Environmentally uninsured?

Some companies may be forced to operate in breach of new European environmental laws simply because no insurance products are available, warned Phil Bell, group casualty director, Royal and Sun Alliance (R&SA).

The new European environmental directive—due to be transposed into national law by the end of April this year but still unimplemented by most member states—stipulates compulsory financial security for environmental liability in some jurisdictions.

‘[In parts of Europe] if you are at risk of damaging the environment you have to take out insurance even though there are no such products on offer in those markets,’ cautioned Bell.

‘The picture across Europe is very muddled,’ he said.

The environmental liability directive provides a liability regime for environmental harm, primarily around protected species and natural habitats, arising from the actions of industry. Bell commented: ‘From an insurance point of view it’s quite an interesting challenge, given that most insurance policies historically have covered tangible assets such as damage to land and water.’

Only a few niche products are on offer currently because until the rules are passed into legislation it’s unclear exactly what the liabilities are. It’s likely to include multi party causation, proportional liability and cross border damages, said Bell.

‘For risk managers one of the big problems will be organising a pan European environmental liability programme and the danger posed by different rules within the same country,’ he said.

R&SA doesn’t currently offer firms a policy to cover the new risks because the UK is yet to publish firm proposals on what the law will look like. ‘It’s difficult to offer protection against an undefined liability,’ said Bell.

On measuring the financial cost of damages to an ecosystem, Bell reflected on the practice of compensating for pain and injury in personal injury claims: ‘I think anything can be quantifiable if you understand how it’s going to be dealt with by the competent authority.’

‘I think insurers are going to have to work closely with competent authorities and get a better understanding of how they are going to approach these kinds of losses,’ he advised.