Transcript Managing Environmental Risks and Liabilities ï

Managing Environmental
Risks and Liabilities –
Environmental Impairment
Liability Insurance
Cliff Warman
MARSH
Environmental Practice Leader for EMEA
Agenda
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Environment & business

Environmental risk management

Environmental Insurance

Emerging environmental risks
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Environment & business
The business lifecycle
How are
resources used?
Product commerciality
Climate change
Mergers & Acquisitions
Process change
What is the
environmental
strategy?
Operations
What is the
waste from the
process?
Permits and licenses
Recycling
End-of-life obligations
CO2 emissions reduction
Process efficiency
Energy and water use
Waste management
Strategy
Are liabilities
estimated?
Liabilities
Environmental KPIs
Corporate
Responsibility
Reporting
EMS
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How are
environmental
risks assessed,
managed and
reported?
Governance
What
decommissioning
or remediation will
be needed?
Decommissioning
Contaminated land remediation
Asbestos
Employee and contractor health
Pollution (uncontrolled emissions)
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Environment & business
Environmental risks and opportunities
Assess environmental
risks and opportunities
Map processes for utilising raw
materials, energy and water
Define commercial
position with respect to
regulations & markets
Process optimisation for
resources, energy and
water
Prioritise key
environmental
projects
Strategy
Risk management
procedures, &
responsibilities
Liabilities
Governance
Environmental
information systems
Environmental reporting and
disclosures
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Operations
Reduce waste &
emissions, and
increase recycling
Quantify liabilities for
remediation and
decommissioning
Manage remediation
and decommissioning
Manage long term liabilities for
aftercare
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Environmental Risk Management
Sources of environmental information
TECHNICAL
Environmental Assessment
Environmental Impact Assessment
Environmental audit
Phase I – Desk study
Phase II – Site investigation
Qualitative / quantitative risk assessment
LEGAL
Compliance with environmental legislation
Third party claims
Contract review
Warranties & indemnities
Sale & Purchase Agreements
LEGAL
Operational Risk Management
Discharge monitoring
Emissions monitoring
Energy and water efficiency
Environmental Management
Environmental Management System
FINANCIAL
Best Available Techniques
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FINANCIAL
Accounting provisions for decommissioning
or clean-up
Financial provisions – Bonds, Escrows,
Parent Company Guarantee
Performance bonds
Capital and operational expenditure budgets
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Environmental risk management
Taking a Strategic Approach
Strategic

Develop a risk based understanding of
potential impacts from ‘adverse
business events’;

Recognize that environmental risks do
not respect borders (operational or
geographical);

Monitor for changes in Regulation,
Liability Framework, Developing Case
Law and Shareholder Expectations;

Understand how risk are being
managed at a local level and drive
consistency across geographies;

Develop robust risk identification,
quantification, and management
protocols;

Understand the limitations of the
various risk management processes
and insurance arrangements and

Identify the gaps
Financial
Environmental
Risk
Management
Legal
Technical
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Environmental Risk Management
Risk management options
Financial
Legal
Technical
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Environmental risk management
Strategic use of insurance
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Governance
Liabilities
Operations
Insurance cover required:
Strategy
Insurance cover required:
Insurance cover required:
Insurance cover required:
Insurance cover required:
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Environmental Insurance
What is insurable?
1) - Compliance costs are NOT insurable
2) – Cover may be available under General or Public Liability
insurance for “pollution”
Usually GL & PL policies have pollution exclusions:
– Total pollution exclusion
– “Sudden & Accidental” cover only
What is “sudden and accidental” pollution?
Unlikely to cover “own-site” clean-up costs
Is off-site clean-up mandated by the
Environmental regulator covered?
- Bartoline Ltd v Royal Sun Alliance plc (2006)
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Environmental Insurance
Environmental Impairment Liability insurance
1)
- Site
Pollution Legal Liability insurance
What
is Specific
insurable?
“unknown”
pre-existing
&/or future
contamination.
2) - Covers
Contractor’s
Pollution
Liability
insurance

Losses / liabilities covered can include:
For liabilities
arising
from
new pollution (or the exacerbation of historic
3)- Clean-Up
Cost
Cap
insurance
– Statutory
and third
clean-up
costs: onand off-site.
pollution)
caused
byparty
contract
/ project
works.
–the
Third
party
property
damage
(including
loss of use, diminution in property value, and
 1),
Cap2)
cost
ofinknown
remediation
obligations.
Use
and
3)
Combined
programme
nuisance).
 Broadly
the same coverage triggers as for site-specific policies.
 Clean-up
Capbodily
on remediation
works
– Cost
Third party
injury
 Can be combined with a PI section / coverage to also cover the design
– Biodiversity Damage / Natural Resource Damage / Protected Species.
 Contractor’s
Liability
errors
& Pollution
omissions
risk. cover for remediation contractors
– First party business interruption losses.
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Site Specific
Pollution
Liability
cover
for site post-remediation
– Associated
legalLegal
and technical
defence
costs.

Policy periods of up to 10 years available for pre-existing pollution

Policy periods of up to 3 or 5 years for new pollution
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Emerging Environmental Risks
Environmental damage and biodiversity

European Union - Environmental Liability Directive
– EU wide framework to prevent and remediate damage to the
environmental based on the “Polluter Pays” principle
– Derives an inherent value to “the environment”, defined as protected
species and natural habitats, soil and water
– Prevention, remediation, complementary and/or compensatory action are
required
– Unlimited liability subject to proportionality principle
– Requires risk assessment and quantification of potential environmental
damage
– Not retroactive (start date is May 2007)
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Emerging environmental risks
Climate Change
Climate Change – Potential effects:

Weather
¯ increased property damage due to increased severity (higher winds,
bigger floods, longer droughts)
¯ more frequent severe weather events

Economy
¯ Damage to critical (social and supply chain) infrastructure
¯ Loss of business due to change in behaviour (tourism, geographical
avoidance)
¯ Disruption to supply chain

Agriculture
¯ Shorter growing seasons
¯ Crop failure
¯ Forest fires
¯ Increased pest incidence
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Emerging environmental risks
Climate Change
What is the insurance industry doing to assist ?

Raise awareness of climate change related risk issues to clients

Detailed risk analysis
– Research and forecasting (weather, flood, catastrophic incident,
epidemics, business interruption, supply chain)
– Development of focussed risk management strategies
– Provide specialist insurance products

Inform public policy making

Reduce the impact of business on the environment
Ref: Association of British Insurers
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Emerging environmental risks
“Climate proofing”

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Catastrophic weather risk cover
- Property damage
- Business interruption
Non – catastrophic weather risks
- Parametric loss of revenue
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Climate Change – “Climate friendly”

Renewable energy projects
– Construction phase

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
Construction All Risks
Delay in Start-up
Third Party Liability
– Operating phase
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Property Damage
Business interruption
Third Party Liability
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Emerging environmental risks
“Climate friendly”
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Carbon Emission Credit Delivery Guarantee
Carbon reduction
assessment
Feasibility
and financing
Construction
Validation and
registration
Carbon
transaction
Commissioning
Issue of
credits
Verification and
certification
Carbon
risks
Project
risks
CDM Project
Political risk
Counterparty
credit
Technology
risk
Resources and
supplies
Eligibility and
approval
Delay in
Start Up
Business
interruption
Natural
hazards
Validation and
Reporting
Carbon Emission
Credit Delivery
Guarantee
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Managing environment risks and liabilities
Summary

Environment is a real issue and requires Board Room attention

Risk assessment and active risk management, including the use of
insurance, is needed

Environmental insurance market is mature and has meaningful
capacity

New products are developing in response to emerging environmental
issues
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