Perhaps like many people, you may have started this January with a New Year’s resolution, even if it was only to avoid making one this time around. Or perhaps feeling disappointed by last January’s failure to foresee the catastrophes of 2020, you promised yourself to avoid listening to any prognosticators for 2021. Whichever situation applies most closely to your circumstances, we trust you can forgive the seeming folly of trying to tease out the trends we expect to dominate both headlines and environmental insurance during the coming year…because even a dart that doesn’t strike gold still sticks somewhere!

What criteria were used to narrow our choices?

When insurance professionals evaluate risk, two of the most relied-upon factors in the equation are probability and impact, or “frequency and severity.” For reasons we have previously explored elsewhere, it is not always possible to avoid risks that are both high severity and high frequency, even though this is the approach that prudent risk managers would recommend. In looking about the world today, one is struck by the number of hazards that are increasing—or expected to increase—in the near term. These include infectious diseases (whether novel, mutated, resurgent, or resistant), unregulated contaminants of concern, and disasters driven by a changing global climate. Each of these topics were selected because they are demonstrably worsening in both their probability and their impacts on human society, both within and across international boundaries.

What are the key challenges and opportunities presented by these trends?

Infectious Diseases

While caught in the grips of a deadly pandemic may seem like a wildly inappropriate time to talk about the opportunities presented by infectious diseases, it is still necessary to remember that challenges aren’t the only pertinent topic. And in any case, the challenges are much more widely known since many of us have experienced them first-hand:  social and economic upheaval, finger-pointing and scapegoating, sacrifice and bereavement. But there are opportunities to address the nightmare scenarios if you know where to look.

After surveying most of the leading environmental insurance markets for their stances on this topic, we found that some believe the exposure to be uninsurable in the absence of a federal backstop. Not all feel this way, however. Some are willing to underwrite the risk on a case-by-case basis, evaluating the unique features of each account on its own merits, and structuring coverage accordingly. Even some of those carriers that utilize a communicable disease exclusion on each account may at least be willing to consider a partial give-back of coverage for losses such as disinfection costs. The keys to success lie in knowing which markets to approach, the underwriting information to present, and the results to expect.

Unregulated Contaminants of Concern

In the United States, rather than adopting a “Precautionary Principle” that would require a new product to be proven safe before it could be offered for widespread distribution, we follow a more business-friendly approach that instead sets a very high bar for proof of harm before regulatory action can be taken. This position has caused a long litany of substances to be widely used in what became, in effect, uncontrolled experiments on human health and the environment: for example, think of DDT, PCB’s, CFC’s, BPA, neonicotinoids, or of more recent interest, PFAS and microplastics. Even in those cases where such substances have become subject to regulatory oversight, there is no requirement for their replacements to be proven as safer alternatives, a shortcoming that has historically led to some regrettable substitutions.

Because all insurance strives to be responsive to changes in the legal sphere, environmental markets tend to keep close tabs on what new or changing standards may impact the anticipated payouts under their pollution policies. When we asked carrier partners for their insight on this risk, none told us they rely on blanket exclusions for unregulated contaminants, as doing so would make them uncompetitive.  Instead, most insurers rely on various combinations of carve-outs, sublimits, higher deductibles, or limited give-backs, depending on the circumstances of the individual account.

Climate Change

Although some observers might suggest that climate change has only become a serious topic of debate in past 25 or 30 years, others might point to the fact that losses from fire, flood, drought, and windstorm have always been a feature of human life. To either camp, the key point to emphasize is that it is the frequency and severity that are changing, not the events themselves. But even with this more nuanced interpretation, it is also important to remember that climate change has the power to act as a multiplier or exacerbating influence on not just these weather-related phenomena, but also on the other two trends we have just reviewed—infectious diseases and contaminants of concern. This is because not only does climate change enable disease vectors (e.g., mosquitoes, ticks, bacteria) to expand their historical range, but also it further reduces reliable drinking water resources which are increasingly contaminated by unregulated substances.

Since force majeure or “acts of God” have typically been excluded from insurance coverage, one may rightly ask why an environmental carrier should concern itself with climate change. What we see happening however is a trend toward changing perceptions of human agency in altering global climate, which raise questions about what is “foreseeable” in a legal sense. Moreover, environmental carriers have increasingly seen their bottom lines impacted by worsening results, whether from pollution risk directly driven by flood and fire, or indirectly by shifts in the nature and composition of domestic energy production. While few pollution insurers have stepped forward to take a lead on climate change, all are paying attention to this existentially vital matter.

This year we also expect to have revisions to the ASTM standard governing Phase I Environmental Site Assessments. This will include recognition of the increasing reliance on the use of unmanned aerial vehicles (UAV’s or drones) in performing Phase I ESA’s. These tools have not only improved consultants’ abilities to assess very large or remote properties but have also enabled them to get visual access to features that might otherwise have been difficult, dangerous, or prohibitively expensive. On the other hand, UAV’s have also introduced new liabilities associated with privacy, security, safety and pilot training/licensing. While the exact guidance on this topic has not been finalized, just the fact it is forthcoming is exciting.

Each of these topics warrants a familiarity with the subtleties that may be beyond the purview of the average producer. But they certainly fall within the bounds of our insurance specialties, and we are standing by to help you and your clients understand both the challenges and the opportunities these evolving trends hold for each of us.