As we have become a more eco-friendly society—focusing on ways to protect and preserve our environment—the market for environmental risk coverages has emerged as one of the clear growth-oriented areas of the insurance industry. Although the product has been available for some time in the surplus lines market, recent disasters like the April 2010 Deepwater Horizon oil spill have brought increased attention from brokers, carriers, and consumers.

“Environmental insurance first became available almost 30 years ago,” explains Jim Hamilton, a vice president with Crump Environmental Brokerage, a division of Crump Insurance Services. “In the late 80s and early 90s environmental insurance coverage was expensive because it was fairly new and there was not a lot of actuarial data on which to base rates. Much of the underwriting then was done by environmental engineers who set prices subjectively. But as we got into the mid- to late-90s, more actuarial data became available, and as a result the pricing for environmental insurance became much more objective.”

Bob Hallenbeck, senior vice president of sales and marketing with XL Insurance, Environmental, concurs. “Back in the 1980s we relied a lot more on taking educated guesses based on science rather than the fact-based underwriting that we are able to do today,” he says. “We have much more factual experience in assessing potential exposures to, let's say, an oil spill or groundwater pollution. Years of handling just about every kind of environmental claim imaginable has helped make pricing the product less complicated.”