borders, while technological developments have accelerated changes to the way in which they operate. This has allowed companies to grow faster than ever before by entering or creating new markets, but it has also shifted the risk dynamic and made it increasingly complex.
Environmental risk is one area that has grown exponentially as a result and it is increasingly important for businesses to understand the multitude of potential threats they now face.
A decade ago, a typical multinational company would have been focused primarily on complying with the regulations of its home country, with less or limited knowledge of local requirements for overseas operations.
Today, however, the rising level of environmental legislation across the globe is putting increased pressure on firms to prove compliance with rules and regulations across all bases of operations. And all of this is done against a backdrop of little or no uniformity across jurisdictions.
Chubb recently published its updated Global Management of Environmental Risk report, in collaboration with Clyde & Co.
It revealed that tightening regulation on a worldwide scale, including those jurisdictions that may in the past have been ambivalent about environmental protection, is overwhelmingly the biggest change to environmental risks in recent years.
The report examines the different types of environmental risks facing a multinational corporation, and how traditional risk management techniques are leaving companies exposed to unnecessary risks, both financial and reputational.
It identifies a number of key territories where the application of environmental law has changed in recent years and explains how a tailored multinational insurance programme can overcome obstacles associated with risks facing an organisation operating across a number of different jurisdictions.
Considering environmental impairment liability from a multinational perspective can be both a colossal and daunting experience for businesses.
So, where does one start? Compliance should be a risk manager’s first concern because different countries have very different requirements. Some require mandatory financial provision, others have compulsory insurance programmes. It then becomes an issue about where companies are physically located around the world and where they may have liability through their agents and representatives. What type of law governs environmental risks within those jurisdictions? Furthermore, this analysis should not be just from a corporate governance perspective but also be from a personal liability standpoint because some countries have personal liability attributed to environmental incidents.
Ensuring local environmental risk mitigation and claims expertise is also crucial because this is where the rubber meets the road on effective environmental multinational programmes. The biggest challenge corporations have with multinational programmes, especially in areas such as environmental impairment liability, is the responsibility of the organisation to address and correct, to the satisfaction of local regulators, any environmental event attributed to it.
Corporations have to decide if this is a risk they want to assume by themselves or if they want to purchase protection that includes services that can assist the reputational risks as well as financial indemnity that protects them. So having a multinational programme that can address all these issues in a current and transparent manner should give multinational corporations more confidence and comfort.
Building a multinational programme from the ground up locally brings to the forefront the preventive aspects of risk management and is a vital perspective for a company looking to protect itself against environmental risks. The centralised view, after the local perspectives are well understood, adds to ensuring that the programme is comprehensive.
The consequences of not being prepared locally can be severe and the impact of an environmental incident resonates on many levels. The physical damage, clean-up costs and the regulatory implications of these are only one aspect. Reputational damage can last even longer, particularly in the age of social media. This means a crisis management facility is crucial and the value of partnering with experts, especially on the prevention side, shouldn’t be underestimated.
With all of this in mind, before embarking on building a multinational environmental insurance programme, insurance buyers and risk professionals need to consider the following threshold questions:
- Do you need a local policy to address local laws? Are these compulsory or are they prudent corporate governance?
- Is the policy tailored to local requirements?
- If it is the intention to buy the minimum required locally to conduct business, do you have enough protection on a global basis to cover unforeseen gaps in local coverage either on limits or terms and conditions?
These are very important issues which must be addressed at an early stage. Then the question moves on to expertise and capability.
- Are you choosing a partner carrier that has proven global and local expertise to address your issues and needs?
- Can it explain the issues and then does it have the capability to implement a comprehensive multinational programme tailored to address those issues?
- Finally, can it bring local expertise and capabilities to assist during a crisis and ultimately pay where indemnity is expected?
Both sets of questions and the issues identified and addressed in the report are fundamental decision builders when considering a multinational programme for environmental impairment liability.
Managing the complexities of environmental risk is challenging, especially for global organisations, but a well-planned multinational programme can help ease the burden and manage expectations.
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