The demand for environmental insurance across all industries in the US increased in the first half of 2013. Generally, insureds continued to seek environmental insurance for mergers, acquisitions, divestitures, brownfield redevelopment, and a variety of other business areas.
While pricing remained generally soft, some markets continued to firm. Rate increases were seen from some insurers, although not across the entire market. Rates for industries that routinely work with hazardous materials or need to clean up contaminated sites, such as manufacturing and chemical, remained competitive.
Multi-year and long-term policies written prior to 2011 have caused a decrease in the number of renewals in 2012 and 2013. As these policy programs come to a close, renewal and new policies are likely to be reported.
PLL Limits Decrease in First Half
The average limit levels for pollution legal liability (PLL) insurance generally decreased across all industries in the first half of 2013 (see Figure 1). This continues a five-year trend of decreasing PLL limits, representing a total drop of more than 25%. Rates remained competitive, and insureds with exceptionally good loss histories and lower hazard exposures generally had higher limits available. Large companies with revenues of $1 billion or greater, especially those in the manufacturing industry, are generally looking to purchase the highest limits available. Because of legacy risks and new conditions going forward, industries such as manufacturing and chemical require higher limits to cover potential exposures, including mold outbreaks, chemical storage and spills, and pollution.
Many incumbent environmental insurers continue to focus rate increases or coverage restrictions on specific client renewals. For those with severe losses, rates are expected to increase up to 10% throughout 2013. Claims resulting from Superstorm Sandy are still developing and the impact - if any - on PLL rates will take time to determine.
Short-Term Policy Limits Continue to Decrease
The market for short-term site liability policies remained competitive. Limits decreased for annual and multi-year policies, continuing a general trend from 2008 (see Figure 2). Carriers sought to reduce their aggregate exposures to long-term programs, as long-term policy limits are perceived as less attractive than short-term policy limits.
ulti-year policies are typically written up to three years, and long-term policies are written up to 10 years. Multi-year and long-term policies written prior to 2011 have caused a decrease in the number of renewals in 2012 and 2013. Insureds that have long-term and multi-year policies in place will likely renew once these policy programs come to a close.
Although the market appetite in 2013 is weaker for long-term policies, projects with specific risk exposures, such as significant cleanup, were still available for purchase in 2013 (see Figure 3). Generally, new business policies were more likely to be written with a shorter term, continuing a trend seen in 2012. It is likely annual policies written in 2012 will be renewed in the second half of 2013. However, there is still an abundance of capacity that is seeking support to write more business.
Manufacturing, Chemical Industries Seeing Higher Limits in 2013
In 2012, several insureds expressed the need for higher limits for industries affected by redevelopment or brownfield properties. Brownfields are abandoned industrial and commercial facilities available for reuse. Expansion or redevelopment of such facilities may be complicated by real or perceived environmental contamination. As open, green-space areas diminish due to economic growth, the redevelopment of contaminated properties creates the need for PLL.
Higher limits are needed to cover guaranteed cleanup costs for brownfield properties and to limit land developers' exposure to environmental remediation costs and pollution lawsuits. Industries that are considered "high risk" in these areas - such as manufacturing and chemical - are generally seeing higher limits in 2013 than industries that are less likely to need this coverage.
The construction industry saw some of the lowest PLL limits purchased for projects during the first half of 2013. This decrease was due in part to a number of larger, complex projects being pushed back to later start dates.
In addition, some project owners may be using their practice PLL policies for projects with less complex environmental exposures. The expectation is that limits will likely increase as new projects break ground.
About This Briefing
This report was prepared by Marsh's US Environmental Practice, which assists clients in identifying the full spectrum of their environmental exposures and provides solutions to help them avoid, mitigate, or transfer their risk.
This report was prepared in conjunction with Marsh Global Analytics - Benchmarking Center of Excellence, which provides purchasing patterns and pricing behavior analytics to Marsh clients and the insurance industry. The real-time data is sourced from Marsh's Global Benchmarking Portal, which provides high quality data and analytics through on-demand, real-time benchmarking analysis, peer-comparison reports, and industry/product-specific reports.