Rate predictions: Environmental
| |
Trend |
Range |
| Contractors’ pollution liability (CPL) |
 |
+5% to +10% |
| Site pollution liability (PLL/EIL) |
|
+5% to +15% |
| Combined environmental + casualty/professional/excess |
|
+5% to +20% |
Key takeaway
As expected, the 2022 environmental marketplace is showing signs of growth even as adverse underlying market conditions (constricting site pollution capacity, rising claim severity) and the uncertainty of emerging exposures would suggest otherwise. At the same time, environmental insurance’s role in addressing ESG (environmental, social and governance) risk continues to expand.
Rates and markets
- We see a continuation of upper single-digit and low double-digit rate increases for short-term environmental renewals (three-year policy term or less) for an equal policy term — though a slight rise in these increases may be coming as carriers look to keep pace with the increasing costs of remediation and claims.
- Although rate increases have trended lower than other standard casualty lines for renewals with equal policy durations, longer-term environmental policies (greater than three years) are beginning to experience a notable hardening that manifests as a reduction in coverage appetite, policy term and capacity offered at renewal.
- Major markets continue to evaluate their underwriting appetites and look to reduce their exposure on existing programs where possible, while aggressive new entry (and new to retail) environmental markets are stepping in to replace this capacity — keeping any potential rate increases in check.
What’s new?
- ESG risk: The role of environmental insurance as a tool to address ESG-related matters will be contemplated and discussed with more vigor as regulatory disclosure rules in the U.S. and the rest of the world around ESG are promulgated.
- Climate: Environmental insurers are evaluating their books of business for insureds contributing to climate change. Those insureds are seeing a decline in available markets as well as higher rate increases as a result.
- Environmental justice: We are seeing increased regulatory enforcement of certain industries located in communities that are the focus of state and federal environmental justice initiatives. Regulators are filing lawsuits against these companies to enforce cleanup mandates, as well as for natural resource damages.
Innovation
- As the development of new analytical tools continues, companies will be able to utilize their own location and loss data to assess their global environmental exposures and cost of risk versus their peers — allowing them to make better decisions for their businesses and tailor their insurance programs to meet their needs.
- Extreme weather, climate change, human environmental disasters, biodiversity loss and natural resource crises continue to be among the highest exposures identified by the World Economic Forum in terms of impact. Accordingly, discussion and interest in coordinated programs to address resulting remediation and tort exposures (with traditional environmental insurance) and economic damages (with parametric insurance/alternative risk transfer) are increasing, with new coverage developments potentially on the horizon.
Coverage and claims spotlight
- PFAS: While environmental markets have focused on per- and polyfluoroalkyl substances (PFAS) since 2020, exposure is now faced by standard lines insurance markets for all lines of coverage, including property and products liability. As businesses with past or current exposure to PFAS risk increased activity from environmental regulators as well as third-party lawsuits, carriers are all but eliminating coverage for PFAS. We are seeing similar trends with other chemicals of concern, such as ethylene oxide, and we expect similar coverage restrictions for those chemicals in the near future.
- IAQ (indoor air quality): IAQ coverage for mold and Legionella has become more difficult to secure and is increasingly subject to sublimits, higher retentions and per-bed/door retentions for the healthcare and residential real estate sectors.
- Redevelopment: Claim activity related to redevelopment of brownfield properties continues — although carriers try to limit exposure by adding exclusions associated with historic fill, dewatering and voluntary site investigations.
- Stormwater: We are also seeing increased claim activity relating to stormwater run-off from construction sites, with claims brought by project owners, citizen action groups and regulatory agencies.
Disclaimer
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