Environmental exposures

Bright spots exist for agents

By Dave Willis

When the American Recovery and Reinvestment Act of 2009 (Recovery Act) was passed nearly two years ago, billions of dollars were earmarked for environmental work—from site remediation to environmental restoration and infrastructure projects with environmental impacts. Those waiting for this funding to generate growth opportunities in the environmental consulting and environmental contracting insurance arena may be disappointed.

"I'm not sure the economic stimulus money has found its way to these businesses to any great degree," says Stacy Brown, president and managing partner of Denver-based Freberg Environmental Insurance, a program manager that develops, markets and underwrites environmental insurance programs. "We're not seeing a lot of evidence that it has resulted in a whole lot of new business." Any anticipated boost has been tempered by an increase in available insurance capacity.

"If we are seeing any increase, it's been somewhat masked by competition in the insurance marketplace right now," Brown adds. "In the past three years, the number of carriers writing environmental has more than doubled. At last count, something like 38 or 39 markets offer a variety of environmental coverages."

Environmental consultants and contractors typically need general liability, contractors pollution liability and professional liability. "That's where we're seeing the most competition right now," Brown notes. "It's pretty intense." The end result of increased competition and capacity, he adds, is an extended and deeper soft market for these businesses.

Site pollution coverage

All of that said, Brown does see some bright spots in the environmental arena. "One area where we are seeing a lot of growth is in environmental impairment liability or site-specific pollution coverage," he says, citing a number of reasons. First is general economic growth, slow as it may be.

"In particular, we're seeing some increase in real estate transactions," Brown explains. "Real estate companies kept their money on the sidelines, waiting to see how or when the economy would turn around. Now that the economy is showing some signs of growth, some of these companies are starting to take advantage of what is still very inexpensive capital and are starting to reinvest in real estate."

Site pollution coverage, which, among other things, protects property buyers in the event they discover a pollution condition after the sale is complete, is experiencing an uptick. "Also, because site pollution rating is not typically driven on an exposure basis, such as payroll or revenue, it's been a bit more resilient," Brown adds, "which is another reason it's a bright spot for us going forward."

The market for such coverage is broad, which also bodes well for continued growth. "While there are probably fewer than 100,000 environmental consultants and contractors doing business in the United States, the number of businesses with environmental permits or that manage a hazardous material is in the millions," Brown notes. "Market potential for site pollution coverage is at least ten-fold that of the consulting or contracting arena."

Retail agents and brokers looking for prospects don't need to go far to find a market for site pollution insurance. "A lot of Main Street businesses, like dry cleaners or gas stations or printing shops, have exposures," Brown explains. Others might include a general contractor with a storage tank in his yard or a company that does maintenance on vehicles—anything from portable equipment, like lawnmowers, to tractor trailers.

"These are not necessarily large businesses, but they have every bit as much of an environmental exposure as a larger facility," Brown notes. "It only takes a little oversight to cause a very expensive spill—one that could cost several thousand dollars to clean up." While some coverage may be included in existing business policies, often it's not. "Most facilities managing hazardous materials really don't have the coverage in place," he adds.

Recyclers, municipalities and more

Other potential growth areas include various recycling facilities. "In many cases, we can provide general liability as well as environmental coverage for these operations," Brown notes. "I see recycling as a growth area, as the green movement or environmental movement brings greater focus to the issue." Recycling goes beyond traditional municipal operations.

"Electronics recycling is a very big growth area right now, particularly since commodity prices are up right now for secondary metals, like copper, and even more precious metals, like gold," Brown explains. "As electronic parts are recycled, companies are recovering these metals and selling them on the marketplace." Some are more mature firms; many newer players have also entered the market.

The scrap industry is another bright spot. "We see a lot of businesses in the auto dismantling sector," Brown says. "These operations have become very sophisticated. They have machines called auto shredders that literally shred an entire automobile within a few seconds and sort the material. They're amazing technological facilities."

Market opportunities also exist in the municipal sector—one that is less affected by economic woes. "We're seeing a lot of landfills," Brown says. "A number of municipalities either own or operate landfills." Another focus is wastewater treatment plants. "A number of municipalities are seeking cover for their facilities," he adds.

Brown is also bullish on underground storage tanks. "There are 800,000 underground tanks in the country, and that's always a steady marketplace," he explains. "Actually, any environmental coverage that's regulatory-driven is going to be pretty sound. If you're an owner or operator of a gasoline station, where you're selling fuel, the EPA requires that you have financial responsibility—at least a million dollars of financial insurance protection." In Brown's view, insurance is one of the better ways to respond.

Even a caveman

Protecting environmental exposures can be a relatively easy endeavor for retail agents and brokers. "I think there's a misconception in the marketplace that, one, environmental coverage is complex and, two, that it is very expensive," Brown explains. "That's not necessarily true."

The complexity issue can be solved by working with a carrier that understands the coverage, he notes. "They have underwriters on staff who have real world experience. They may come from the environmental consulting industry, they often have environmental degrees, and they understand environmental regulations. Companies with that talent on staff are able to quickly understand exposures relative to a specific facility and easily explain the needed coverages to a broker who might not be conversant on the product."

For retailers interested in better serving the market, Brown has some rather simple, straightforward advice. "First and foremost," he says, "always listen to the needs of your customers. Ask questions, such as, 'Are you handling any type of material that is considered hazardous?' and, 'Are you required to have any environmental permits?'"

If the answer is "yes" to either of those, the business is most definitely a candidate for environmental insurance, Brown notes. "Again, the environmental insurance process is not overly complex if you're dealing with companies that are conversant with the coverage and with the regulations.

"A lot of times retailers will call us and say, for instance, 'We have a client that is an electroplater and we don't understand exactly what they're talking about in terms of regulations,'" Brown notes. "We can talk them through the various exposures and issues for those types of facilities. It's a rather simple, straightforward process for the agent or broker."

The author

Dave Willis is a New Hampshire-based freelance writer and regular Rough Notes magazine contributor.