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Survey Report

Insurance Marketplace Realities 2020 Spring update – Environmental

N/A
COVID 19 Coronavirus

May 7, 2020

Environmental insurance carriers are assessing their current forms and future position relative to bacteria, viruses and communicable diseases in the wake of COVID-19.
Rate predictions
  Trend Range
Contractors pollution liability No change or slightly up Flat to +10%
Site pollution liability (PLL/EIL) No change or slightly up Flat to +15%
Combined environmental + casualty/professional Increase (Purple triangle pointing up) +5% to +15%

Key takeaway

As clients assess the potential response of their environmental insurance programs to COVID-19, environmental insurance carriers are simultaneously assessing their current forms and future position relative to bacteria, viruses and communicable diseases. Expectations are that many carriers will either affirmatively exclude coverage altogether or severely limit coverage to a few sectors going forward.

Many insureds are looking at their environmental policies as they consider possible insurance remedies for the impact of the COVID-19 pandemic.

  • In-force environmental policies may offer affirmative coverage for bacteria and virus risk, with coverage built in or endorsed to their forms.
  • When offered, coverage is usually for disinfection costs (similar to cleanup costs) arising from a release event at a facility.
  • Most coverage for third-party bodily injury is excluded through a communicable disease/human-to-human contact exclusion.
  • Some carriers have begun to exclude COVID-19 in new placements, renewals and mid-term acquisitions.

While the marketplace is stable, rates continue to rise, and buyers should consider several steps to improve renewal results.

  • Perform early renewal strategy meetings to understand current market conditions before going to market.
  • Deliver carriers the most complete submission information available to provide certainty.
  • Where available, negotiate a policy extension or early renewal to reduce the uncertainty of regulatory risk.
  • Use analytics to tell a better story about your company’s risk profile.
  • Build for the future by utilizing multiple carriers, purchasing multiyear programs, and coordinating effective/expiration dates for multiple environmental policies wherever possible.

Hard market conditions in standard lines of insurance have had both positive and negative effects on the environmental insurance market.

  • Many clients facing hardening conditions in the property and excess casualty markets are strategically locking in multiyear operational environmental programs (2 – 5 years) where available to mitigate future market uncertainty.
  • While longer policy term programs (5+ years) are available for transactional business, carriers are less likely to offer them based on regulatory uncertainty surrounding emerging risks; some clients are less likely to purchase them (when they are offered) due to pricing considerations.
  • In 2020 we will see recently merged underwriting units (i.e., as a result of M&A) looking to form a combined underwriting identity that may or may not benefit their insureds depending on the prevailing appetite for risk.
  • While there were few market entrants into environmental insurance in 2019, several carriers that had previously offered environmental insurance through wholesalers widened their distribution platform to the retail market. This trend is expected to continue through 2020.
  • As buyers seek access to additional capacity, brokers are employing inventive solutions, such as layered, quota-share and captive programs, to address the demand.
  • Markets are looking to protect their limits on larger, layered programs by participating at higher levels and on a ventilated basis whenever possible.
  • Most buyers can expect rate increases. The only reductions we can foresee are for site pollution liability buyers with expiring policy terms greater than five years or in favorable classes of business — and with excellent loss histories.

Coverage is constantly evolving in light of new understanding of environmental risk.

  • The top five global risks identified by the 2020 World Economic Forum are environmental-related (extreme weather events, climate change, human-made environmental disasters, biodiversity loss, natural disasters). As the environmental insurance marketplace continues to struggle with offering affirmative coverage for these conditions, clients are turning to parametric insurance and alternative risk solutions for these exposures.
  • Coverage for mold and legionella for the hospital, hospitality, residential and education (K-12 and sometimes colleges and universities) sectors is becoming limited. If carriers do offer coverage, it is subject to higher premiums and more restrictive terms and conditions. Carriers are relying heavily on individual property engineering and multiple deductibles (per door/per bed) at each location for certain exposures, such as mold.
  • Perfluoroalkyl/polyfluoroalkyl substances (PFAS) and glyphosate continue to garner attention from regulatory entities as well as from insurers who are in various stages of reacting to potential regulatory changes surrounding these chemicals.

Like coverage, claim trends reflect the changing treatment of environmental risk.

  • Product-related claims arising from the application of chemicals or installation of building products are on the rise.
  • Construction-related claims continue with great frequency. Exposures arise from indoor air quality, installed building products and excessive siltation.
  • To mitigate the risk of multiple claims from a single incident, environmental carriers are relying on other insurance provisions and multiple deductibles to share risk among other lines of coverage (GL, property) and insureds, respectively.

Disclaimer

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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