Status of the

Environmental
Marketplace 2013
This paper provides a brief update on the status
of the marketplace for environmental insurance
as of 2013.
It starts with a look at the
environmental risks associated with a number of
common industrial, commercial and institutional
activities. It then considers various aspects of
the marketplace, with a look at the insurance
companies that sell environmental coverage, a
review of who buys it and what is new in the
market for this year.

Leaking underground Storage Tanks can

pollute soil and groundwater at industrial,
commercial and residential sites

Hazardous chemicals must be properly

handled, stored and disposed of in order to
prevent spills and releases of contaminants

Windstorms and floods can wash hazardous

materials into rivers or contaminate
downstream properties

The Nature of Environmental Risks

Environmental risks are all around us, but are
often unrecognized by business owners. In fact,
there are more than 30,000 spills of hazardous
materials every year in the United States and
most of them do not involve chemical companies
or hazardous waste disposal sites. Extending
this to a global view, spills are much more
common in nations where environmental
regulations are not fully implemented and
enforcement is less stringent than in the U.S.
and other industrialized societies. Many
environmental exposures are associated with
relatively low risk activities including ownership
of real estate, retail marketing farming, and a
variety of manufacturing and distribution
businesses.
Examples of some common
sources of environmental claims include the
following:

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Accidents involving vehicles, vessels and

trains can cause spills that result in
contamination and/or fires

Even
where
safety
measures
are
implemented to protect people and the
environment, human error can result in
releases that are catastrophic

This report looks at the use of environmental

insurance as a risk management tool and
assesses its value as a means to finance future
losses. It also considers insurance as a tool to
support and foster continued development of
technologies where risks are present and/or not
fully understood.

Climate change has been noted as a global

phenomenon that has impacted agriculture
around the world

The report is broken into four sections

that discuss the following topics:

Section 1
What is Environmental Insurance?

Section 2
Who Sells Environmental Insurance?

Section 3
Who Buys Environmental Insurance?

Section 4

Relatively benign real estate accounts can

result in serious environmental events

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Current Status of the Environmental

Insurance Marketplace

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Section 1
What is Environmental
Insurance?
The environmental marketplace provides a wide
variety of insurance products tailored to protect
businesses from pollution risks that involve
everything
from
releases
of
extremely
dangerous chemicals to the presence of mold in
apartment buildings. The type of policy that is
appropriate for a specific client depends on the
types of risks associated with the insured
operations and activities, as well as the
requirements that may be imposed by third
parties such as lenders.
Site-specific insurance products offered by
environmental markets, commonly referred to as
Pollution Legal Liability (PLL) policies, provide
claims-made coverage for risks related to
ownership, management or operation of
properties.
Insured risks include property
damage caused by spills from industrial,
commercial or institutional facilities where
hazardous materials are stored, used or
generated as byproducts of operations. Risks
also include bodily injury from exposure to or
contact with hazardous materials or unhealthy
indoor and outdoor environments. Injuries or
damage may occur to persons or property on or
off insured premises.
Releases of hazardous materials can also result
in regulatory requirements for responsible
parties to clean up and remediate pollution
conditions to achieve allowable concentrations
of contaminants in soil, groundwater, sediments
and other media. Cleanups can be required on
insured premises or from the properties of
others where pollutants have migrated from an
insured property or operation.
Environmental insurance policies typically
respond to third-party claims for bodily injury,
property damage or remediation of pollution
conditions. Policies today have been broadened
to include first-party cleanup costs and business
interruption where lost time is a result of a

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pollution condition. Generally, any classification

of industrial, commercial or institutional risk is
eligible for these products. PLL coverage can
be written for a single site or a portfolio of
properties. Coverage is available for new and
historical pollution conditions arising from both
sudden and gradual releases of contaminants.
Environmental coverage for general, trade and
remediation contractors is commonly referred to
as Contractors Pollution Liability (CPL)
insurance. CPL policies are written on both
claims-made and occurrence forms that respond
to third-party claims arising out of the covered
operations of the insured contractors. Nearly
every type of contracting activity can be insured
on a CPL policy and coverage can include
protection for both construction risks as well as
for completed operations. CPL Policies respond
to third party claims for bodily injury, property
damage, and remediation costs. This coverage
can be written on a project-specific basis or as a
practice policy, which insures all operations
performed by an insured contractor during a
policy year. Project-specific policies can be
written for multi-year terms and include
coverage of completed operations. Where CPL
policies are written on individual projects they
may insure a single contractor or all contractors
performing construction services related to the
specified project.
Combined general and pollution liability are also
offered to contractors by environmental
underwriters. These products can provide both
commercial general liability (CGL) and pollution
liability coverage in a single policy form. Where
contractors are also engaged in engineering,
consulting or other technical work, combined
forms may include coverage for professional
liability as well as contractors pollution and CGL
risks.
Risks associated with leaks, or spills involving
underground storage tanks (USTs) may be
insured on site-specific PLL Policies or on
separate insurance policies specifically designed
for just UST risks. Underground storage tank
policies can provide owners and operators of
commercial USTs protection for cleanup and

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liability claims arising out of releases from

insured tanks. These policies may also be used
to satisfy regulatory requirements for financial
responsibility imposed by state and federal
regulations. Insured tanks typically must meet
minimum requirements for protection features

and require periodic testing in order to certify

their compliance.

Table 1 Types of Environmental Insurance and Target Purchasers

Type of Insurance

Target Industries*

PLL

Real Estate Portfolios

Light/Heavy Industry & Manufacturing
Hospitality
Healthcare
Oil & Gas
Academic
Municipalities, Public Entities & Airports
Landfills
Food/Agricultural Industry
Mining

CPL, Owners/Contractors Protective

General Contractors
Trade (Specialty)
Environmental Remediation
Project Owners

Combined GL/PLL

Manufacturing
Chemical Blending/Distribution
Fixed Facility Operations

Combined Professional/CPL

General Contractors
Trade (Specialty) Contractors
Environmental Remediation

UST

Remediation Stop Loss

Contractors with Fixed Price Remediation Contracts

Owners, Developers or other Responsible Parties with
Small Well Defined Cleanup Projects

Lenders Collateral

Banks/Lenders with Broad Portfolios of Property Loans

Service Station Operators

Communications
Fuel Storage Terminals
Waste Treatment/Storage

*may include and may not be limited to the mentioned industries; eligibility varies by carrier

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Section 2
Who Sells Environmental
Insurance?
The Environmental insurance marketplace is
now saturated with entrants offering high limits,
a variety of products and a wide breadth of
coverage. With this competitive landscape,
brokers often have the upper hand in negotiating
competitive
terms
and
conditions
in
environmental insurance policies for their clients.
Of course, all environmental insurers are not
alike in terms of their ability to offer a broad
range of products and in their appetite to write
specific kinds of environmental risks. In order to
better understand the insurance companies that
write environmental insurance it is helpful to look
at the market in segments that characterize the
types of insurers that are active today, and to
look at the products these companies write
within their market segments.
First-Tier Markets constitute A.M. Best Arated carriers with capacities of up to $50
Million per product line. These markets include
AIG, ACE, Aspen, AWAC, Berkley, Catlin,
Chubb, Great American, X L and Zurich. As
some of the leaders in the Environmental
marketplace, these carriers write a broad
spectrum of pollution products, including SiteSpecific Pollution Legal Liability, Contractors
Pollution Liability, Combined Professional and
Contractors Liability and Storage Tank policies.
Many of the major markets also have the ability
to write General and Pollution Liability coverage
on combined policy forms. Zurich also writes
coverage for financial institutions known as
Secured Lender or Collateral Protection
insurance that provides protection where
pollution conditions affect properties that are the
collateral for bank loans.

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Second-Tier Markets are A-rated carriers with

capacities of up to $15 Million per product line
and include Beazley, Liberty, Navigators,
Philadelphia and Travelers. While these
companies offer somewhat lower limits, they
offer policies and programs that are similar to
the First-Tier Markets and obviously have strong
financial ratings to support their products. Many
of these companies also provide combined
programs for contractors professional and
environmental liability risks.
Second-Tier
markets may write all lines of environmental
insurance, but may have more limited appetites
for the breadth of products and risks that are
most often underwritten by First-Tier Market
companies.
Specialty Markets are accessed through
environmental wholesalers and can provide Aon
clients specialty products and expertise offered
through proprietary markets. Companies that
typically can be accessed only through
wholesalers include Aegis, Alterra, Arch, Axis,
AXA, Colony, Crum & Forester, CNA, CV Starr,
Everest, Gulf, ISO, James River, Markel, New
Century Surety, One Beacon, Rock Hill, and
Torus. Products that are often sought in the
wholesale marketplace are mono-line mold
abatement and blended General Liability/
Pollution policies. Some companies handle only
pollution exposures for service stations, country
clubs, pest applicators, and owners of small
businesses. These Specialty Market insurers
typically have smaller minimum premiums than
the larger companies and can make coverage
available to a segment of industry that would
otherwise not find environmental coverage as
cost-effective in their risk management
programs.

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Figure 1 - Carrier Capacity per Policy

(In Millions)

$60
$40
$20
$0

Site Specific Limit Capacity ($MM)

Construction Risk Limit Capacity ($MM)

Millions of Premium

Figure 2 - Millions of Premium Placed by Aon

$25

$20

$15

Combined Forms
$10

PLL and Excess

Contractors Pollution
$5

UST's and Small Sites

$0

UST's and Small Sites

Contractors Pollution
PLL and Excess
Combined Forms

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Section 3
As environmental insurance has become widely
accepted as a necessary component of risk
management programs, Aons insurance
placements have grown to include a wide variety
of industrial, commercial and institutional
categories that would not have appeared in this
chart ten years ago. Insurers have responded to
the demands of these purchasers by developing
specialized environmental products that provide
coverage that is tailored to their needs. Many of
these custom programs include coverage for
both general and pollution liability risks in a
single policy form.
Environmental insurers
provide special programs for healthcare,
educational, chemical manufacturing, life
science, and energy company risks.

Who Buys Environmental

Insurance?
Overview by Industries
The chart below indicates industry groups that
purchase environmental insurance from Aon.
As can be seen from the chart, the construction
field is the leading category among those
purchasing environmental coverage, accounting
for 20% of policy placements through Aons
Environmental Services Group. This is followed
by real estate (18%) and industrials/materials
and pharmaceuticals and chemicals (Each with
10%).

Figure 3 - Environmental Insurance Purchasers by Industry

(Total Number of Policies Sold by Aon)

Technology
2%
Public Sector
2%

Agribusiness and
Food Systems
6%

Transportation
3%

Construction
20%

Real Estate
18%

Prof essional
Services
Group
4%

Pharm-Chem
10%

Consumer
Goods
4%
Natural
Resources
8%

Industrial & Materials

10%
Entertainment
1%

Misc. General
Industry
3%

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Health Care
2%

Financial
Institutions
7%

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Section 4
Current Status of the
Environmental Marketplace
The environmental marketplace remains competitive
for all classes of coverage offered. With excess
capacity and moderate growth in the number of
insured locations and operations, this condition is
expected to continue for the foreseeable future.
There are, however, signs of possible changes in
the market that could affect future pricing of certain
products. Underwriters that have been offering sitespecific policies with terms of up to ten years are
experiencing pressure from reinsurers to limit terms
to five years or less. As a result, some insurers
have decided to write environmental coverage
without reinsurance treaties. This may affect some
real estate owners, especially where higher limits
($50 million or more) have typically been purchased.
It may also have an impact on other insureds that
have found the ten-year policies attractive if these
become more difficult to obtain. At least twenty
environmental insurers offer different forms of sitespecific insurance and pricing has been stable and
competitive.
Contractors Pollution Liability has not been under
pressure from reinsurers and remains a very
competitive segment for both practice and projectspecific programs. Policy terms of up to ten years
are available on project-specific policies for the
combined periods of construction and completed
operations coverage. More than fifteen markets
offer this type of insurance and pricing has been
stable and competitive.
Underground storage tank policies have been
difficult for underwriters to write on a profitable basis
and the market for this coverage is relatively limited.
Pricing is so low that it is difficult to review the
technical data and issue policies for the premiums
that are paid by tank owners and operators. As a
result, most UST policies are placed with a limited
number of insurers that handle the placements
through specialized facilities.
Coverage that is
available remains competitive, but some owners that
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have tanks in several states may experience

difficulty in keeping coverage with the same insurers
as market conditions change.
Two environmental insurers are offering to write
remediation cost-overrun (also known as Cost
Cap) insurance for projects where cleanup
programs are being undertaken. Beazley seeks to
insure contractors for the risks of cost overruns on
projects where the insured contractors are
performing remediation services. The insurer is
looking to issue polices where cleanup costs are
less than $10 million. Axis, on the other hand, wants
to insure cost overrun risks for property owners and
is offering a protective professional component in
conjunction with their cost containment policy that
will provide protection against errors and omissions
of engineers and consultants in specifying
remediation technologies. Axis will look at larger
projects with cleanup costs as high as $25 million.
Limits for cost overrun protection are $10 million on
both insurers policies. Both underwriters will write
this coverage only where there are approved
remedial action workplans and where competent
contractors are prepared to do the work based on
established cleanup budgets. Premiums will be at
least 10% of the limits offered and buffers above
expected costs will vary depending upon the quality
of site information, certainty of the remedial
technology and the contractors selected to perform
the work.
Underwriters from both of these
companies are looking at early submissions and are
still working toward issuance of their first cost
overrun policies.
The ability to offer coverage on a global basis has
been important to a number of Aons clients and the
ability of insurers to work outside the United States
varies greatly from insurer to insurer. Most of the
First-Tier Insurers can write policies with world-wide
coverage, but most do so only on an indemnity basis
for non-U.S. risks. A limited number of underwriters
can issue local environmental policies in a large
number of countries, including European Union
nations, China and India where many multi-national
corporations engage in either manufacturing or
commercial operations. The establishment of legally
compliant global insurance programs requires a
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broker with a comprehensive network of offices and

the ability to coordinate placements of environmental
coverage with insurers across the world.
As
regulatory schemes and enforcement activities
become more stringent, insurance coverage for
foreign environmental risks is expected to become a
more significant factor in our clients risk
management decisions.
Mergers and acquisitions continue to drive interest in
environmental insurance as a mechanism to contain
risks from historical operations of acquired sites or
entities. Buyers and sellers of individual properties,
portfolios of locations, or entire corporations use this
insurance to assure they are not assuming unlimited
potential liability for cleanups or toxic torts related to
operations of polluting industries.
Financial
institutions (banks, pension funds, insurance
companies and equity capital firms) making funds
available for these transactions typically require the
parties to investigate and insure environmental risks
where they are supporting the transactions.

Contact Information
John Welter Practice Leader
EVP & Managing Director
t: 832.476.5730
john.welter@aon.com
Veronica Benzinger - South
CBO & Managing Director
t: 561.253.2514
veronica.benzinger@aon.com
Gregory Schilz - West
National Sales Leader
& Managing Director
t: 415.486.7652
gregory.schilz@aon.com
Jeffrey Hanneman Southwest
Managing Director
t: 832.476.6853
jeffrey.hanneman@aon.com
Adrian Pellen - Northeast
Director
t: 212.441.2384
adrian.pellen@aon.com

Concluding Thoughts
Environmental insurance has become a standard
component of the risk management programs of
many U.S. and multi-national firms. Forms have
evolved to provide broad coverage for risks that
have been excluded from CGL and excess liability
insurance programs for nearly three decades and
pricing of environmental policies have been stable
and competitive.

Jamie Taylor - Central

Managing Director
t: 312.381.4226
jamie.taylor@aon.com

Aon is the leading provider of professional insurance

and risk management services in the environmental
market.
We place more coverage with
environmental insurers than any other broker and
continue to offer the expertise of a large group of
dedicated environmental specialists to our clients on
a global basis. As the market continues to grow, we
will provide advice to clients and prospects on the
latest developments in this dynamic segment of the
insurance industry.

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