The Evolution of Site Pollution Liability
Despite a change in exposures, an increase in claims, and tighter underwriting guidelines, the Site Pollution policy remains the cornerstone of how the insurance industry empowers protection of the environment.
Site Pollution Liability, also referred to as PLL or EIL, is one of the original environmental policies, covering what may be the most basic of environmental exposures.
Contamination of the environment, be it ground water, surface water, soil, or the atmosphere, are the exposures the first policies were written to address. Since their inception in the early eighties, many products have been created to cover a wide range of exposures, but throughout this time and evolution, the Site policy remains the cornerstone of how the insurance industry empowers protection of the environment.
In its current form, Site policies provide the flexibility for a facility owner or operator to cover a variety of exposures. Policies can be written to cover only new conditions, or just pre-existing ones. They can be tailored to provide off-site clean-up and onsite bodily injury only, or vice versa. Policies can be written for the exacerbation of existing conditions, as well as the re-opening of closed regulatory actions. Today’s enhancements allow the underwriter to package these facility-based exposures with coverage for transportation and disposal sites, as well as products pollution, to name just a few.
Today’s dramatic breadth of coverage represents what we believe to be the high-water mark. Policies available today are the broadest ever, and are available at prices that will probably never be this low again. The pick and choose menu style offered by many carriers gives the agent the ability to craft the coverage that meets their clients’ needs in a very precise manner, making this insurance product a true 'Risk Management' tool.
Of course, with this flexibility comes risk. Agents need to be very thoughtful as they construct coverage for their clients. As they review exposures against the form offered, they need to be sure not to leave anything out. They also need to understand the differences between carriers’ forms, as they are all unique to the company offering them, and those distinctions are very meaningful.
One of the significant changes that Site forms have undergone in the last ten years is the inclusion of some forms of naturally occurring substances in the definition of a pollutant. Depending on the carrier, this can be low-level radioactive material like radon, mold with its related fungi and spores, legionella, sediment, or silica. The issues raised by these new contaminants are important as they relate to the coverage trigger as well as the definition of Bodily Injury. Because in many of these examples the contaminant can appear at the site through no action of the insured, the traditional “release” or “escape” language is insufficient. Carriers needs to utilize “presence of” language instead. The issues related to the Bodily Injury definition are equally as important given that exposure to many of these constituents does not lead to immediate physical injury, but may require medical monitoring.
Along with the continued evolution of the product, the claims results have been evolving as well. These different exposures that have been included in coverage to enhance the marketability of the product have led to increased loss frequency and severity. Couple this with the annual downward pressure on rates, and it is clear that carriers have reached a point of imbalance. Change is coming.
Mold claims have grown to the point that several markets are starting to sublimit the coverage again, or apply different deductible schemes to manage the growing risk. Additionally, carriers are starting to extend their limit and term profiles more carefully. Five years ago many carriers would happily offer five and even ten year terms if requested. Today most offer only three years, with occasional exceptions to go out longer. Ten is still possible, but only where special circumstances merit.
All of this indicates that we are working with a maturing product that has reached the outer boundaries of its creativity. It often takes at least a few years to realize the impact of coverage changes. The battle for market share over the last five years has led to the broadest forms we’ve ever seen in the environmental space, and now we are seeing the first signs that many carriers feel they’ve gone too far.
As carriers try to manage this new risk awareness with the demands of continuing to grow their books, we believe we will see even more thorough underwriting than we have in the past. Carriers are going to be willing to offer broad terms, but only when the risk and circumstances justify it. “Mold Prevention and Awareness” plans, which were more suggestions than requirements for the last few years, are going to become important parts of the underwriting process. Receiving historic coverage with limited due diligence will be hard to accomplish, as will coverage for properties about to be renovated or developed further.
All of this bodes extremely well for the environmental insurance industry and for those carriers and brokers who have made it their specialty. Underwriting expertise and an understanding of where risk comes from have always been the hallmarks of the best carriers and the best brokers. Carriers that underwrite to a price and not an exposure will not last.
The companies that have stayed true to their hard-won underwriting guidelines during the frenzy that has been our market for the last five years or so, have every reason to be optimistic about the next twenty years in the environmental market. And of course, so do the agents and brokers that work with them.
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