Research

Insurance Marketplace Realities 2019 — Environmental

November 6, 2018

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/down –5% to +10%
Combined environmental + casualty/professional Increase +5% to +15%

Key takeaway

As underwriting appetites continue to change, buyers will need to be diligent to find the best carrier relationship and coverage.

Indications of a hardening market are developing with respect to coverage terms for several risk classes.

  • Carriers are focusing on the products and classes of business where they are the most profitable, reducing market competition for certain exposures.
  • High frequency and severity of loss are seen across all classes of business, especially for indoor air quality (IAQ) exposures.
  • Changes in regulations (e.g., storage tanks) are affecting environmental products utilized for financial assurance.
  • Coverage for IAQ and for known conditions (especially around development activities) continues to receive the most underwriting scrutiny.
  • For site pollution liability (PLL/EIL) cover, small decreases are available for buyers with no loss history, while loss experience or IAQ exposures may produce increases reaching double digits.

Changes in carrier ownership during 2018 may affect future underwriting philosophy and appetites.

  • The arrival of new entrants to the environmental marketplace slowed in 2018, reflecting a preference by some entities (insurance or capital markets) to acquire an existing book via merger or majority ownership versus building from the ground up.
  • Mergers brought together carriers with differing environmental underwriting appetite and experience. We expect the merger partner with less (or none at all) environmental expertise to follow the lead of the more experienced partner.
  • Some transactions have brought an infusion of new capital to environmental carriers. It is unclear how profit expectations will affect short- and long-term underwriting appetites.

Carrier M&A has an impact on claim handling as well as marketplace appetite.

  • Carriers have different approaches to handling claims, even in cases where policy wordings are similar — the strictness with which the policy language is enforced, for example, can vary considerably. In the case of a merger, the culture of the acquiring company will usually come to dominate, and for insureds used to dealing with the acquired company, the claim experience may bring uncertainties.