Many insureds have historically relied on the pollution coverage provided under their general liability and property policies to manage their environmental risks, but there are significant limitations to these policies. (Credit: Onur/Adobe Stock)
Globally, we are experiencing increased climate-related natural catastrophes, and experts believe that fossil fuel dependency is contributing to the intensification and greater frequency of these events. Without significant changes, we can only expect the severity to increase, which will require society to adapt to a "new normal."
However, when faced with extreme challenges, the human spirit always prevails. Today, we are seeing more investment, research and innovation in green energy and conservation. The specialty insurance sector also is doing its part by developing products to help mitigate the risks associated with climate change, including Environmental Impairment Liability (EIL) coverage, which is becoming increasingly integral to a risk manager's insurance strategy.
Preparing for what's to come
Once considered a niche and obscure coverage, many now regard EIL as a vital piece of the climate change puzzle, especially as more companies incorporate Environmental, Social and Governance (ESG) policies into their strategy.
EIL is a specialized insurance policy that covers losses or damages arising from pollution events, thereby protecting companies affected by unforeseen environmental impacts. To date, many organizations have relied upon the pollution coverage provided under their general liability and property policies to manage their environmental risks. However, there are significant limitations to these policies, making EIL coverage more critical as businesses face greater scrutiny over the environmental impact they may be creating.
EIL in action
To spearhead the move to wind and solar power, significant infrastructure spend is required. This includes the construction of onshore and offshore wind turbines or solar fields, installation of electrical transmission lines and construction of transfer stations, all of which could be built in highly urbanized and/or historically contaminated areas.
This is where an EIL policy comes into play: It protects companies from the financial fallout of a pollution incident that may occur when developing alternative power sources.
EIL policies also are suitable for companies investing in waste-to-energy technologies. For example, we have several insureds that are engaged in projects to capture and reuse methane from landfills or excess natural gas from well heads for energy production. Historically, it was common for fumes to be emitted, adding to greenhouse gases in the atmosphere. Due to the unique environmental exposures that may be encountered while working in the waste management or the oilfield sectors, many of our insureds are contractually required to secure specialized environmental policies.
Projections of global Electric Vehicle (EV) sales may vary, however, there is no doubt that demand is growing, and lithium-ion battery production will expand as more EVs are produced and sold.
While EVs reduce the contribution to greenhouse gas, alternative environmental issues are created, especially as batteries reach their end-of-life use. As such, EIL policies are used to help insureds with risk transfer solutions associated with battery recycling and the disposal of various products at other third-party facilities. EIL insurance solutions continue to evolve, but its value is well-established along with its importance in helping to mitigate emerging risks associated with climate change.
Having an EIL policy allows sustainable energy development opportunities to proceed, while reducing the risk to an insured's balance sheet if a pollution incident requires cleanup, or results in third party bodily injury and/or property damage.
This insurance protection can help remove operational volatility as well as provide rapid access to experts in environmental remediation in a way other insurance products cannot. In short, should the worst happen, an EIL policy makes a company better equipped to respond, manage and minimize damage.
Innovation: The sustainability solution
Collectively, the insurance industry is working toward innovative solutions that will create a more sustainable and environmentally sound planet. Agents and brokers must talk with clients, trading partners and colleagues to bring clarity to these types of complex issues when navigating exposures associated with green energy and conservation projects.
When it's all said and done, we are all in this together and must collaborate on solutions to create a better world now and for future generations.
Michael Padula ([email protected]) is head of U.S. Environmental for Aspen Insurance. This article is published with permission from Aspen and may not be reproduced.
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